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                      SECURITIES AND EXCHANGE COMMISSION 
                            WASHINGTON, D.C. 20549 
                                  FORM 10-K 

       (Mark One) 
       [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 
              OF THE SECURITIES EXCHANGE ACT OF 1934 

       For the fiscal year ended December 31, 1996 

                                      OR 

       [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 
              OF THE SECURITIES EXCHANGE ACT OF 1934
 
       For the transition period from               to 

                        Commission file number 1-10392 

                            U.S. Bioscience, Inc. 
            (Exact name of registrant as specified in its charter) 

                 Delaware                                     23-2460100 
       (State or other jurisdiction                        (I.R.S. Employer 
     of incorporation or organization)                    Identification No.)
 
             One Tower Bridge 
             100 Front Street 
           West Conshohocken, PA                                19428 
 (Address of principal executive offices)                     (Zip Code) 

      Registrant's telephone number, including area code: (610) 832-0570 

Securities registered pursuant to Section 12(b) of the Act:
 
                                                     Name of each exchange on 
                  Title of each class                    which registered 
                  -------------------                ------------------------
             Common Stock ($.01 par value)            American Stock Exchange 
Warrants to purchase Common Stock ($.01 par value)    American Stock Exchange 
           Preferred Stock Purchase Rights            American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: 
                                     None 
                               (Title of class) 

   Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days. Yes.  X    No. 
                                                   -----    ------

   Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K. [X] 

   As of March 4, 1997, the aggregate market value of the voting stock held 
by non-affiliates of the registrant was $286,927,000*. 

   As of March 4, 1997, the number of outstanding shares of the registrant's 
Common Stock was 22,916,680. 

                     DOCUMENTS INCORPORATED BY REFERENCE 

Part III--Portions of the registrant's definitive Proxy Statement with 
          respect to the registrant's 1997 Annual Meeting of Stockholders, to 
          be filed not later than 120 days after the close of the 
          Registrant's fiscal year. 

------ 
* Calculated by excluding all shares held by executive officers, directors 
  and five percent shareholders of the registrant without conceding that all 
  such persons are "affiliates" of the registrant for purposes of the federal 
  securities laws. 
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                                     PART I

Item 1.  Business.

         Forward-Looking Statements.

         This report on Form 10-K contains forward-looking statements concerning
the business and financial conditions of the company, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in any forward-looking statements. Factors
that could cause such differences include, but are not limited to, the success
of the company and its collaborative partners in marketing, manufacturing and
selling the company's products, the availability of adequate funds for the
company's operations, the success of the company in obtaining timely regulatory
approvals to market its potential products in the United States and other major
markets, the success of the company in obtaining rights to new compounds for
commercial development, policies relating to product pricing and reimbursement
levels in the markets where the company's products are or may be commercialized,
technological change and competition, the incidence of disease for which the
company's products are indicated, the product liability risks associated with
being the manufacturer or seller of pharmaceutical products, and the company's
reliance on its key personnel and collaborative partners.

         The following discussion should be read in conjunction with Part II of
this Form 10-K and the Consolidated Financial Statements and notes to the
Consolidated Financial Statements on pages F-1 to F-20.

         General

         U.S. Bioscience, Inc., a Delaware corporation (the "company"), is a
pharmaceutical firm established in 1987 which seeks to develop and market drugs,
principally drugs for treating patients with cancer, acquired immune deficiency
syndrome ("AIDS") and allied diseases and infections. The company has, through
licensing agreements, rights to nine drugs for the treatment of these diseases.
Three drugs have received approval for marketing in the United States by the
United States Food and Drug Administration ("FDA"), Hexalen(R) (altretamine),
NeuTrexin(R) (trimetrexate glucuronate for injection) and Ethyol(R)
(amifostine); three are in various stages of clinical trials, AZQ, PALA and
FddA; and three are in preclinical testing, WR-151327, Third Generation
Platinums and Mitomycin-C Analogues. For a description of the steps required
before a drug may be marketed in the United States see "Government Regulation."

         In December 1990, the FDA approved the company's New Drug Application
("NDA") for Hexalen(R), a drug for the treatment of advanced ovarian cancer.
Commercial sales of Hexalen commenced in the United States in January 1991. See
"Principal Products - Hexalen."

         On February 1, 1993, the company filed an NDA for NeuTrexin(R) for the
treatment of Pneumocystis carinii pneumonia ("PCP"), an infection primarily
associated with AIDS. This application was the subject of a joint review by the
FDA and the Canadian regulatory authority, the Health Protection Branch ("HPB").
The application was approved by the FDA and the HPB in December of 1993, and
commercial sales of NeuTrexin commenced in the United States in January 1994. At
its September 1994 meeting, the European Union's ("EU") Committee for
Proprietary Medicinal Products ("CPMP") recommended NeuTrexin for approval in
the EU. As of February 28, 1997, NeuTrexin has received local health regulatory
approval in many EU countries. See "Principal Products - NeuTrexin."

         In September 1991, the company submitted to the FDA an NDA for a
chemotherapy protection indication for Ethyol. The NDA was approved by the FDA
on December 8, 1995 for reducing the cumulative renal (kidney) toxicity
associated with repeated administration of cisplatin in patients with advanced
ovarian cancer. On March 15, 1996, the company's supplemental NDA was approved
by the FDA under the Accelerated Approval Regulations to include use in patients

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with non-small cell lung cancer for the reduction of cumulative renal damage
associated with repeated administration of cisplatin-based chemotherapy. For a
discussion of approval under the Accelerated Approval Regulations see
"Government Regulation." A dossier describing Ethyol's chemoprotection
properties was submitted to the CPMP in September 1992. At its September 1994
meeting, the CPMP recommended Ethyol for approval by its member countries to
reduce the neutropenia related risk of infection (e.g. neutropenic fever) due to
the combination regimen cyclophosphamide and cisplatin in patients with advanced
(FIGO Stage III or IV) ovarian cancer. The CPMP recommended an expanded
indication on July 29, 1996, to include protection of patients with advanced
solid tumors of non-germ cell origin from cumulative nephrotoxicity of cisplatin
and cisplatin-containing regimens, where unit doses of cisplatin range from
60-120 mg/m2, in conjunction with adequate hydration measures. As of February
28, 1997, Ethyol has received local health regulatory approval in many EU
countries. See "Principal Products - Ethyol."

         The objective of the company is to become an important participant in
the worldwide pharmaceutical market for oncologic and AIDS drugs. To achieve
this objective, the company's strategy to date has been to acquire exclusive
licenses in the United States and certain other markets for therapeutic agents
that the company believes have potentially significant commercial and clinical
value in the treatment of cancer, AIDS and allied diseases. The company's
primary emphasis has been on "late-stage" drugs, which are drugs having an
established preclinical or clinical database and for which development by the
company will consist largely of further preclinical testing, clinical trials and
the preparation of applications for regulatory approval. By acquiring rights to
drugs that have undergone some degree of development and for which preclinical
and clinical information exists, the company believes that it will be able to
reduce the costs, risks and time involved in bringing drugs to market. The
company's long-term strategy focuses on the licensing, development and
commercialization of anticancer and AIDS drugs currently in the early stages of
research.

         The three most common methods of treating patients with cancer are
surgery, radiation therapy and systemic therapy. Systemic therapy consists
principally of chemotherapy and hormonal therapy. Chemotherapy involves the
administration of cytotoxic drugs designed to kill cancer cells. In addition to
seeking to develop these types of cancer-killing drugs, the company, like some
of its competitors, is seeking to develop drugs that augment the efficacy or
reduce the toxicity of other chemotherapeutic agents.

         Hormonal therapy is based on the fact that the growth of certain
tumors, such as breast cancer, prostate cancer and endometrial cancer, is
dependent upon the availability of endogenous hormones, such as estrogen and
androgen. The use of measures to either reduce the production of, or block the
action of, these hormones represents a form of systemic treatment for these
diseases. Typically, when compared to chemotherapy, hormonal therapy produces a
lower incidence and severity of side effects.

         Anticancer drugs can be toxic to normal cells as well as cancer cells,
causing unwanted side effects. For many cancer drugs, therapeutic dosage for
cancerous tissue is close to the toxic dose. Thus, drugs that could selectively
protect normal cells could be of significant medical benefit. Development of
systemic therapeutic products for treating cancer or used in connection with
treatment of cancer requires laborious preclinical and clinical testing to
satisfy government regulation and medical ethics. As a consequence, the
development of successful drugs for these purposes often requires five to ten
years of preclinical and clinical testing. See "Government Regulation."

         The Human Immunodeficiency Virus ("HIV")/Acquired Immune Deficiency
Syndrome ("AIDS") treatment market can be divided into two segments. The
antiretroviral segment includes those therapies which specifically target the
HIV virus, such as nucleoside analogues like zidovudine (AZT), didanosine (ddI),
zalcitabine (ddC) and lamivudine (3TC), and protease inhibitors, such as
saquinavir, ritonavir and indinavir. The second segment of the HIV/AIDS
treatment market includes those agents which prevent or treat AIDS-related
opportunistic infections, including, PCP, tuberculosis, candidiasis etc.
          
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         During the last two decades, significant advances in molecular biology,
immunology and other related fields of biotechnology have led to an improved
understanding of how malfunctioning genes lead to the development of certain
tumors, and to an appreciation of the body's own regulatory systems to control
this process. It is hoped that this area of biotechnology will lead to better
ways to diagnose cancer, to identify those predisposed to develop the disease
and to prevent tumors from forming or becoming malignant. The company believes,
however, that systemic therapy will continue to make an important contribution
to the treatment of cancer. It is also hoped that this area of biotechnology
will lead to better ways to treat HIV/AIDS and the opportunistic infections
associated with AIDS. In view of ongoing developments in the oncologic market
and the general nature of scientific research, no assurance can be given that
the nature of the oncologic market or the HIV/AIDS market or the method of
treating cancer patients or AIDS patients will not undergo significant change.

         Marketing and Distribution

         The company has entered into an exclusive distribution and marketing
agreement with ALZA Corporation ("ALZA") for its drug Ethyol for the U.S.
market. Under the terms of this agreement the company will co-promote Ethyol
with ALZA in the United States. See "Principal Products - Ethyol - Distribution
and Marketing Agreements". The company currently co-promotes Hexalen and
NeuTrexin in the United States under an agreement with ALZA. See "Principal
Products - Hexalen - Distribution and Marketing Agreements". It is the company's
intention to determine the most appropriate commercial arrangements for
marketing its drugs in various territories on a case-by-case basis.

         Opportunities exist for the registration and commercialization of the
company's products in some foreign countries. Since the company cannot, at this
time, practically market drugs on its own in most territories outside of the
United States, the company has, with respect to certain of its drugs, entered
into licensing and distribution arrangements, covering markets where the company
does not currently plan to utilize its own sales organization. Some of these
agreements provide signing fees and/or milestone payments to the company, some
provide that the company will sell its drug product at pre-negotiated prices
under the agreement and some provide royalties to the company based upon future
sales, if any, of licensed drugs. The extent to which the company derives
meaningful revenues from these arrangements will be dependent upon, among other
things, the ability to obtain product approvals and the licensees' and
distributors' ability to market and sell the licensed drugs in their respective
markets.


Principal Products

         The company's products reflect its strategy of building a portfolio of
drugs for the treatment of patients with cancer that represent a diverse group
of modalities, including cancer-attacking cytotoxics (Hexalen, NeuTrexin, AZQ,
third generation platinum anticancer agents, and Mitomycin-C analogues);
cytoprotectors (Ethyol and WR-151327); and modulators (NeuTrexin and PALA). The
company's products also reflect its strategy of building a portfolio of drugs
for the treatment of AIDS and AIDS-related diseases or infections. The
company's drug NeuTrexin is commercially available for treatment of PCP, an
infection primarily associated with AIDS. The company has licensed FddA, and its
active metabolite FddI, which are reverse transcription inhibitors being
evaluated for use in the treatment of HIV and AIDS. See "Principal Products -
FddA."

         Hexalen(R) (altretamine/hexamethylmelamine)

         General Description. Hexalen is an orally administered cytotoxic drug
that was cleared for marketing by the FDA in December 1990 for use as a single
agent in the palliative treatment of patients with persistent or recurrent
ovarian cancer following first-line therapy with cisplatin and/or alkylating
agent-based combination chemotherapy. Until December 26, 1997, Hexalen has
marketing exclusivity in the United States for advanced ovarian cancer under the
Orphan Drug provisions of the Food, Drug and Cosmetic Act. See "Orphan Drug
Status."

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         Marketing. The company co-promotes Hexalen with ALZA Corporation under
the terms of a Co-Promotion Agreement dated May 21, 1996. Under the terms of
that agreement, the company directs the marketing program. The company's
approximately fifteen-person sales force and ALZA's approximately
forty-five-person sales force co-promote Hexalen to health care providers who
treat ovarian cancer. The marketing program consists of direct mail, symposia
and promotion to prescribing physicians. Hexalen is distributed through
pharmaceutical wholesalers and is prescribed by oncologists treating ovarian
cancer. Sales of Hexalen were adversely affected in 1996 due, the company
believes, to the promotional emphasis placed on the launch of Ethyol and new
therapies that were introduced in the United States during 1996 which compete
with Hexalen for ovarian cancer patients. There can be no assurance that sales
of Hexalen will recover to the level achieved prior to the introduction of these
competitive products. In the United States the company has obtained a registered
trademark for Hexalen, the company's brand of altretamine. The company is also
pursuing trademark registrations for Hexalen in a number of foreign countries.

         As of February 28, 1997, Hexalen has been approved outside the United
States for treatment of ovarian cancer in 18 countries, including Germany,
Canada, the United Kingdom, Australia, Israel, Sweden, China, South Korea, Egypt
and Hong Kong. Commercial sales of Hexalen in these countries will be through
distribution or license arrangements. To date, commercial sales of Hexalen
outside the United States have not been material.

         License of Hexalen to the company. The company's rights to Hexalen are
derived from an assignment of rights regarding Wyeth Laboratories, Inc.'s
("Wyeth") NDA. In return, the company is required to pay royalties to Wyeth on
worldwide sales by the company or its licensees of any product containing
altretamine. The company also has a licensing agreement with Rhone-Poulenc Rorer
for rights to applications, registrations and approvals relating to their brand
of altretamine (Hexastat(R)) in Canada, Germany, Italy, The Netherlands, Israel
and the Czech Republic. The licenses expire in 2001 with respect to Canada and
2002 with respect to the other countries. In commercializing Hexalen in these
markets, if and when regulatory approvals are obtained, the company will be
required to pay royalties to Rhone-Poulenc Rorer on sales of Hexalen by the
company or its licensees or distributors in countries covered by the licensing
or distribution agreements. There can be no assurance that dossiers will be
submitted in those countries or that regulatory approvals will be obtained.

         Orphan Drug Status. Under the terms of the Orphan Drug Act, Hexalen has
United States marketing exclusivity for its FDA approved indication for a period
of seven years from approval of its NDA (i.e., the FDA may not approve another
altretamine product for that indication during the seven-year period). Such
exclusivity expires in December, 1997. See "Orphan Drug Status," "Government
Regulation," and "Patents, Trademarks, and Trade Secrets."

         Distribution and Marketing Agreements. In May 1996, the company entered
into a co-promotion agreement with ALZA Corporation to co-promote the company's
products, Hexalen and NeuTrexin, in the United States. Under the terms of this
agreement, the company pays ALZA a commission, which is based upon a percentage
of net sales of Hexalen and NeuTrexin in the United States above a base level of
sales. The commission payment is subject to an annual minimum and the commission
percentage increases as net sales increase. Under the terms of the agreement,
ALZA's sales force co-promotes Hexalen and NeuTrexin and the company makes sales
of both products to wholesalers and distributors. The agreement may be
terminated at any time on six months notice by either party after June 30, 1998.
At the end of the co-promotion term, the agreement provides for ALZA to be paid
residual commission payments for a term which varies based on the reasons for
termination. The residual commissions are based on a percentage of net sales
during the residual period, subject to a maximum payment of a decreasing
percentage of actual commission payments made to ALZA under the agreement during
the co-promotion period.

         The company has entered into distribution or licensing agreements for
Hexalen with a number of pharmaceutical companies for territories outside of the
United States. The company has licensed its rights for Hexalen in Scandinavia to
Swedish Orphan AB ("Swedish Orphan"). Commercial sales of Hexalen commenced in

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Sweden during the second quarter of 1993. The company has licensed its Hexalen
rights in Australia and New Zealand to F.H. Faulding & Co. Limited ("Faulding").
It has licensed its rights in Israel to Teva Pharmaceutical Industries, Ltd.
("Teva"). In addition, the company has licensed its rights for Japan, South
Korea and Taiwan to Kanebo, Ltd. ("Kanebo"). The licensees are required to pay
the company royalties based on their net sales for up to ten years after their
first commercial sale of the product. In 1996, the company entered into a
distribution agreement with Teva for the sale of Hexalen in 14 eastern European
and three South American countries. Under the agreement with Teva, the company
will supply Hexalen to Teva at an agreed upon supply price. In January 1997, the
company signed an agreement with Canton Pharmaceuticals (USA), Inc. ("Canton")
for distribution of Hexalen in China and Hong Kong. Under the terms of that
agreement, the company sells Hexalen to Canton at a supply price which decreases
as volume sales of Hexalen increase in China.

         The company has entered into an exclusive marketing and distribution
agreement for Hexalen with Societe de Conseils, de Recherches et d'Applications
Scientifiques ("SCRAS"), an affiliate of Beaufour IPSEN, for the United Kingdom,
Germany and The Netherlands with rights of SCRAS to extend the territory to
Belgium, Ireland, Italy, Luxembourg, Portugal, and Spain for a term of up to
seven years. Under the terms of the agreement, the company supplies Hexalen to
SCRAS at negotiated prices.

         The company has entered into an exclusive distribution and marketing
agreement with Eli Lilly InterAmerica, Inc., an affiliate of Eli Lilly and
Company, for Hexalen in Canada. Under the terms of the agreement another
affiliate of Eli Lilly and Company, Eli Lilly Canada Inc. ("Eli Lilly Canada")
has rights to distribute and market Hexalen in Canada for five years and under
certain circumstances will have the right to extend the agreement for an
additional five years. The company supplies Hexalen to Eli Lilly Canada at an
agreed upon supply price.

         There can be no assurance that the company will derive meaningful
revenues from any of these arrangements.

         Manufacturing. The company is dependent on third party suppliers for
the manufacture of Hexalen. The company has one approved source of altretamine
drug substance and two approved sources for the finished dosage form of Hexalen.
See "Government Regulation."

         NeuTrexin(R) (trimetrexate glucuronate for injection)

         General Description. NeuTrexin is a lipid-soluble intravenously
administrable analogue of methotrexate, a commonly-used anticancer agent. In
December 1993, the FDA approved the company's NDA, and the HPB granted
commercial clearance, for NeuTrexin with concurrent leucovorin administration
(leucovorin protection) as an alternative therapy for the treatment of
moderate-to-severe PCP in immunocompromised patients, including patients with
AIDS, who are intolerant of, or are refractory to, trimethoprim-sulfamethoxazole
therapy or for whom trimethoprim-sulfamethoxazole is contraindicated. In
September 1994, the CPMP recommended approval for NeuTrexin with concurrent
leucovorin administration (leucovorin protection) as an alternative therapy for
the treatment of moderate-to-severe Pneumocystis carinii pneumonia in patients
with AIDS who are intolerant of or refractory to standard therapy or for whom
standard therapy is contraindicated. NeuTrexin was designated a "high tech" drug
under the CPMP's Concertation Procedure which provided for concurrent review of
the dossier by the then twelve members of the EU and provides up to ten years of
regulatory exclusivity in the EU markets upon approval. Following the positive
CPMP recommendation, the company has applied for local regulatory approvals in
the EU member countries. As of February 28, 1997, local health regulatory
approvals for NeuTrexin have been received in Denmark, France, Germany, Ireland,
Luxembourg, the United Kingdom, Spain, Greece, Sweden, Portugal and The
Netherlands.

         Marketing. The company launched its NeuTrexin marketing program in the
United States during early 1994. During 1996, the company entered into a
co-promotion agreement with ALZA Corporation to co-promote NeuTrexin in the 

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United States. Under the terms of that agreement, the company directs the
marketing program. The company's approximately fifteen-person sales force and
ALZA's approximately forty-five-person sales force promote NeuTrexin to health
care providers who treat PCP. The marketing program consists of direct mail,
symposia and promotion to prescribing physicians by the company's and ALZA's
sales representatives. NeuTrexin is distributed through pharmaceutical
wholesalers and is prescribed by physicians treating PCP. Commercial sales of
NeuTrexin in the United States commenced in January 1994. Sales of NeuTrexin
declined in 1996 compared to 1995 due, the company believes, to the promotional
emphasis placed on the launch of Ethyol, and a decline in the incidence and
severity of PCP due to improvements in treatment for HIV and prophylactic
treatment for patients at risk for PCP. In the United States the company has
obtained a registered trademark for NeuTrexin, the company's brand of
trimetrexate glucuronate. The company is also pursuing trademark registrations
for NeuTrexin in a number of foreign countries.

         Clinical Trials. The company is investigating NeuTrexin as an
anticancer agent. A Phase II study of escalating doses of NeuTrexin in
combination with 5-FU and leucovorin in patients with colorectal cancer who had
previously failed 5-FU based chemotherapy was conducted at Memorial
Sloan-Kettering Cancer Institute. Based on positive results from this trial, a
multicenter Phase II trial of NeuTrexin in combination with 5-FU and leucovorin
in 36 patients with metastatic colorectal cancer was conducted. This study also
provided positive results and the company is continuing to investigate NeuTrexin
for colorectal cancer. In follow-up, two Phase II trials in previously treated
colorectal cancer patients and two randomized controlled Phase III trials of
5-FU and leucovorin with and without NeuTrexin have been initiated. There can be
no assurance that these trials will result in data sufficient to support any
application for regulatory approval of NeuTrexin for cancer treatment.
Pharmacologic properties of NeuTrexin also suggest possible applications in the
management of non-neoplastic diseases such as psoriasis and rheumatoid
arthritis. Research into topical and oral formulations of NeuTrexin is underway.
The development of these dosage forms will facilitate clinical research not only
in patients with diseases such as AIDS and cancer, but may also allow for an
extended role for NeuTrexin in patients with benign diseases (such as psoriasis
and rheumatoid arthritis), although no assurance can be given that such trials,
if conducted, will yield approved indications.

         Licenses of NeuTrexin to the Company. The company has obtained an
exclusive license to the United States Government's U. S. patent claiming a
method of treating PCP with trimetrexate. The term of exclusivity is seven years
from the first commercial use of the product. After this period of exclusivity,
the company also has a non-exclusive license until the last of the licensed
patents expires. Under the terms of its agreement with the United States
Government, the company is required to pay royalties based on net sales of
NeuTrexin. Pursuant to an agreement with Warner-Lambert Company
("Warner-Lambert"), the company has obtained an exclusive worldwide license to
manufacture and market NeuTrexin for use in cancer or PCP under the patent
rights and know-how held by Warner-Lambert, including a composition of matter
patent on the form of NeuTrexin approved for commercial sale. Under the
agreement, the company is required to pay to Warner-Lambert royalties based on
net sales of NeuTrexin. The agreement may be terminated by Warner-Lambert in a
country outside the United States if commercial sales are not commenced in such
country by the first anniversary of the date on which NeuTrexin could legally be
sold in such country.

         Patents and Orphan Drug Status. As noted above, the company has
licensed, on an exclusive basis, Warner-Lambert's NeuTrexin patents, including
those relating to composition of matter and manufacturing processes. One of
those patents, a composition of matter patent on the form of NeuTrexin approved
for commercial sale, was issued March 15, 1983 and, pursuant to new legislation,
will be entitled to a term of 20 years from the date of the first U.S. filed
application for that patent, October 31, 1980. Pursuant to the Drug Price
Competition and Patent Term Restoration Act of 1984, an application has been
filed and a certificate granted which extends the term of the patent for 1,286
days, a period relating to the time NeuTrexin was under review by the FDA.
Therefore, the extended expiration date for this patent is May 9, 2004. The
company has rights to the foreign counterparts of this U.S. Patent in many

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European markets. These foreign counterpart patents were filed in 1981 and are
due to expire in 2001. The company is applying for supplementary patent
protection in the EU countries where health regulatory approvals for NeuTrexin
have been received and where there is a foreign counterpart patent. Such
supplementary protection may be granted for a period of up to five additional
years; however, there can be no assurance that supplementary protection will be
granted for any such patent or that, if granted, the extension will be for the
full term requested. As of January 15, 1997, supplementary protection has been
granted in France, Luxembourg, the United Kingdom and Sweden each for a five
year term.

         The company also has an exclusive license in the United States for a
U.S. Government patent claiming a method of treating PCP infection with
trimetrexate. See "Principal Products --NeuTrexin-- Licenses of Trimetrexate to
the Company."

         Upon approval of the NDA for NeuTrexin in December 1993, the product
received seven years' marketing exclusivity under the Orphan Drug Act for the
approved PCP indication. NeuTrexin is also designated as an orphan drug for the
treatment of metastatic colorectal adenocarcinoma, metastatic carcinoma of the
head and neck, pancreatic adenocarcinoma and advanced non-small cell carcinoma
of the lung. If the company obtains the first NDA approval for the product for
any of these indications, NeuTrexin would be eligible for seven years of orphan
marketing exclusivity for such approved indications. See "Government
Regulation," "Patents, Trademarks, and Trade Secrets," and "Orphan Drug Status."

         Distribution and Marketing Agreements. In May 1996, the company entered
into a co-promotion agreement with ALZA Corporation to co-promote the company's
products NeuTrexin and Hexalen in the United States. See "Principal Products -
Hexalen - Distribution and Marketing Agreements."

         The company has entered into an exclusive distribution agreement with
Eli Lilly InterAmerica, Inc. for the sale of NeuTrexin in Canada. The company
has entered into an exclusive distribution agreement with SCRAS for NeuTrexin
for the PCP indication for Belgium, France, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain and the United Kingdom. Under both
of those agreements, the company sells NeuTrexin at an agreed upon supply price.
The company has licensed its rights for NeuTrexin in Scandinavia to Swedish
Orphan for seven years. Swedish Orphan is required to pay royalties to the
company based on net sales of the product. In addition, the company has licensed
its rights in over 35 countries in Latin America and Asia, the "Latin
America/Asia Territories" to an affiliate of Schering-Plough Corporation
("Schering"), Schering Overseas Ltd. ("Schering Overseas"). Under the terms of
this agreement, Schering Overseas is required to pay the company royalties and
consulting fees based on net sales of NeuTrexin for up to ten years after first
commercial sale of the product. Under certain circumstances, Schering Overseas
may incur certain payment obligations for an additional five years after such
ten year period.

         There can be no assurance that the company will derive meaningful
revenues from any of these arrangements.

         Manufacturing. The company partially relies on third party
manufacturers to supply NeuTrexin. The company has contracted with an approved
source of drug substance as well as an approved source of finished product for
NeuTrexin. In addition, the company's manufacturing plant located in Nijmegen,
The Netherlands has received Dutch regulatory approval to manufacture the
finished dosage form of NeuTrexin. The company supplies the EU markets with
NeuTrexin manufactured at its Nijmegen manufacturing plant. The company has
received FDA approval of its Nijmegen facility as a drug manufacturer for
NeuTrexin for commercial sale in the United States. The company supplies the
United States market with NeuTrexin manufactured primarily at its Nijmegen
manufacturing plant and continues to purchase NeuTrexin for the United States
market from its approved third party manufacturer.

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         Ethyol(R) (Amifostine/WR-2721)

         General Description. Ethyol is an injectable agent for which the
company's NDA was approved by the FDA in December 1995 as a selective
cytoprotective agent to reduce the cumulative renal (kidney) toxicity associated
with repeated administration of cisplatin in patients with advanced ovarian
cancer.

           On March 15, 1996, the company's supplemental NDA was approved by the
FDA under the Accelerated Approval Regulations as a modification of the Ethyol
indication to include treatment of patients with non-small cell lung cancer for
the reduction of cumulative renal toxicity associated with repeated
administration of cisplatin. Products approved under the Accelerated Approval
Regulations require further adequate and well-controlled studies to verify and
describe clinical benefit. The company has a clinical trial ongoing which the
company anticipates may fulfill this requirement; however, there can be no
assurance that the company's ongoing clinical trial will verify the clinical
benefit of Ethyol for this indication. In the event the clinical trial fails to
verify the clinical benefit of Ethyol for this indication, the FDA may, under
certain circumstances, withdraw approval of this indication. See "Government
Regulation."

         The CPMP originally recommended the company's drug Ethyol for approval
at the CPMP meeting held on September 13, 1994. Ethyol was recommended to reduce
the neutropenia related risk of infection (e.g. neutropenic fever) due to the
combination regimen cyclophosphamide and cisplatin in patients with advanced
(FIGO State III or IV) ovarian cancer. On July 26, 1996, the CPMP approved an
expanded indication to include protection of patients with advanced solid tumors
of non-germ cell origin from cumulative nephrotoxicity of cisplatin and
cisplatin-containing regimens, where unit doses of cisplatin range from 60-120
mg/m2, in conjunction with adequate hydration measures. As of February 28, 1997,
Ethyol has received approvals from EU member countries from the local health
regulatory authorities in Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Luxembourg, The Netherlands, Portugal, Spain and the United Kingdom.

         Ethyol was approved for commercial sale in Canada in April, 1996 and
launched by an affiliate of Eli Lilly and Company in August, 1996. See
Ethyol--Distribution and Marketing Agreements.

         In December 1996, after reviewing a chemistry and manufacturing
supplement to the Ethyol NDA, the FDA cleared for marketing a room temperature
crystalline form of Ethyol. This crystalline form of Ethyol is claimed in issued
United States patents. See "Ethyol - Patents, Orphan Drug Status and NDA
Exclusivity." The company intends to make crystalline Ethyol commercially
available in the United States in 1997 through its exclusive distributor in the
United States, ALZA.

         Marketing. Through an agreement with ALZA, Ethyol was launched in the
United States in April, 1996. Under the terms of the agreement with ALZA, ALZA
has exclusive marketing rights to Ethyol in the United States. ALZA's marketing
program consists of direct mail, journal advertising, symposia and promotion to
prescribing physicians by ALZA's approximately forty-five-person sales force
with co-promotion by the company's approximately fifteen-person sales force.
Ethyol is sold by the company to ALZA, and then ALZA sells Ethyol to
distributors and wholesalers which supply Ethyol for prescription sales. In the
United States the company has obtained a registered trademark for Ethyol, the
company's brand of amifostine. The company is also pursuing trademark
registrations for Ethyol in a number of foreign countries.

         Clinical Trials. The company has an ongoing clinical trial it is
hopeful will fulfill the FDA's requirement that products approved under the
Accelerated Approval Regulations undergo further adequate and well-controlled
studies to verify and describe clinical benefit. See "Principal Products -
Ethyol - General Description" and "Government Regulation." The company is also
continuing to investigate the use of Ethyol to protect normal tissues from the
toxic effects of certain forms of chemotherapy and radiation therapy in a number
of tumor types without reducing the antitumor effects of these modalities. The

                                        8
<PAGE>

company is also investigating Ethyol's potential role as a bone marrow stimulant
in myelodysplastic bone marrow syndromes ("MDS"). MDS is a condition in which
the bone marrow is typically ineffective in its production of the major
elements-red blood cells, neutrophils and platelets. No assurance can be given
that the results of these clinical studies will support additional regulatory
filings or approvals for Ethyol.

         Additional Phase II and Phase III trials investigating Ethyol as a
radio-protective agent are ongoing in the United States and Europe. The company
anticipates filing regulatory dossiers for Ethyol's use as a radio-protective
agent, if satisfactory data results, when these studies are complete. No
assurance can be given that the results of these clinical trials will support
regulatory filings or that an application for regulatory approval for Ethyol as
a radiation protectant, if submitted, will be approved.

         Additional International New Drug Submissions. In Europe, the company
is in the process of seeking registration of an Ethyol dossier in the countries
comprising the European Free Trade Association ("EFTA") (Austria, Finland,
Iceland, Liechtenstein, Norway, Sweden and Switzerland). As of February 28,
1997, within the EFTA region, the company has achieved approval for Ethyol in
Switzerland, Austria and Finland (Austria and Finland are now member states of
the EU). No assurance can be given that the remaining EFTA applications, if
submitted, will be approved. Through its marketing partner for the Far
East/Latin American Territory, Schering Overseas, dossiers have been submitted
in numerous countries in that territory. Within the Far East/Latin American
Territory, as of February 28, 1997, Ethyol was approved for commercial sale in
Argentina, Chile, Hong Kong, India, Mexico and Uruguay. While additional
regulatory approvals for Ethyol are being pursued throughout the Far East/Latin
American Territory, there can be no assurance that additional approvals will be
received. Ethyol was approved in South Africa in March, 1996, Australia in
August, 1996 and Israel in October, 1996.

         License of Ethyol to the company. The company's exclusive rights to
develop and market Ethyol on a worldwide basis were derived from an agreement
with the Southern Research Institute ("Southern Research"), a not-for-profit
research institution. Effective May 1, 1993, the agreement was amended and
restated to clarify the company's royalty obligations to Southern Research under
various sublicense and distribution arrangements (the "Restated and Amended
Ethyol Agreement"). Pursuant to the Restated and Amended Ethyol Agreement, the
company is required to pay Southern Research a royalty on net sales of Ethyol or
any pharmaceutical composition containing Ethyol for a period of ten years
following the first commercial sale in a given country. Under certain
circumstances, the company is required to pay Southern Research a reduced
royalty rate on net sales of Ethyol for an additional five years. The agreement
is for a term of fifteen (15) years from the date of first commercial sale on a
country-by-country basis.

         Patents, Orphan Drug Status and NDA Exclusivity. The original United
States composition of matter patent on Ethyol expired in July 1992. The company
has developed proprietary new dosage forms of crystalline amifostine and a novel
method for manufacturing crystalline amifostine. The company has a patent from
the U.S. Patent and Trademark Office for a method of manufacturing crystalline
amifostine and the resulting dosage form utilizing such method of manufacture of
crystalline amifostine. The company also has a U.S. patent on crystalline
amifostine dosage forms which patent claims are independent of the method of
manufacture. Both patents expire in July 2012. The company has foreign
counterpart patent applications pending, however there can be no assurance that
such patent applications will result in issued patents in foreign jurisdictions.

         Upon approval of the NDA for Ethyol in December 1995, the product
received seven years' marketing exclusivity under the Orphan Drug Act for the
approved indication, ovarian cancer. Ethyol has also been designated as an
orphan drug for use as a chemoprotective agent for cyclophosphamide in the
treatment of advanced ovarian carcinoma, and as a chemoprotective agent for
cisplatin in the treatment of metastatic melanoma. If the company obtains the
first NDA approval for the product for either of these indications, Ethyol would
be eligible for seven years of orphan marketing exclusivity for such approved
indication.

                                        9
<PAGE>

         In addition, upon approval of the NDA for Ethyol, the product became
entitled to a period of marketing exclusivity under the Food, Drug, and Cosmetic
Act. Under the relevant provision of that Act, if an NDA is approved for a drug
that has not been the subject of any prior NDA approval, no Abbreviated New Drug
Application ("ANDA") referring to that drug may be submitted for five years from
the date of the NDA approval (or four years if the drug is covered by a patent,
unless the ANDA applicant challenges the patent). Because Ethyol is the first
amifostine product to receive an NDA approval, it is entitled to protection
against FDA approval of an ANDA for a period of five years, plus the time
required for the FDA to review and approve an ANDA for the product. This
exclusivity does not, however, prohibit the submission or FDA approval of
subsequent full NDA's by other sponsors based on such sponsors' separate
clinical investigations. See "Government Regulation," "Patents, Trademarks and
Trade Secrets," and Orphan Drug Status."

         Distribution and Marketing Agreements. The company has entered into an
exclusive marketing and distribution agreement with ALZA for Ethyol in the
United States. Under the terms of the Agreement, ALZA has exclusive rights to
market Ethyol in the United States for five years and is responsible for sales
and marketing; the company's sales force co-promotes the product with ALZA.
Under the terms of this agreement, the company sells Ethyol to ALZA at a price
based on a percentage of the net sales price of Ethyol in the United States.
After the five-year period, which ALZA has an option to extend for one year,
marketing rights to Ethyol revert to the company, and ALZA will receive payments
from the company for ten years based on sales of Ethyol in the United States.

         The company has entered into an exclusive marketing and distribution
agreement with Scherico Ltd., ("Scherico") a subsidiary of Schering, for Ethyol
in the countries comprising the EU and EFTA (the "European Territories"). Under
the original terms of its agreement with Scherico, the company was to share in
operating profits/losses (as defined in the agreement) generated from marketing
and sales of Ethyol in Germany, United Kingdom, Spain, Italy and France (the
"Major Markets") for a period of up to two years from November 23, 1994, the
date of approval of Ethyol in the United Kingdom. As of August 31, 1996, the
company and Scherico amended their agreement. Under this amendment, the company
no longer shares in operating profits/losses, but rather, Scherico purchases
Ethyol from the company at a price based on a percentage of the net sales of
Ethyol in the Major Markets. Under the amendment, Scherico paid the company $4.2
million.

         Under the terms of the agreement, as amended, Scherico's exclusive
rights to market the product will continue for seven years from January 1, 1997.
The company may co-promote Ethyol with Scherico for the two years following such
seven year period. Thereafter, the company will reacquire sole marketing rights.
Under certain circumstances Scherico is required to pay the company milestone
payments as regulatory approvals, if any, are obtained. There can be no
assurance that milestone payments will be made to the company under the
agreement. After reacquiring sole marketing rights, the company will pay
Scherico a percentage of net sales, if any, from the European Territory for a
period of three years. Under the terms of the agreement, the company supplies
Ethyol to Scherico. The contract provides that Scherico may terminate the
agreement at any time by providing 180 days written notice to the company of its
desire to terminate the agreement. There can be no assurance that the agreement
will not be terminated by Scherico. Sales of Ethyol to Schering for the European
Territory have been gradually increasing, however, there can be no assurance
that sales will continue to grow.

         In a separate agreement, the company has licensed Ethyol to Scherico
for territories comprising Eastern Europe, Australia, New Zealand, Iran, Iraq,
South Africa, Botswana, Namibia and Zimbabwe (the "Eastern
Europe/Africa/Australia/New Zealand Territories"). Under this agreement,
Scherico is required to pay the company royalties and consulting fees for
fifteen years following the date of first commercial sale of Ethyol in these
territories. Scherico paid milestone payments to the company upon approval of
Ethyol in Australia and South Africa. The agreement provides Scherico with the
right to negotiate for additional products the company wishes to introduce into
those territories.

                                       10
<PAGE>

         The company has licensed Ethyol to Schering Overseas in the Latin
America/Asia Territories. Schering Overseas purchases Ethyol from the company
and is required to pay the company royalties and consulting fees for ten years
following the first commercial sale of the product. Schering Overseas may incur
certain payment obligations for an additional five years under certain
circumstances.

         The company has granted exclusive distribution rights for Ethyol in
Canada to Eli Lilly Interamerica, Inc. an affiliate of Eli Lilly and Company and
Eli Lilly Canada Inc., ("Eli Lilly Canada"). Under the terms of the agreement,
Eli Lilly has exclusive rights to distribute Ethyol in Canada for five years and
under certain circumstances will have the right to extend the agreement for an
additional five years. The company supplies Ethyol to Eli Lilly Canada at an
agreed upon supply price.

         In Israel, the company has licensed Ethyol to Teva. Ethyol was approved
in Israel in October, 1996. Under this license, Teva is required to pay the
company royalties on net sales of Ethyol in Israel for a period of ten years
following the first commercial sale of the product.

         The company is seeking a marketing partner for Ethyol for Japan, South
Korea and Taiwan.

         There can be no assurance that the company will derive meaningful
revenues from any of these arrangements.

         Manufacturing. The company relies on an approved third party source for
supply of drug substance for Ethyol. The company's facility located in Nijmegen,
The Netherlands has been approved by the FDA to manufacture Ethyol for the
United States market. The company's Nijmegen facility has also been approved by
the Dutch regulatory authorities to manufacture Ethyol for commercial sale in
Europe. In addition, the company has an agreement with an approved contract
manufacturer to produce the finished dosage form of Ethyol for the United States
and international markets.

         AZQ (Diaziquone)

         General Description. AZQ is an intravenously administered anticancer
agent which crosses the "blood-brain barrier" and penetrates the central nervous
system. AZQ has been under investigation in clinical studies as a treatment for
gliomas (brain tumors) and acute leukemia.

         Clinical Trials. Clinical trials of AZQ have been conducted under the
auspices of the National Cancer Institute ("NCI") for the treatment of gliomas
and adult acute leukemia, and as an agent for treating patients prior to bone
marrow transplantation. The company is evaluating the data from the NCI trials
to ascertain its usefulness in a possible regulatory submission. It may also
elect to initiate additional clinical trials for AZQ for these indications, but
no decision has been reached as to whether such trials will be conducted. There
can be no assurance that the results of these clinical trials or the NCI data
will lead to the filing or approval of an NDA.

         License of AZQ to the company. The company obtained an exclusive
license from the United States Government to market AZQ in the United States.
The term of exclusivity is until March 1998. Thereafter, the company will have a
non-exclusive license until the last of the licensed patents expires. The
company is required to pay royalties to the United States government based on
net sales of AZQ.

         Patents. A composition of matter patent for AZQ and two patents for the
use of AZQ as an antitumor agent are held by the United States Government. The
composition of matter patent will expire in 1997 and the use patents expired in
March, 1996. See "Government Regulation," "Patents, Trademarks and Trade
Secrets."

         Manufacturing. AZQ for investigational use has been produced by third
party contractors for the NCI. The company has identified a source for

                                       11
<PAGE>

development and manufacture of AZQ drug substance for commercial supply with
which the company is negotiating a supply agreement. No assurance can be given
that the company will reach agreement with a third party for supply of AZQ. To
date all AZQ used in clinical trials has been supplied by the NCI.

         FddA

         General Description. Under the terms of an agreement with the National
Institutes of Health of the United States Public Health Service, the company
received a worldwide exclusive license to the United States government's patent
rights for use of the compounds FddA and its active metabolite, FddI, for the
treatment of HIV infection, HIV-related infection or HIV-related disease in
humans. FddA is an acid stable, purine-based reverse transcriptase inhibitor
that in preclinical studies compared favorably to AZT against HIV in comparative
studies conducted in SCID (immune-deprived) mice. In in vitro laboratory studies
of HIV, FddA has not demonstrated cross-resistance to three commercially
available treatments for AIDS (AZT, ddI, ddC) and has shown synergistic activity
with AZT.

         Clinical Trials. Both the company and the NIH intend to pursue the
clinical development of FddA. The NCI has filed an Investigation New Drug
Application and initiated a phase I clinical study of FddA in 1996. The company
has not yet begun a clinical trial of FddA. There can be no assurance that the
clinical trials will lead to the filing of a regulatory application for approval
of FddA, and if such an application is filed, that any such application would be
approved. FddA is in the very early stages of clinical development. There are
numerous risks associated with development of a new drug. For a description of
the steps required before a drug may be marketed in the United States see
"Government Regulation."

         License of FddA to the Company. The Company obtained a worldwide
exclusive license from the United States Government for FddA for the field of
use for treatment of HIV infection, HIV-related infection or HIV-related disease
in humans using FddA or FddI. The license extends until the expiration of the
last to expire of the Licensed Patents under the agreement. Under the terms of
the agreement, the company is required to pay the government royalties on sales
of FddA and FddI.

         Patents. The government has filed patent applications covering, inter
alia, FddA and FddI in the United States Patent and Trademark Office and in
certain foreign jurisdictions. A United States patent has issued to the
government on February 27, 1996 covering compositions of matter for, inter alia,
FddA and FddI. A United States Patent issued to the United States government on
October 15, 1996 covering methods of using FddA to treat a human infected with
HIV and/or AIDS. A United States Patent issued to the United States government
on August 9, 1994 covering synthesis of FddA. The company has an exclusive
license to these patents. See "License of FddA to the Company."

         See "Government Regulation," "Patents, Trademarks and Trade Secrets"
and "Orphan Drug Status."

         Manufacturing. The company has had FddA manufactured in limited
quantities to prepare for early clinical trials. The company intends to rely on
a third party source for supply of FddA. The company is in the process of
identifying a drug substance and drug product manufacturer for larger quantities
of FddA for any larger clinical studies that might be conducted.

               PALA Disodium Salt (Sparfosate Sodium)

         General Description. PALA disodium salt ("PALA") is an injectable drug
for which clinical studies to evaluate its ability to enhance the activity of
certain chemotherapeutic agents, in particular, fluorinated pyrimidines have
been conducted. The most extensively used fluorinated pyrimidine is 5-
fluorouracil ("5-FU"), which is employed in the treatment of colorectal, breast
and upper gastrointestinal (stomach and pancreas) cancers.

                                       12
<PAGE>

         Clinical Trials. Both the company and the NCI initiated Phase III
clinical trials of PALA plus 5-FU in the United States in 1989. The company has
also conducted a Phase II clinical trial of PALA and 5-FU in Canada, and a Phase
III clinical trial of 5-FU/ methotrexate plus PALA in the United Kingdom and
other European countries for patients with advanced colorectal cancer. To date,
the company has not filed any application for regulatory approval of PALA and
there can be no assurance that the company will file any application for
regulatory approval for PALA or that, if any such application is filed, that
regulatory approval will be obtained for PALA.

         License of PALA to the company. Under an agreement with Warner-Lambert,
the company has been assigned all of Warner-Lambert's United States patent
rights (to the extent that such rights exist) and international patent rights to
the PALA Patents (as defined below). The company has also obtained a
non-exclusive license to the United States Government rights. The company is
required to pay certain royalties to the United States Government and
Warner-Lambert under these agreements.

         Patents and Orphan Drug Status. The United States Government and
Warner-Lambert have asserted the United States rights to a United States
composition of matter patent for PALA which expires in 1997 and to three other
patents, two of which are composition of matter patents and one of which is a
process patent, which expire from 1996 to 1999 (collectively, the "PALA
Patents"). In addition, the company has filed patent applications in the United
States and certain foreign countries to cover the use of PALA for the treatment
of the viral conditions described above. A patent issued in the United States on
February 13, 1996 covering methods of using PALA in the treatment of certain
primary and secondary viral infections. In addition, the company has filed a
divisional application in the United States directed to compositions of matter
containing PALA and other therapeutic agents, and to methods of treating or
preventing certain viral infections. However, there can be no assurance that the
company will continue to pursue these patent applications or if pursued, that
patent(s) will be granted for the subject matter in the PALA foreign patent
applications or the United States divisional patent application.

         Distribution and Marketing Agreements. The company has granted Teva an
option to license PALA for Israel. If the option is exercised, Teva will be
required to pay the company royalties on its net sales of PALA until the later
of (i) ten years after their first commercial sale of the product or (ii) the
expiration of any patent with respect to PALA held by the company on the date of
first commercial sale. The company has licensed PALA to Schering Overseas in the
Latin America/Asia Territories. Schering Overseas is required to pay the company
royalties and consulting fees for ten years following the first commercial sale
of the product. Schering Overseas may incur certain payment obligations for an
additional five years under certain circumstances.

         There can be no assurance that the company will derive meaningful
revenue from any of these arrangements.

         Manufacturing. The company has a development agreement with Ganes
Chemicals Inc. to manufacture the PALA drug substance and with Ben Venue
Laboratories for the manufacture and testing of the finished dosage form.

Drugs in Preclinical Development

         The following drugs are in varying stages of preclinical development by
the company. While the company believes that these drugs may have efficacy in
the treatment of cancer, significant research and development, including
clinical testing, will be required to develop these drugs. There can be no
assurance that these drugs will prove to be safe and effective in clinical
trials. Moreover, other obstacles, including the ability to manufacture the
drugs, must also be surmounted. In addition, in certain cases, licenses under
which the company has obtained the drugs require the achievement of development
milestones by the company. There is no assurance that these milestones will be
met.

                                       13
<PAGE>

         WR-151327. WR-151327 is a second generation chemotherapy and radiation
therapy protective agent. Unlike Ethyol, a first generation protective agent
that has been administered intravenously, WR-151327 is administered orally. The
United States, European, Canadian and Australian patent offices have allowed a
patent application claiming the use of WR-151327 to reduce toxicities of certain
forms of chemotherapy.

         Third Generation Platinum Anticancer Agents. The company's third
generation platinum anti-cancer agents comprise a group of cytotoxic drugs
intended for use in treating ovarian, testicular, head and neck, lung and
certain other cancers. Although the two approved platinum compounds currently on
the market have demonstrated efficacy as anticancer agents, widespread usage of
these compounds has been limited by their toxicity to normal cells. The company
has licensed the rights to four U.S. patents owned by Georgetown University with
respect to its series of third generation platinum anticancer agents.

         The company has granted an option to license certain of its foreign
rights to WR-151327 and third generation platinum anticancer agents to Teva in
Israel and granted certain of its foreign rights to WR-151327 to Schering
Overseas in the Latin America/Asia Territories.

         Mitomycin-C Analogues. Under the terms of an agreement with the Vincent
T. Lombardi Cancer Center at Georgetown University, the company received a
worldwide exclusive field of use license to a series of analogues of
mitomycin-C. Mitomycin-C is an anticancer agent used for the treatment of
gastrointestinal cancer and breast cancer. The company has licensed the rights
to two Georgetown University U.S. patents relating to Mitomycin-C analogues.
However, under the terms of its agreement with Georgetown, if the company did
not meet certain development benchmarks, Georgetown retained the right to revoke
such license rights. The company has not met those benchmarks and there can be
no assurance that the failure to meet the benchmarks will not result in a
revocation of such license rights by Georgetown.

Other License Options

         Pursuant to its license agreement with Scherico, the company has
granted to Scherico a right to negotiate in good faith to license company
products for the Eastern Europe/Africa/Australia/New Zealand Territories covered
by the license agreement.

         Pursuant to its distribution agreement with SCRAS, the company has
granted SCRAS an option to commercialize Hexalen in six EU countries.

Research and Development

         Research. The company does not currently have proprietary research and
preclinical development facilities since its initial strategy has emphasized the
acquisition of drugs and related therapies that have demonstrated some potential
value in preclinical testing or clinical trials. The company does have
facilities where the company conducts analytical chemistry in support of its
regulatory applications and product development. The company's clinical studies,
designed to provide the rigorous clinical testing required before a new drug can
be approved by the FDA, are conducted by physicians, generally under clinical
study agreements with the company. The company is dependent upon the ability of
the investigating physicians to accrue patients to its sponsored clinical
studies.

         Development. The company has established relationships with numerous
preclinical programs in the United States and Europe for the purpose of
conducting its preclinical research and development programs.

         Research and development expenses were $14,383,300 for 1996,
$12,186,000 for 1995, $17,607,900 for 1994, and $99,546,400 for the period May
7, 1987 (inception) to December 31, 1996.

                                       14
<PAGE>

Marketing

         The market for chemotherapeutic drugs is highly concentrated and
comprised principally of oncologists practicing in cancer treatment centers,
large hospitals and private medical practices. The decision to use such drugs is
primarily an individual physician's decision, and marketing efforts are focused
on individual oncologists who prescribe such drugs. The market for intravenous
therapies for PCP is concentrated in about 120 hospitals which are found
primarily in major metropolitan areas. The use of such drugs may require
acceptance onto an individual hospital's formulary. The company's marketing
efforts are directed at prescribing physicians, pharmacists, and members of the
formulary committees at these hospitals.

         In the United States, the company's marketing efforts are focused on
approximately 5,500 physicians. This audience is comprised of two general
physician groups, oncologists and physicians who treat PCP. With respect to
Hexalen, the company has directed most of its marketing efforts to approximately
4,000 physicians who have prescribed Hexalen at some point since its
introduction or have reasonable potential to prescribe Hexalen. With respect to
NeuTrexin, the company has directed its marketing efforts to approximately 1,500
specialists who treat PCP. Under the terms of its co-promotion agreement with
ALZA for Hexalen and NeuTrexin, the company is responsible for directing the
marketing program for these products. See "Principal Products - Hexalen -
Marketing." The company uses its own sales force of approximately fifteen
representatives plus ALZA's approximately forty-five person sales force to
personally contact as many of those physicians as possible. Under the terms of
its agreement with ALZA for Ethyol, ALZA has exclusive marketing rights to
Ethyol. Thus, ALZA directs the marketing program in the United States for
Ethyol. See "Principal Products - Ethyol - Marketing."

         Hexalen and NeuTrexin are supplied through pharmaceutical wholesalers
in the United States. Representatives of the company have contacted wholesalers
by mail and have visited major wholesalers personally to establish account
relationships and distribution channels. It is normal and customary in the
pharmaceutical business in the United States for wholesalers and distributors to
be able to return pharmaceutical products that remain unsold at their expiration
date. It is generally the company's policy to accept return of out-of-date
pharmaceutical products which the company has sold to the wholesalers and
distributors for direct end-market sales. These returns are accepted under terms
and conditions set by the company.

         To commercialize its products outside the United States, the company
has entered into agreements with other companies. See "Principal Products -
NeuTrexin - Distribution and Marketing Agreements" "Principal Products - Hexalen
- Distribution and Marketing Agreements" and "Principal Products - Ethyol -
Distribution and Marketing Agreements."

         The company had five employees engaged in marketing and business
development activities in addition to its specialty-oriented sales force in
1996. Staff expansions may be required upon the expansion of indications for
previously approved drugs or the approval of other products currently in
development.

Competition

         The sales potential of a pharmaceutical product is dependent upon
numerous variables, including efficacy, toxicity, trends in current treatment
regimens, established treatment algorithms, ease of incorporation into
combination regimens, reimbursement, pharmacoeconomic impact, clinical data,
price, acceptance by physicians, marketing, distribution and competitive
products. The availability of patent protection or marketing exclusivity
afforded by orphan drug status or regulatory exclusivity afforded by the Food,
Drug and Cosmetic Act, and the ability to obtain expanded labeling are also
critical. See "Government Regulation."

                                       15
<PAGE>

         The company is engaged in a business that is highly competitive. Many
companies, including well known pharmaceutical companies, are marketing
anticancer drugs and drugs for the treatment of AIDS and allied diseases and
seeking to develop new products and technologies for the treatment of cancer,
AIDS and allied diseases. Many of these drugs, products and technologies are, or
may be, in the future, competitive with the company's drugs. Many of these
companies have substantially greater financial, technical, manufacturing,
marketing and other resources than the company and may be better equipped than
the company to develop, market and manufacture these therapies. In addition,
many such companies have had significantly greater experience both in
undertaking preclinical testing and human clinical trials of new or improved
pharmaceutical products and in obtaining the approval of the FDA or other
regulatory authorities to market products for health care. Accordingly, the
company's competitors may succeed in obtaining regulatory approval of such
products before the company obtains approval of its own products. The company is
also competing with respect to marketing capabilities and manufacturing
efficiency. No assurance can be given that drugs developed by the Company will
be able to compete successfully against therapies already established in the
marketplace or against therapies which may result from advances in biotechnology
or other forms of therapy that may render the company's drugs less competitive
or obsolete. In addition, the company's drug may become subject to generic
competition at such times that generic applications for drug approval may be
filed and approved by the FDA.

         In the United States, the company believes that Bristol-Myers Squibb
Company holds the largest share of the chemotherapy market both in terms of
approved products and annual sales, and therefore dominates the market place.
Other companies maintaining an active oncology marketing and sales presence
include Schering-Plough Corporation, Pharmacia & Upjohn, Zeneca (a subsidiary of
Imperial Chemical Industries PLC), Hoffman-La Roche, Immunex Inc. (a subsidiary
of American Home Products), Amgen, Inc., Chiron Corporation, Rhone-Poulenc Rorer
S.A., Eli Lilly and Company and SmithKline Beecham p.l.c.

         In the United States, Glaxo Wellcome, Inc., Hoffman-LaRoche, Inc.,
Pharmacia & Upjohn, Inc., Gensia, Inc. and Fujisawa Pharmaceutical Co., Ltd.
participate in the PCP market.

         Other groups active in anticancer and AIDS research include
universities and public and private research institutes. These institutions are
becoming increasingly competitive in recruiting personnel from the limited
supply of highly qualified clinical physicians, academic scientists and other
professionals. However, the company believes that such institutions represent an
important source of novel compounds for in-licensing, since often their mission
does not include bringing compounds to market and/or they generally lack the
capabilities to do so.

Manufacturing

         The company has a small volume parenteral manufacturing facility in
Nijmegen, The Netherlands, to manufacture the company's injectable drug
supplies. The plant has undergone an intense validation and qualification
program aimed at regulatory approval for commercial manufacturing and testing.
The Nijmegen manufacturing facility received approval of the Dutch regulatory
authorities and is now able to manufacture Ethyol and NeuTrexin for commercial
sale in Europe. The Nijmegen manufacturing facility has also been inspected by
the FDA and approved as a manufacturing site for NeuTrexin and Ethyol for
commercial sale in the United States. The company relies on third parties to
manufacture drug substance for all of its products and to a decreasing, but
still important extent, on third parties to manufacture its finished drug
products under contract. There can be no assurance that third party
manufacturers will give the company's orders highest priority, or that the
company would be able to readily find a substitute manufacturer if one were
needed on short notice. See "Principal Products" for information regarding
manufacturing of the company's products.

                                       16
<PAGE>

Distribution and Marketing Agreements

         The company commercializes all three of its marketed products through
various contractual arrangements with other companies and, therefore, the
company is highly dependent on its contractual partners for sale of its drug
products. No assurance can be given that the companies with which the company
has entered into contractual arrangements to sell its products will give the
company's products sufficiently high priority. See "Principal Products." In
addition, there may be disagreements or disputes that may arise between the
company and its commercial partners which could materially adversely affect the
sale of the company's products.

Patents, Trademarks and Trade Secrets

         Proprietary protection for the company's products is important for the
company's business. The patents obtained by the company's licensors and those
obtained by the company are expected to provide some degree of protection for
the company's products, although the scope and validity of patent protection is
uncertain.

         The company actively seeks patent protection both in the United States
and abroad for its proprietary technology. In addition to seeking its own
patents, the company has entered into license agreements with various
pharmaceutical companies and research, educational and governmental institutions
to obtain certain patent rights from them for the purpose of developing,
manufacturing and selling potential products using the compounds and
technologies protected by these patents. See discussion of the patent rights
under "Principal Products." Under these agreements, the company is obligated to
pay royalties of varying rates based upon, among other things, levels of
revenues from the licensed products. Generally, the agreements continue for a
specified number of years or as long as any licensed patents remain in force,
absent breach of the terms of the agreements or termination of the agreements.
See the discussion of the various license agreements under "Principal Products."

         A number of significant changes in the United States patent laws were
mandated by the North American Free Trade Agreement ("NAFTA") and the General
Agreement on Tariffs and Trade ("GATT"). Legislation enacting these treaties has
been passed into law. The term of exclusive rights afforded by a United States
patent has historically been a period of 17 years measured from the date of
grant. Under the new legislation, the new term of United States patents will
commence on the date of grant, and terminate 20 years from the date on which the
patent application was filed in the United States. Existing patents and future
patents granted on an application filed before June 8, 1995, will have a term
that is the longer of twenty years from the filing date or seventeen years from
the date of grant. If a patent issues from a continuation-in-part, divisional or
continuing application, the 20-year patent expiration date is measured from the
filing date of the earliest United States priority application relied on by the
applicant. This change will affect the term of any patent granted on
applications filed subsequent to June 8, 1995, including patents which
ultimately mature from existing applications, if they are refiled as
continuations or continuations-in-part after June 8, 1995.

         Under the Drug Price Competition and Patent Term Restoration Act of
1984, a United States product patent or use patent may be extended for up to
five years under certain circumstances to compensate the patent holder for the
time required for FDA regulatory review of the product. The benefits of the Act
are available only to the first approved use of the active ingredient in the
drug product and may be applied only to one patent per drug product. See
"Principal Products -- NeuTrexin -- Patents and Orphan Drug Status." This law
also establishes a period of time following FDA approval of certain new drug
applications during which other sponsors may not submit an ANDA for the drug.
There can be no assurance that the company will be able to take advantage of
either the patent term extension or market exclusivity provisions of this law.

                                       17
<PAGE>

         No assurance can be given that any patent issued to, or licensed by,
the company will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds is particularly
uncertain. No assurance can be given that the company's patents will afford
protection against competitors with similar compounds or technologies, that
others will not obtain patents claiming aspects similar to those covered by the
company's patents or applications or that the patents of others will not have an
adverse effect on the ability of the company to do business. Moreover, the
company believes that obtaining foreign patents may be more difficult than
obtaining domestic patents because of differences in patent laws and recognizes
that its patent position, therefore, may be stronger in the United States than
abroad. In addition, the protection provided by foreign patents, once they are
obtained may be weaker than that provided by domestic patents.

         In addition to seeking the protection of patents and licenses, the
company also relies on trade secrets to maintain its competitive position. It is
the practice of the company to enter into confidentiality agreements with
employees, consultants and licensees. No assurance can be given, however, that
these measures will prevent the unauthorized disclosure or use of such
information.

         Hexalen, Ethyol and NeuTrexin are registered United States trademarks
of the company.

Orphan Drug Status

         Pursuant to the Orphan Drug Act, the FDA may designate a drug intended
to treat a "rare disease or condition" as an "orphan drug". "Rare disease or
condition" is one which affects less than 200,000 people in the United States,
or which affects more than 200,000 people but for which the cost of development
and making available the drug will not be recovered from sales of the drug in
the United States. Upon approval of an NDA for an orphan drug, such drug may be
eligible for exclusive marketing rights in the United States for designated and
approved indications for seven years. Orphan drugs may also be eligible for
federal income tax credits for certain clinical trial expenses. The company
holds orphan drug designations for Hexalen for advanced ovarian cancer; for
Ethyol for use as a chemoprotective agent against cisplatin and cyclophosphamide
in the treatment of ovarian cancer and for use as a chemoprotective agent for
cisplatin in the treatment of metastatic melanoma; and for NeuTrexin for PCP,
metastatic colorectal cancer, metastatic head and neck cancer, non-small cell
lung cancer and pancreatic cancer. See "Principal Products."

         The company may receive marketing exclusivity for an orphan drug only
if it is the sponsor of the first NDA approved for the drug for an indication
for which the drug was designated as an orphan drug prior to the approval of the
NDA. Therefore, unlike patent protection, orphan drug status does not prevent
other manufacturers from attempting to develop the drug for the designated
indication or from obtaining NDA approval prior to approval of the company's
NDA. If another sponsor's NDA for the same drug and the same indication is
approved first, that sponsor is entitled to exclusive marketing rights if that
sponsor has received orphan drug designation for the drug. In that case, the FDA
would be prohibited from approving the company's application to market the
product for the relevant indication for a period of seven years. If another
sponsor's NDA for the same drug and the same indication is approved first, but
that drug has not been designated as an orphan drug, the FDA would still be
permitted to approve the company's NDA.

         The company believes that several of its products in addition to
Hexalen, Ethyol, and NeuTrexin may qualify for designation as orphan drugs.
There can be no assurance, however, that such other products will receive orphan
drug status. Moreover, possible amendment of the Orphan Drug Act by the United
States Congress and possible reinterpretation by the FDA are the subject of
frequent discussion. Legislation to limit exclusivity in some respects was
passed by Congress, but vetoed by the President in 1990. FDA regulations
reflecting certain other limitations and procedures went into effect in January
1993. Therefore, there is no assurance as to the precise scope of protection
that may be afforded by orphan drug status in the future, or that the current
level of exclusivity and tax credits will remain in effect.

                                       18
<PAGE>

Government Regulation

         The production and marketing of the company's products and its research
and development activities are subject to comprehensive regulation by various
federal, state and local authorities in the United States and governmental
authorities of other countries. In particular, the FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, quality control, advertising and promotion of the
company's products.

         A new drug may not be marketed in the United States until it has
undergone rigorous testing and been approved by the FDA. The drug may then be
marketed only for the specific indications, uses, formulation, dosage forms, and
strengths approved by the FDA. Similar requirements are imposed by foreign
regulators upon the marketing of a new drug in their respective countries.

         The steps required before a drug may be marketed in the United States
include (a) preclinical laboratory and animal tests, (b) submission to the FDA
of an application for an Investigational New Drug exemption (an "IND"), which
must become effective before human clinical trials may commence, (c) human
clinical trials to establish the safety and efficacy of the drug, (d) the
submission of a detailed NDA to the FDA, and (e) FDA approval of the NDA. In
addition to obtaining FDA approval for each product, each establishment where
the drug is to be manufactured for sale in the United States must be registered
with the FDA. Domestic manufacturing establishments must comply with current
good manufacturing practices ("GMP") and are subject to periodic inspections by
the FDA. Foreign manufacturing establishments also must comply with GMP and are
subject to periodic inspection by the FDA and/or by local authorities under
agreement with the FDA.

         Preclinical tests include laboratory evaluation of product chemistry
and animal studies to assess the potential safety and efficacy of the product.
Products must be formulated according to GMP, and preclinical tests must be
conducted by laboratories that comply with FDA regulations regarding Good
Laboratory Practices. The results of preclinical tests are submitted to the FDA
as part of an IND, which must become effective before the sponsor may conduct
clinical trials in human subjects. Unless the FDA objects to an IND, the IND
becomes effective 30 days following its receipt by the FDA. There is no
certainty that submission of an IND will result in FDA authorization to commence
clinical trials.

         Clinical trials involve the administration of the investigational drug
to patients. Clinical trials typically are conducted in three phases which
generally are conducted sequentially. Drugs are first tested in Phase I for
safety, side effects, dosage tolerance, metabolism and clinical pharmacology.
With respect to anticancer agents, testing typically is done with a small group
of patients with advanced cancers that have proved unresponsive to other forms
of therapy. Phase I testing typically takes one year to complete. Phase II
involves tests in a larger but still limited patient population to determine the
efficacy of the drug for specific indications, to determine optimal dosage and
to identify possible side effects and safety risks. Phase II testing for an
indication typically takes from one and one-half to two and one-half years to
complete. When a drug shows efficacy in Phase II evaluations, expanded Phase III
trials are generally undertaken to evaluate the overall risks and benefits of
the drug in relationship to the treated disease in light of other available
therapies. Phase III studies generally take from two and one-half to five years
to complete. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all. Furthermore, company and/or the FDA may suspend clinical trials at any time
if it decides that patients are being exposed to a significant health risk.

         The company is engaged in an extensive program of clinical trials which
hopefully will demonstrate the efficacy, safety and benefit of these drugs to
patients. However, there are risks inherent in each stage of drug development
and there can be no assurance that the findings in Phase I or Phase II clinical
trials will be confirmed in Phase III clinical trials.

                                       19
<PAGE>

         The company is and will continue to be dependent upon and require that
the laboratories and medical institutions conducting its preclinical studies and
clinicals trials maintain both good laboratory and good clinical practices and
that the manufacturers of its compounds maintain compliance with current GMP
requirements. Data obtained from preclinical studies and clinical trials are
subject to varying interpretations that could delay, limit, or prevent FDA
regulatory approval. Delays or rejections may be encountered based upon changes
in FDA policy for drug approval during the period of development and FDA
regulatory review. Similar delays also may be encountered in foreign countries.
Any delay in obtaining, or failure to obtain, such approvals would adversely
affect the company's ability to generate product revenues or royalties. There
can be no assurance that regulatory approval will be obtained for a product
under development by the company. Moreover, even if approval is granted, such
approval may entail commercially unacceptable limitations on the labeling claims
for which a product may be marketed.

         The results of the preclinical studies and clinical trials are
submitted to the FDA as part of an NDA for approval of the marketing and
commercial shipment of the drug. The NDA also includes information pertaining to
the chemistry, formulation, activity and manufacture of the drug and each
component of the final product, as well as details relating to the sponsoring
company. The NDA review process takes more than two years on average to
complete, although reviews of treatments for cancer and other life-threatening
diseases may be accelerated. However, the process may take substantially longer
if the FDA has questions or concerns about a product. In general, the FDA
requires at least two adequate and well-controlled clinical studies
demonstrating efficacy in order to approve an NDA. The FDA may however, request
additional information, such as long term toxicity studies or other long-term
studies relating to product safety or efficacy. Notwithstanding the submission
of such data, the FDA ultimately may decide that the application does not
satisfy its regulatory criteria for approval. Finally, the FDA may require
additional clinical tests following NDA approval.

         In December of 1992, the FDA issued regulations (Accelerated Approval
Regulations) under which the agency will accelerate approval of certain drugs
and biological products for serious or life-threatening illnesses, with
provisions for any necessary continued study of the drugs' clinical benefit,
after approval or with restrictions on use, if necessary. Accelerated approval
is considered in two situations: (1) when approval can be reliably based on
evidence from adequate and well-controlled studies of the drug's effect on a
surrogate endpoint that reasonably suggests clinical benefit or on evidence of
the drug's effect on a clinical endpoint other than survival or irreversible
morbidity, pending completion of studies to establish and define the degree of
clinical benefits to patients; and (2) when FDA determines that a drug,
effective for the treatment of a disease, can be used safely only if
distribution or use is modified or restricted. Drugs approved under the
Accelerated Approval Regulations will have met the requisite standards for
safety and effectiveness under the Federal Food, Drug, and Cosmetic Act, and
thus will have full approval for marketing. Under these regulations, FDA has the
authority to withdraw approval, following a hearing, if: (1) a postmarketing
clinical study fails to verify clinical benefit; (2) the applicant fails to
perform the required postmarketing study with due diligence; (3) use after
marketing demonstrates that postmarketing restrictions are inadequate to assure
safe use of the drug product; (4) the applicant fails to adhere to the
postmarketing agreed upon; (5) promotional materials are false or misleading;
and (6) other evidence demonstrates that the drug product is not shown to be
safe or effective under its conditions of use.

         Under the regulations governing accelerated approvals, promotional
materials must be submitted to the FDA at least 30 days prior to the intended
time of initial dissemination of such materials. This is in contrast to the
FDA's requirement for drugs approved by the FDA not under the Accelerated
Approval Regulations, where promotional materials must be provided to FDA upon
first use.

         Among the requirements for product approval is the requirement that
prospective manufacturers conform to the FDA's current GMP standards, which also
must be observed at all times following approval. Accordingly, manufacturers
must continue to expend time, money and effort in production, record keeping and
quality control to ensure compliance with GMP standards. Failure to so comply
subjects the manufacturer to possible FDA action, such as the suspension of
manufacturing or seizure of the product.  The FDA may also request a voluntary
recall of a product.

                                       20
<PAGE>

         The product testing and approval process is likely to take a
substantial number of years, and involves the expenditure of substantial
resources. There can be no assurance that any approval will be granted on a
timely basis, or at all. The FDA also may require post-marketing testing and
surveillance to monitor the product and its continued compliance with regulatory
requirements. Upon approval, a drug may only be marketed for the approved
indications in the approved dosage forms and at the approved levels. In
addition, for commercial sales in the United States, the drug must be
manufactured at manufacturing sites approved by the FDA for the manufacture of
the particular drug. Therefore, the company is highly dependent on the ability
of the approved facility or facilities to manufacture the particular drug. A
fire or other disaster affecting an approved manufacturing site could have a
materially adverse effect on the ability of the company to supply a particular
drug product. In addition, foreign regulatory authorities also require that
manufacturing sites for drugs be approved to manufacture the particular drug.

         Adverse experiences with the product must be reported to the FDA and
other regulatory authorities. The FDA also may require the submission of any lot
of the product for inspection and may restrict the release of any lot that does
not comply with FDA standards, or may otherwise order the suspension of
manufacture, recall or seizure if non-compliant product is discovered. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems concerning safety or efficacy of the product are
discovered following approval.

         The Prescription Drug User Fee Act of 1992 was enacted to expedite FDA
review and approval of new drugs by providing the FDA additional funds through
the imposition of user fees. The Act imposes three kinds of user fees on
manufacturers prescription drugs: (1) a one time fee for each single source
prescription drug application submitted on or after September 1, 1992; (2) an
annual fee for each establishment that produces single source prescription
drugs; and (3) an annual fee for each single source prescription drug product
marketed.

         The company also will be subject to foreign regulatory requirements
governing clinical trials, manufacturing of products, marketing of products,
product approvals, and pricing approvals. Whether or not FDA approval has been
obtained, approvals by the comparable regulatory authorities of foreign
countries must be obtained prior to the commencement of marketing of the product
in those countries. The approval process varies from country to country and the
time required may be longer or shorter than that required for FDA approval.
Under its agreement with licensees and distributors in foreign countries, the
company may require the licensee or the distributor to be responsible for
obtaining regulatory approvals in their respective territories.

         The company's research and development activities and manufacturing
activities involve the controlled use of hazardous materials and chemicals. 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
resources of the company which would have a material adverse effect on the
company's business, financial condition, and results of operation.

         There continue to be significant changes in health care and the way
health care is delivered. The company is unable to predict the effect of future
changes to health care and its delivery on the future operation of the company's
business. Changes affecting drug pricing, drug reimbursement, prescription
benefits, and levels of reimbursement for drugs, among others, could have a
materially adverse effect on the company's business.

                                       21
<PAGE>

Employees

         As of January 31, 1997, the company employed 151 persons full-time, of
whom 52 were engaged in research and development; the others were in
manufacturing, administrative, sales and marketing or executive positions. A
significant percentage of the company's management and employees have had prior
experience with other pharmaceutical companies.

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

         Consultants

         The company's Scientific Advisory Board consists of prominent
physicians and preclinical scientists who are experts in various areas of
research and who the company believes may make a contribution to the development
of the company's business. The Scientific Advisory Board advises management of
advances in relevant science, assists in identifying specific product
opportunities and aids in recruiting personnel and procuring research contracts.

         In addition to the individuals serving on the Scientific Advisory
Board, the company has retained the services of physicians and preclinical
scientists (the "Scientific Consultants") representing a broad spectrum of
scientific disciplines in medicine, as well as consultants in such areas as
preclinical drug development and marketing. These consultants are paid
principally on a per diem fee basis and in some cases have been granted options
to purchase the company's common stock under the company's stock option plans.
The company also pays for preclinical studies and for human clinical trials in
the academic laboratories of several of the Scientific Consultants. Certain of
the company's agreements with Scientific Consultants require them to disclose
and assign to the company all ideas, discoveries and inventions developed by
them in the course of providing consulting services to the company.

Product Liability Insurance

         The testing, marketing and sale of human health care products by the
company entails an inherent risk that product liability claims may be asserted
against the company. The company's therapies may be carcinogenic or toxic. The
testing and sale of human health care products by the company entails inherent
risk that product liability claims may be asserted against the company. The
company currently carries product liability coverage on a claims made and
reported basis in the aggregate amount of $20,000,000 per policy year. The
company believes such coverage is commercially reasonable in light of its
current operations, although there can be no assurance that such coverage will
ultimately be adequate. As the company expands the scope of its clinical testing
and marketing of its products, the company will be exposed to far greater
potential liabilities.

         The pharmaceutical industry has in the past experienced difficulty in
maintaining product liability insurance coverage at reasonable levels, and
substantial increases in insurance costs may render coverage economically
impractical. Although the company will seek to carry reasonable levels of
product liability insurance, it is not certain that such coverage can be
obtained on reasonable terms, or, if obtained, that such amounts ultimately will
prove adequate or will be renewable for any period. If any product liability
claim against the company were sustained, its business and prospects could be
materially adversely affected.

Item 2.  Properties.

         The company's principal offices comprise approximately 26,400 square
feet of space in West Conshohocken, Pennsylvania. The space is rented pursuant
to a lease which expires on October 31, 1998. The company also leases 10,000
square feet of laboratory space in Exton, Pennsylvania which is used as an

                                       22
<PAGE>

analytical laboratory conducting small scale product analysis, testing and
development. This laboratory space is leased pursuant to a lease that expires
June 30, 1998, subject to the company's option to extend the lease for an
additional two-year term.

         The company's United Kingdom operations are conducted through its
subsidiary, USB Pharma Limited and are presently housed in an 8,689 square foot
office in an office building in Watford, Hertfordshire, England. This space is
rented pursuant to a ten-year lease the term of which begins March 25, 1997.
This lease can be terminated at the end of five years subject to an early
termination fee of (pound)50,000.

         The company's manufacturing facilities are held in its Dutch
subsidiary, USB Pharma B.V., and are located in The Netherlands in an 18,000 sq.
ft. facility designed to manufacture sterile products. The facility was
purchased in March 1993 for $2,250,000. The company has invested approximately
$3,158,800 in renovations to the facility. The facility became subject to a
mortgage of approximately $680,000 in March 1994. The company leases warehouse
space in Nijmegen, The Netherlands of approximately 9,000 sq. feet. This space
is subject to a lease that is subject to termination by the company in 1998.

         The company believes that its present facilities are satisfactory for
its current operations.

Item 3.  Legal Proceedings.

         On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co.
filed a complaint for refrain, information and damages with the Regional Court
of Hamburg against U.S. Bioscience, Inc. on the grounds of trademark
infringement in respect of the use of the trademark "Ethyol" in Germany. On
April 29, 1996, U.S. Bioscience filed a reply to plaintiff's complaint stating
U.S. Bioscience's position that the trademark "Ethyol" does not infringe
plaintiff's trademark rights in the trademark "Ichthyol" nor the plaintiff's
firm right in the slogan "Ichthyol." The suit was dismissed on January 29, 1997,
by the Regional Court of Hamburg at which time the plaintiff was given leave to
appeal against the judgment rendered in favor of U.S. Bioscience, Inc. The
plaintiff will have a month to file an appeal from the date of service of the
grounds for the judgment, which, as of March 15, 1997, have not been issued by
the court. It is not possible to evaluate whether the plaintiff will appeal and,
if the plaintiff appeals, how the case will be decided on appeal.

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

         Not applicable.

                                       23
<PAGE>

Executive Officers of the Registrant

         The executive officers of the company are as follows:

<TABLE>
<CAPTION>
          Name                      Age              Position
          ----                      ---              --------
<S>                                 <C>              <C>
Philip S. Schein, M.D.              57               Chairman, Chief Executive Officer,  and
                                                     Director
C. Boyd Clarke                      48               President, Chief Operating Officer and
                                                     Director

Robert I. Kriebel                   54               Executive Vice President, Chief Financial
                                                     Officer, Treasurer and Director
Barbara J. Scheffler                45               Senior Vice President, Corporate and
                                                     Scientific Affairs

Wolfgang Oster, M.D.                40               Senior Vice President, Worldwide Clinical
                                                     Research
Donald O. Brown                     54               Senior Vice President,
                                                     Pharmaceutical Operations

Martha E. Manning                   42               Senior Vice President, General Counsel
                                                     and Secretary
</TABLE>

         Dr. Schein has been Chief Executive Officer and a Director of the
company since its formation in May 1987 and Chairman since May 1990. He held the
office of President of the company from its formation until April 1992 and again
from May 1995 to September, 1996. From April 1987 to May 1987 he was employed by
U.S. Healthcare, Inc., then a publicly-owned operator of health maintenance
organizations ("HMO's") to commence the business undertaken by the company. From
January 1987 to February 1987 Dr. Schein was a consultant in drug development to
Unimed, Inc., a pharmaceutical company, and Professor of Medicine and
Pharmacology at the University of Pennsylvania. Dr. Schein served as Vice
President of Worldwide Clinical Research and development, Smith, Kline & French
Laboratories, the pharmaceutical division of SmithKline Beckman Corporation,
from October 1983 to December 1986. Dr. Schein was the Scientific Director of
the Vincent T. Lombardi Cancer Research Center at Georgetown University School
of Medicine in Washington, D.C. from July 1982 to October 1983, Chief of the
Division of Medical Oncology from August 1974 to October 1983 and Professor in
the Departments of Medicine and Pharmacology from August 1974 to October 1983.
From July 1971 to August 1974 he was a senior investigator at the NCI and head
of the Clinical Pharmacology Section. Dr. Schein is a former President of the
American Society of Clinical Oncology and a former Chairman of the FDA Oncologic
Drugs Advisory Committee, where he received the Commissioner's Special Citation
and the Wiley Medal for outstanding service. In September 1994 Dr. Schein was
appointed by President Clinton to a six year term on the National Cancer
Advisory Board. He has published more than 350 articles and texts relating to
basic and clinical research and drug development and is the recipient of
numerous scientific and medical awards and honors. He is a Director of Oncor
Inc., a biotechnology-based diagnostics company and Medicis Pharmaceutical
Corporation, a research intensive pharmaceutical company focused on dermatology.

         Mr. Clarke was elected to the Board of Directors in September 1996 when
he joined the company as President and Chief Operating Officer. From 1977 until
he joined the Company, Mr. Clarke held various positions with Merck & Co. and
its affiliates, including Vice President, Strategy, Alliance Management and

                                       24
<PAGE>

Development of Merck Vaccines from 1995 to 1996; President of Pasteur-Merieux
MSD, from 1993 to 1994; General Manager, Pasteur-Merieux - Merck Affairs of
Merck & Co., Inc., from 1992 to 1993; and Executive Director, Corporate Planning
of Merck & Co., Inc., from 1988 to 1992. In March, 1997, Mr. Clarke was elected
to the board of directors of OraVax, Inc., a biopharmaceutical company engaged
in the discovery and development of oral vaccines and noninjected antibody
products.

         Mr. Kriebel joined the company in April 1991 as Senior Vice President -
Finance and Administration and Treasurer and was elected Director in May 1991.
On September 26, 1996, Mr. Kriebel was promoted to the position of Executive
Vice President, Chief Financial Officer and Treasurer. He held various positions
with Rhone-Poulenc Rorer Inc. (formerly Rorer Group Inc.) from 1974 until
November 1990. From 1987 to November 1990 he was Vice President and Controller
of Rorer Group Inc.'s Armour Pharmaceutical Company. In 1986, Mr. Kriebel was
Vice President - Investor Relations of Rorer Group Inc. and from 1979 to 1985 he
was Treasurer of Rorer Group Inc.

         Ms. Scheffler was named Senior Vice President, Corporate and Scientific
Affairs in August 1996. From February 1995 to August 1996 she had been Senior
Vice President Project Management. From November 1991 to February 1995, she was
Senior Vice President, Clinical Operations and Regulatory Affairs. She was Vice
President-Clinical Operations from July 1987 to November 1991 and Secretary from
May 1987 to August 1991 and from January 1993 to May 1993. From September 1973
to April 1987, she held various positions in the Biostatistics and Clinical
Information Departments of Worldwide Clinical Research and Development at Smith,
Kline & French Laboratories, including Manager, Worldwide Clinical Sciences
Administration.

         Dr. Oster joined the company on December 10, 1992 and early in 1993
became Vice President, Clinical Research, located in the company's Watford,
United Kingdom office. Effective December 11, 1996, Dr. Oster was promoted to
the position of Senior Vice President, Worldwide Clinical Research and relocated
to the company's United States offices in West Conshohocken, Pennsylvania. Prior
to joining U.S. Bioscience, he served as director of clinical research and
development for oncology at Behringwerke/Hoechst in Marburg, Germany from 1989
to 1992. He continues as adjunct professor and member of the faculty of the
Albert-Ludwig University, Freiburg, Germany. He is a graduate of the University
of Mainz, Germany, where he earned the degree of Bachelor of Science and a
graduate of the University of Mainz Medical School as well. He did post-doctoral
training at the University of Mainz and the Memorial Sloan-Kettering Cancer
Center in New York.

         Mr. Brown joined U.S. Bioscience as Senior Vice President of
Pharmaceutical Operations in April, 1992. From 1982 through 1992, he served in
numerous capacities with Alcon Laboratories, Inc., including Group Director,
International Quality Assurance, and Director of Manufacturing, Alcon Munich
operations and at the World Headquarters facilities in Ft. Worth, Texas. Mr.
Brown's oncology background was developed during his five year tenure with
Bristol-Myers Squibb where he served as Manager of Process Engineering and Plant
Manager, Sterile Operations.

         Ms. Manning joined U.S. Bioscience as Vice President, General Counsel
and Secretary in May 1993. In December, 1996, Ms. Manning was promoted to Senior
Vice President, General Counsel and Secretary. From July 1988 until joining U.S.
Bioscience, she had served as General Counsel for The Wistar Institute of
Anatomy and Biology, the nation's oldest independent basic biomedical research
institute. From 1983 until joining Wistar, Ms. Manning had been an associate
with the law firm Morgan, Lewis & Bockius.

                                       25
<PAGE>

                                     PART II

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

         The company's Common Stock is traded on the American Stock Exchange
(the "AMEX") under the symbol "UBS." The following table sets forth the high and
low sale prices for the Common Stock, adjusted for the 1 for 2 reverse stock
split effected April 23, 1996, reported by the AMEX for the periods indicated.

                                              High                  Low
                                              ----                  ---
Year ended December 31, 1996
         First Quarter                       15 1/2                 9 3/8
         Second Quarter                      19 7/8                12 5/8
         Third Quarter                       13 7/8                 8 1/2
         Fourth Quarter                      15 1/2                 9 1/4

Year ended December 31, 1995
         First Quarter                        7 1/8                 4
         Second Quarter                      11 1/2                 4 1/8
         Third Quarter                       11 1/8                 7
         Fourth Quarter                      11 1/8                 7 1/4

               On March 4, 1997, there were 5,104 holders of record of Common
Stock.

               The company has not paid any dividends on the Common Stock since
its inception and does not intend to pay any dividends in the foreseeable
future. It is the present policy of the Board of Directors to retain all
earnings, if any, to finance the development of the company's business.


                                       26
<PAGE>

Item 6.  Selected Financial Data.

               The selected financial data presented below for each of the five
years in the period ended December 31, 1996, and the period May 7, 1987
(inception) through December 31, 1996, is derived from the company's audited
financial statements. The selected financial information presented below should
be read in conjunction with the consolidated financial statements, including the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                                                                 For the       
                                                                                                                  period       
                                                                                                                May 7, 1987    
                                                                                                                (inception)    
                                                                                                                  through      
                                                                YEAR ENDED DECEMBER, 31                           December     
                                                   -------------------------------------------------------           31,
Statement of Operations Data:(1)                      1996       1995        1994         1993        1992          1996
                                                      ----       ----        ----         ----        ----       -----------
<S>                                                 <C>         <C>         <C>         <C>         <C>           <C>
Revenues:                                                                                               
  Net sales                                         $10,785      $8,724      $7,210       $2,361      $3,511         $35,938
  Net investment income                               2,335       1,223       1,234        3,776       7,294          27,385
  Licensing, royalty and research income              7,344      21,398         102        2,067         618          33,083
                                                   --------    --------   ---------   ----------   ---------     -----------
     Total revenues                                  20,464      31,345       8,546        8,204      11,423          96,406
Expenses:                                                                                                       
  Cost of sales                                       2,956       2,559       1,694          626         886           9,482
  Selling, general and administrative                12,275      16,583      13,233       18,639      14,028          89,925
  Research and development costs                     14,383      12,186      17,608       19,404      16,735          99,546
  Provision for litigation                               --          --          --       10,165          --          10,165
  Interest expense                                      537         255          52           --          --           1,905
                                                   --------    --------   ---------   ----------   ---------     -----------
     Total expenses                                  30,151      31,583      32,587       48,834      31,649         211,023
                                                   --------    --------   ---------   ----------   ---------     -----------
Net loss                                            ($9,687)      ($238)   ($24,041)    ($40,630)   ($20,226)      ($114,617)
                                                   ========    ========   =========   ==========   =========     ===========
Net loss per common share                            ($0.43)     ($0.01)     ($1.19)      ($2.05)     ($1.03)            --
                                                   ========    ========   =========   ==========   =========     ===========
Weighted average number of common shares             22,396      20,436      20,127       19,802      19,704             --
outstanding(2)
</TABLE>

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,                  
                                                   ------------------------------------------------------
Balance Sheet Data:(1)                               1996        1995        1994       1993       1992
                                                     ----        ----        ----       ----       ----
<S>                                                 <C>         <C>         <C>        <C>       <C>     
Cash, cash equivalents and investments              $36,677     $45,596     $24,428    $48,364   $ 77,191
Working capital                                      34,126      42,577      21,536     43,377     74,683
Total assets                                         49,111      61,880      34,464     57,787     83,272
Long-term debt                                        1,845      19,088         997        387         --
Provision for litigation                                 --          --       2,301     10,165         --
Other long-term liabilities                           1,462       1,036         788        588        438
Deficit accumulated during the development stage   (114,617)   (104,930)   (104,692)   (80,651)   (40,021)
Stockholders' equity                                 36,894      28,788      23,939     38,090     77,490
</TABLE>
                                                                           
(1) In Thousands, except per share amounts
(2) After giving effect to the 1 for 2 reverse stock split effected April 23,
    1996.

                                       27
<PAGE>

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

Overview

         This report on Form 10-K contains forward-looking statements concerning
the business and financial conditions of the company, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in any forward-looking statements. Factors
that could cause such differences include, but are not limited to, the success
of the company and its collaborative partners in marketing, manufacturing and
selling the company's products, the availability of adequate funds for the
company's operations, the success of the company in obtaining timely regulatory
approvals to market its potential products in the United States and other major
markets, the success of the company in obtaining rights to new compounds for
commercial development, policies relating to product pricing and reimbursement
levels in the markets where the company's products are or may be commercialized,
technological change and competition, the incidence of diseases for which the
company's products are indicated, the product liability risks associated with
being the manufacturer or seller of pharmaceutical products, and the company's
reliance on its key personnel and collaborative partners.

         The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements on pages F-1 to F-20.

         Since its inception in 1987, the company has devoted its efforts
primarily to raising capital, recruiting personnel, identifying and acquiring
drugs for further research and development, clinical development of such drugs
and, since 1991, selling and marketing its drugs in the United States and
commercializing its products in foreign markets through distribution agreements
with established pharmaceutical companies. The company currently sells and
markets, in conjunction with a co-promotion partner, three compounds in the
United States: Hexalen, introduced in January 1991, NeuTrexin, introduced in
January 1994 and Ethyol, which was made commercially available in April 1996.
The company received regulatory approval to market Ethyol in the United States
in December 1995. Ethyol is a cytoprotective agent for reducing cumulative renal
toxicity associated with administration of cisplatin in patients with advanced
ovarian and non-small cell lung cancers. Ethyol was launched by the company's
U.S. distribution partner ALZA Corporation ("ALZA") in April 1996.

         The company has also received regulatory approval for Ethyol in several
European countries, and received approval to expand the labeled indication in
July 1996. The company's marketing partner for European territories, Scherico
Ltd. ("Scherico"), an affiliate of Schering-Plough Corporation, has launched
Ethyol in Germany, the United Kingdom, France, Spain, Austria, Portugal,
Switzerland, Finland, Greece and The Netherlands, and plans to begin sales in
other European countries when regulatory approvals and, if necessary, local
pricing and reimbursement approvals, are received. Ethyol was approved by
Canadian regulatory authorities in late April 1996, where an affiliate of Eli
Lilly and Company has marketing rights to the product and launched Ethyol during
the third quarter of 1996.

         The company believes that its expenditures for research and
development, marketing, capital equipment and facilities will continue to exceed
revenues as a result of (i) continuing further clinical trials aimed at label
expansion and regulatory approvals for Ethyol and NeuTrexin in the United States
and Europe, (ii) the marketing of Hexalen, NeuTrexin and Ethyol in the United
States and further Ethyol product introductions in Europe, (iii) expansion of
clinical and preclinical testing of drug compounds, including expanded
indications for existing drugs and (iv) development and enhancement of
manufacturing and analytical capabilities.

          Commercial activities during 1996 centered around the launch of Ethyol
in the United States with distribution partner ALZA, continued promotion and
sale of Hexalen and NeuTrexin in the United States, support of Ethyol marketing
in Europe with Scherico and the conclusion of an amendment to the marketing

                                       28
<PAGE>

and distribution agreement for Ethyol in Europe with Scherico ("Scherico
Amendment"). The company also entered into a co-promotion arrangement in the
United States with ALZA for its drug products Hexalen and NeuTrexin. The company
further pursued clinical programs to expand the approved indications for Ethyol
and NeuTrexin, principally in cancer treatment regimens, achieve regulatory
approvals for the use of Ethyol in non-small cell lung cancer in the United
States and several European countries, and obtain the initial regulatory
approvals for Ethyol in Canada, Australia and other foreign markets.
Additionally, third party contract manufacturing was conducted at the company's
manufacturing plant in The Netherlands and product development activities were
continued on drug products Ethyol, NeuTrexin, FddA and AZQ.

         The stockholders of the company approved, at the company's 1996 annual
meeting, a 1 for 2 reverse stock split effected April 23, 1996. Accordingly all
references to the number of shares and per share amounts included in this annual
report reflect this 1 for 2 reverse stock split.

         As part of a plan to enhance the company's ability to pursue its
long-term commercial and research objectives, in December 1995, the company
raised approximately $19 million in a private placement consisting of 560,056
shares of common stock and the issuance of $16.5 million in 4% three-year
unsecured convertible debentures. The entire issue of convertible debentures was
converted into 1,577,366 shares of the company's common stock during the first
half of 1996.

         The company, in January 1995, following the December 1994 meeting of
the Oncologic Drug Advisory Committee of the FDA, which withheld recommendation
for the U.S. approval of Ethyol, went through an internal restructuring and
downsizing in an effort to reduce expenditures so as to preserve financial
resources for its research, product development and commercial objectives. This
restructuring resulted in a reduction in the company's staffing levels and
expenditures and a re-prioritization of research efforts focusing on near-term
projects, which management believes may be capable of providing additional
revenues. A one-time restructuring charge of approximately $600,000 principally
to cover severance payments, was charged to earnings in the first quarter of
1995. The company's principal research activity in 1995 centered on the
company's goal in achieving regulatory approval of Ethyol by the FDA. As noted
above, the company was successful in achieving marketing approval of Ethyol by
the FDA in December 1995. Commercial activities during 1995 primarily included
the promotion and sale of Hexalen and NeuTrexin in the United States, the launch
of Ethyol in Europe by marketing partner Scherico and the conclusion of a
marketing and distribution agreement for Ethyol in the United States with ALZA.
The company also pursued clinical programs to expand the label indications for
Ethyol, NeuTrexin and Hexalen and to obtain initial regulatory approvals for
Ethyol in several European countries and Canada. Additionally, start-up and
validation efforts were completed at the company's manufacturing plant in The
Netherlands. The company also acquired FddA, a product for the treatment of AIDS
developed by the National Cancer Institute.

         In 1994, the company's principal commercial activity was the launch of
NeuTrexin in the United States. The launch of NeuTrexin and the refocused
marketing activity related to Hexalen, resulted in a 200% increase in sales over
the 1993 year sales. Additionally, during 1994, as in 1993, the company's
operations also centered around regulatory submissions and follow-up activities
on Ethyol, NeuTrexin and Hexalen in the United States, Canada and Europe;
start-up and validation work at the company's newly acquired manufacturing plant
in The Netherlands; continued clinical development of late-stage compounds,
Ethyol, PALA and Rogletimide; expanded preclinical testing and product
development; and licensing and business development activities.

         During and prior to 1992, the company's operations focused on the
research and development of its product portfolio via continued clinical
programs, primarily related to Ethyol, NeuTrexin, Hexalen and PALA; sales and
marketing of Hexalen in the United States; monitoring and/or preparing
regulatory filings for Ethyol in the United States and Europe, NeuTrexin in the
United States and Hexalen in the United Kingdom, and enhancements to product
manufacturing, quality assurance and testing methods including the start-up of
its own analytical laboratory and clinical operation in Europe and business
development activities.

                                       29
<PAGE>

Results of Operations

1996 Compared with 1995

         Sales revenue increased by 24% to $10,785,200 for the year ended
December 31, 1996 from $8,724,000 in the prior year. The $2.1 million increase
was principally due to the launch of Ethyol in the United States in April 1996.
The company sells Ethyol for use in the United States to ALZA under an exclusive
distribution agreement and co-promotes Ethyol with ALZA utilizing its own sales
force. Ethyol sales to the wholesale trade amounted to $9.4 million (as reported
by ALZA)from the date of launch to December, 1996. Sales of the company's other
two products, Hexalen and NeuTrexin declined in 1996 due, in part, to the
promotional emphasis placed on the launch of Ethyol. In addition, the company
believes that during 1996, the launch of competitive new products had a negative
impact on sales of Hexalen. The company further believes that sales of NeuTrexin
have been adversely affected by a decline in the incidence and severity of
Pneumocystis carinii pneumonia ("PCP") due to improvements in the treatment for
human immunodeficiency virus (HIV) and prophylactic treatment for patients at
risk for PCP.

         Net investment income increased to $2,335,300 in the year ended
December 31, 1996 from $1,223,100 in the same period of 1995. The $1.1 million
increase is attributable to the increased portfolio balance resulting from the
company's December 1995 private placement and the initial distribution fee
received from ALZA as part of the U.S. distribution and co-promotion agreement
for Ethyol consummated in late 1995.

         Licensing, royalty and other income decreased to $7,343,500 for the
year ended December 31, 1996 as compared to $21,398,000 for the year ended
December 31, 1995. The decrease is principally due to the $20 million recognized
in 1995 for U.S. marketing and distribution rights for Ethyol from ALZA. During
1996 the company received $6.2 million from Scherico related to the Scherico
Amendment. The company also received milestone payments from Eli Lilly and
Schering-Plough related to regulatory approvals of Ethyol in Canada and
Australia.

         Cost of sales, which consists of product manufacturing, testing,
delivery and royalty expenses, increased in line with sales. As a percentage of
sales, cost of sales in the year ended December 31, 1996, decreased to 27% from
29% in the prior year due principally to the sales of Ethyol to ALZA and
additional sales revenue as a result of the above noted amendment to the
Scherico European distribution agreement for Ethyol.

         Selling, general and administrative costs for the year ended December
31, 1996 decreased to $12,274,800 from $16,583,400 in 1995. The $4.3 million
decrease is principally due to the inclusion in the 1995 period of a charge of
$4.2 million for European losses generated under the original Scherico agreement
and a $2.0 million charge accrued for marketing expenditure commitments under
the U.S. Ethyol distribution agreement with ALZA. Excluding these items,
selling, general and administrative costs increased over the prior year by $1.9
million primarily the result of higher personnel costs of $1.1 million and
increased marketing and corporate expenses of $816,300.

           Research and development costs increased to $14,383,300 in the year
ended December 31, 1996 as compared to $12,186,000 in the prior year. The $2.2
million increase is principally attributable to increased clinical grant
expenses of $667,500, reflecting higher costs per trial and increased patient
enrollment in the company's phase III clinical trial programs for Ethyol and
NeuTrexin, higher product development costs of $505,300 primarily relating to
drug products FddA and AZQ, increased personnel and facility costs of $589,000
and $163,600 respectively, higher travel costs of $256,600 and increased FDA
fees of $203,400 resulting from fees imposed by the FDA on the company's
manufacturing facility in The Netherlands.

                                       30
<PAGE>

         The net loss for 1996 was $9,687,400 or $0.43 loss per common share.
This compares to a net loss in 1995 of $237,800 or $0.01 loss per common share.
Excluding the $20 million payment from ALZA related to the U.S. Ethyol
distribution agreement, the $4.2 million in accrued European losses related to
the original Scherico Agreement and the $2 million charge accrued for marketing
commitments related to the U.S. Ethyol distribution agreement, the 1995 loss
would have been $14,037,800 or $0.69 loss per common share.


1995 Compared with 1994

         Sales revenue increased by 21% to $8,724,000 for the year ended
December 31, 1995 from $7,209,700 in the prior year. The $1,514,300 increase was
primarily due to increased sales of Hexalen in the United States and sales of
initial launch quantities of Ethyol to Scherico for European distribution.

         Net investment income declined to $1,223,100 in the year ended December
31, 1995 from $1,234,700 in the same period of 1994. The $11,600 decrease
resulted from a $510,600 decrease in interest income in the 1995 period due to a
lower portfolio balance which was largely offset by an $88,800 gain on the
portfolio as compared to a $410,200 loss recorded in the 1994 period.

         Licensing, royalty and other income increased to $21,398,000 for the
year ended December 31, 1995 as compared to $102,000 for the 1994 period. The
increase is principally due to the $20 million recognized from ALZA for U.S.
marketing and distribution rights for Ethyol. The company also received in 1995
one-time payments for product distribution rights in Canada and Europe.

         Cost of sales, which consists of product manufacturing, testing,
delivery and royalty expenses, increased in line with sales. As a percentage of
sales, cost of sales in the year ended December 31, 1995, increased to 29% from
24% in the prior year period due principally to the sale of Ethyol to Scherico
at approximately cost of manufacture under the original Scherico agreement.

         Selling, general and administrative costs for the year ended December
31, 1995 increased to $16,583,400, an increase of $3,350,700 over the 1994
expenditure of $13,232,700. The increase is principally due to the accrual of
$4.2 million for the company's share of operating losses resulting from the
launch of Ethyol in Europe by Scherico and the accrual of a one-time $2
million charge related to Ethyol U.S. launch expenses as part of the company's
co-promotion arrangement with ALZA. These expenses were partly offset by
reductions in U.S. marketing costs for NeuTrexin of $1.7 million, lower facility
costs of $204,700 and reduced legal and consulting expenses of $383,500.

         Research and development costs for the year ended December 31, 1995
were $12,186,000 as compared to $17,607,900 in 1994. The $5.4 million reduction
is principally due to the capitalization of manufacturing expenses with the
start of commercial production at the company's manufacturing plant in The
Netherlands of $2 million, lower personnel costs of $1.9 million, reduced
professional and outside services expenses of $504,400 and reductions in travel
costs of $141,700. In addition, lower clinical and product development
expenditures of $752,500 resulted from the completion and scale-down of several
development programs. These expense reductions were achieved principally as a
result of the company's January 1995 internal restructuring.

         The net loss for 1995 was $237,800 or $0.01 loss per common share. This
compares to a net loss in 1994 of $24,041,000 or $1.19 loss per common share.

Liquidity and Capital Resources

         Since its inception in 1987, the company has financed operations
principally through the sale of equity capital, issuance of unsecured and
secured debt, investment income, sales of its drug products, Hexalen,

                                       31
<PAGE>

NeuTrexin and Ethyol, and revenues received through distribution and
sublicense agreements. As of December 31, 1996, the company's cash and
investments totaled $36,676,600. The company's investment portfolio consists of
securities issued by the U.S. Government or its agencies and investment grade
corporate debt instruments.

         During 1996, net cash used in operations amounted to $8,664,800
principally reflecting the net effect of the factors discussed above under
"Results of Operations" and offsetting decreases in current assets and
liabilities. In current assets, the decrease reflects the receipt in January
1996 of a portion of the distribution fee paid by ALZA as part of the U.S.
Ethyol distribution agreement. The decrease in current liabilities is due to the
payment to Scherico, in April 1996, of the company's share of 1995 operating
losses related to the original Ethyol European distribution agreement. Until
such time as the company receives significantly increased revenues, the
company's cash position will continue to be reduced due principally to
expenditures in research, clinical development, product development, marketing,
and selling and administrative activities. Failure to achieve significant sales
from the company's currently approved products and to obtain additional
regulatory approvals on products currently in development will have a material
adverse effect on the company. The level of future product sales will depend on
several factors, including product acceptance, market penetration, competitive
products, the incidence and severity of diseases and side effects for which the
company's products are indicated, the performance of the company's licensees and
distributors, and the healthcare and reimbursement system existing in each
market where the company's products are or may become commercially available.

         In February 1997, the company entered into a Stock Purchase Agreement
with ALZA pursuant to which the company agreed to sell to ALZA, subject to
certain closing conditions, including, inter alia, Hart-Scott-Rodino clearance,
1,178,882 shares of the company's Common Stock for gross consideration of
$21,526,400. The company believes its current cash and investments coupled with
the funds to be received under the Stock Purchase Agreement with ALZA and
anticipated revenues generated from product sales and other sources, will be
sufficient to cover the company's anticipated level of cash requirements for a
period in excess of three years. However, the company's funding requirements may
change due to numerous factors, including but not limited to, sales of the
company's products, manufacturing costs, reimbursement policies, regulatory and
intellectual property requirements, capital expenditure and other factors as
discussed herein. The company is hopeful that its products will, in the near
future, generate sufficient sales to provide meaningful cash resources, although
no assurance can be given that they will do so. The company is also hopeful that
it will in the future receive further regulatory approvals and that such
approvals will increase sales. However, no assurance can be given that further
regulatory approvals will be obtained in a timely manner, if ever, or that the
return on product sales will be sufficient to cover operating expenses or that
the company will have adequate financial resources to commercialize its
products.

         To meet its capital requirements, the company may from time to time
seek to access public or private financing markets by issuing debt, common or
preferred stock, warrants or other securities, either separately or in
combination. The company may also seek additional funding through corporate
collaborations or other financing vehicles, potentially including "off-balance
sheet" financing through partnerships or corporations. There can be no assurance
that such financings will be available at all or on terms acceptable to the
company. In addition, market reaction to any such financings may adversely
affect the price of the company's outstanding securities or debt.

         The company's net capital expenditures were $1,057,200 for the year
ended December 31, 1996 and total $10,891,400 since inception. In April 1993,
the company purchased a sterile products production facility in The Netherlands.
Validation work and pilot production on this new facility were completed in
1995. The facility received regulatory approval for product manufacture and
distribution from the Dutch regulatory authority in June 1994 to manufacture the
company's products for distribution in the European Community, and the facility
was approved by the FDA to manufacture NeuTrexin for the U.S. market in May 1995
and to manufacture Ethyol for the U.S. market in December 1996. The
manufacturing facilities of the company and its third party suppliers used to

                                       32
<PAGE>

produce its products are required to continually comply with all applicable FDA
requirements and those of regulatory authorities in other countries including
Good Manufacturing Practices, and are subject to inspection by governmental
agencies to determine compliance with those requirements. There can be no
assurance that the manufacturing facilities for the company's products will
comply with applicable requirements. A mortgage loan of approximately $680,000
relating to the company's facility in The Netherlands was obtained in May 1994.
The purchase price for this facility was $2,250,000 and $3,158,800 in capital
improvements have been made since its purchase to make the facility operational
and expand its production capacity. Further capital expenditures, estimated at
$640,000, are planned during 1997.

         The company's future liquidity and capital requirements are dependent
upon several factors, including, but not limited to, its success in generating
significant revenues from sales; the performance of its sublicensees and
distributors under sublicense and distribution arrangements for sales of its
products; the time and cost required to manufacture and market its products; the
time and cost required for clinical development of products to obtain regulatory
approvals, including expanded labeling for its products which are already
commercially available; obtaining the rights to additional commercially viable
compounds; competitive technological developments; additional government-imposed
regulation and control; and changes in healthcare systems which affect
reimbursement, pricing or availability of drugs and market acceptance of drugs.

         The above factors may also affect realization of certain assets
currently held by the company, principally investments in plant, equipment and
inventory.

         In 1995, Scherico, the company's European distributor for Ethyol,
launched Ethyol in several European markets where regulatory approvals had been
received. Under the terms of its original agreement with Scherico, the company
was to share in operating profits/losses generated from marketing and sales of
Ethyol in Germany, the United Kingdom, Spain, Italy and France for a period of
up to two years from November 23, 1994. The company paid its share of the 1995
operating losses ($4.2 million) in April 1996 and had accrued $892,000 during
the first six months of 1996 for its estimated share of operating losses through
the period. In September 1996, the Scherico Amendment was executed pursuant to
which, retroactive to January 1, 1996, Scherico began to purchase Ethyol from
the company at a price based on a percentage of in-market net sales and the
company no longer participates in operating profits/losses previously shared by
the parties. In addition, as noted above, Scherico paid the company a total of
$6.2 million under the Scherico Amendment in the fourth quarter of 1996.

         In April of 1996, ALZA and the company launched Ethyol in the United
States. ALZA has exclusive rights to market the product in the United States for
five years and will be responsible for sales and marketing. The company's U.S.
sales force will co-promote the product with ALZA during this period. After the
initial five-year period, ALZA has an option to extend its exclusive rights for
one year. At the end of ALZA's exclusive period, all U.S. marketing rights to
Ethyol will revert to the company, and ALZA will receive payments from the
company for ten years based on in-market net sales of the product. ALZA paid the
company an up-front payment and initial distribution fee totaling $20 million
and the agreement provides for $15 million in additional distribution fees to be
paid to the company during the next few years based on the achievement of
certain milestones related to the company's clinical development of Ethyol.

         As the company sells Ethyol to its partners, Scherico and ALZA, in
quantities, which may or may not correspond to the product's resale to the
pharmaceutical trade, the company's sales may fluctuate from period to period
dependent upon the timing of its partners' delivery requirements and sales to
the pharmaceutical trade as well as the levels of inventory they stock and
maintain. Sales of Ethyol are also affected by the same factors noted elsewhere
in this section on liquidity and capital resources. The company is hopeful that
the commercialization of Ethyol in the United States and Europe will be
successful. However, no assurances can be given that the company will achieve
meaningful revenues under its agreements with ALZA and Scherico or its other
distribution arrangements.

                                       33
<PAGE>

         The company has been unprofitable since its inception and expects to
incur additional operating losses until such time as substantial sales are
realized and further regulatory approvals are obtained, although the
distribution fees from ALZA Corporation did bring the company close to a
break-even position for calendar 1995 and the company reported net earnings in
the third quarter of 1996 as a result of non-recurring items relating to the
Scherico Amendment noted herein. As the company continues its commercialization,
research and development activities, losses are expected to continue and may
fluctuate from period to period. There can be no assurance that the company will
achieve significant revenues or profitable operations. For the period from May
7, 1987 (inception) through December 31, 1996, the company had an accumulated
deficit of $114,617,200.















                                       34
<PAGE>

Item 8.  Financial Statements and Supplementary Data.

         Financial statements are set forth in this report beginning at page
F-1.

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

         None.















































                                       35
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

         The information required by Item 10 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.

Item 11.  Executive Compensation.

         The information required by Item 11 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.

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

         The information required by Item 12 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.

Item 13.  Certain Relationships and Related Transactions.

         The information required by Item 13 is contained in the company's
definitive Proxy Statement with respect to the company's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the company's fiscal year, and is incorporated herein
by reference thereto.

                                       36
<PAGE>

                                     PART IV

Item 14.  Exhibits and Financial Statement Schedules.

  Financial Statements

           The following is a list of the consolidated financial statements of
  the company and its subsidiaries and supplementary data included in the report
  under Item 8.

                Report of independent auditors

                Consolidated Balance Sheets at December 31, 1996 and 1995

                Consolidated Statements of Operations for the years ended
                December 31, 1996, 1995 and 1994 and the period May 7, 1987
                (inception) through December 31, 1996

                Consolidated Statements of Cash Flows for the years ended
                December 31, 1996, 1995 and 1994 and the period May 7, 1987
                (inception) through December 31, 1996

                Consolidated Statement of Stockholders' Equity for the period
                May 7, 1987 (inception) through December 31, 1996

                Notes to Consolidated Financial Statements

  Schedules

           All financial schedules required to be filed in Part IV, Item 14(a)
           have been omitted because they are not applicable, not required or
           because the required information is included in the financial
           statements or notes thereto.

  Reports on Form 8-K

           The company filed the following reports on Form 8-K during the fiscal
          year ended December 31, 1996:

                   Date of Report                  Items Covered
                   --------------                  -------------
                 December 12, 1995                      7
                 September 19, 1996                     5, 7
                 September 19, 1996                     7

                                       37
<PAGE>

3. Exhibits


  The following is a list of exhibits filed as part of this annual report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parentheses.

3.1             Restated Certificate of Incorporation (incorporated by reference
                to Exhibit 3(a) to the Registrant's Registration Statement on
                Form S-1 (File No. 33-39576), filed with the Securities and
                Exchange Commission on March 22, 1991)

3.1.1           Certificate of Amendment to Certificate of Incorporation
                (incorporated by reference to Exhibit 3.1.1 to the Registrant's
                Registration Statement on Form S-3 (File No. 33-00077), filed
                with the Securities and Exchange Commission on January 5, 1996)

3.1.2           Certificate of Designations of Series A Junior Preferred Stock
                (incorporated by reference to Exhibit 1 to the Registrant's
                Current Report on Form 8-K dated June 7, 1995)

3.2             Bylaws, as amended

4.1             Warrant Agreement dated as of June 6, 1994 by and between the
                Registrant and Melon Bank, N.A. (incorporated by reference to
                Exhibit 4.1 to the Registrant's Annual Report on Form 10-K filed
                with the Securities and Exchange Commission on March 28, 1995)

4.2             Rights Agreement dated as of May 19, 1995 by and between the
                Registrant and Chemical Melon Shareholder Services L.L.C.
                (incorporated by reference to Exhibit 1 to Registrant's Current
                Report on Form 8-K dated June 7, 1995)

10.1*           Agreement dated August 9, 1991, between the Registrant and
                Warner-Lambert Company, as amended by Amendment No. 1 dated
                December 12, 1991, Amendment No. 2 dated March 10, 1994 and
                Amendment No. 3 dated March 11, 1994 (incorporated by reference
                to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K
                filed with the Securities and Exchange Commission on March 28,
                1994)

10.2            Office Lease Agreement, dated September 1990, between U.S.
                Bioscience, Inc. and Tower Bridge Associates (incorporated by
                reference to Exhibit 10(k) to the Registrant's Registration
                Statement on Form S-1 (File No. 33-39576), filed with the
                Securities and Exchange Commission on March 22, 1991)

10.2.1          Amendment No. 1, dated August 31, 1991, to Office Lease
                Agreement between U.S. Bioscience, Inc. and Tower Bridge
                Associates (incorporated by reference to Exhibit 10(I)(ii) to
                the Registrant's Annual Report on Form 10-K, filed with the
                Securities and Exchange Commission on March 27, 1992)

10.2.2          Addendum, dated April 8, 1992, to Amendment No. 1 of Office
                Lease Agreement between U.S. Bioscience and Tower Bridge
                Associates (incorporated by reference to Exhibit 10.2.2 to the
                Registrant's Annual Report on Form 10-K, filed with the
                Securities and Exchange Commission on March 31, 1993)

10.2.3          Amendment No. 2, dated June 30, 1995, to Office Lease Agreement
                between U.S. Bioscience, Inc. and Tower Bridge Associates
                (incorporated by reference to Exhibit 10.2.3 to the Registrant's
                Annual Report on Form 10-K, filed with the Securities and
                Exchange Commission on March 20, 1996)

                                       38
<PAGE>

10.3            Lease Agreement, dated June 15, 1992, between U.S. Bioscience,
                Inc. and Pickering Acquisition Associates (incorporated by
                reference to Exhibit 10.3 to the Registrant's Annual Report on
                Form 10-K, filed with the Securities and Exchange Commission on
                March 31, 1993)

10.3.1          Amendment No. 1, dated March 17, 1993, to Lease Agreement
                between the Registrant and Pickering Acquisition Associates
                (incorporated by reference to Exhibit 10.3.1 to the Registrant's
                Annual Report on Form 10-K, filed with the Securities and
                Exchange Commission on March 31, 1993)

10.3.2          Second Amendment to Lease Agreement between the Registrant and
                Pickering Acquisition Associates dated February 8, 1995
                (incorporated by reference to Exhibit 10.3.2 to the Registrant's
                Annual Report on Form 10-K filed with the Securities and
                Exchange Commission on March 28, 1995)

10.4            Research Agreement, dated May 14, 1987, between the Registrant
                and Georgetown University, as amended May 27, 1988 (incorporated
                by reference to Exhibit 10.13 to the Registrant's Registration
                Statement on Form 10, filed with the Securities and Exchange
                Commission on September 21, 1989)

10.4.1          Amendment No. 2, dated as of January 23, 1990, to Research
                Agreement, dated May 14, 1987, between the Registrant and
                Georgetown University (incorporated by reference to Exhibit
                10.13.1 to the Registrant's Registration Statement on Form S-1,
                filed with the Securities and Exchange Commission on February 5,
                1990)

10.5            Letter agreement, dated January 22, 1992, between the Registrant
                and Chemsyn Science Laboratories (incorporated by reference to
                Exhibit 10(k) to the Registrant's Annual Report on Form 10-K,
                filed with the Securities and Exchange Commission on March 27,
                1992)

10.6            License Agreement dated January 30, 1995 between the Registrant
                and National Institutes of Health (incorporated by reference to
                Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
                filed with the Securities and Exchange Commission on March 28,
                1995)

10.7            Agreement for Assignment of Rights, dated January 8, 1988,
                between the Registrant and Wyeth Laboratories, Inc.
                (incorporated by reference to Exhibit 10.18 to the Registrant's
                Registration Statement on Form 10, filed with the Securities and
                Exchange Commission on September 21, 1989)

10.8*           Amended and Restated License Agreement, effective as of May 1,
                1993, between the Registrant and Southern Research Institute
                (incorporated by reference to Exhibit 10.8 to the Registrant's
                Annual Report on Form 10-K, filed with the Securities and
                Exchange Commission on March 28, 1994)

10.9            Agreement, dated as of November 25, 1988, between the Registrant
                and Warner-Lambert Company (incorporated by reference to Exhibit
                10.23 to the Registrant's Registration Statement on Form 10,
                filed with the Securities and Exchange Commission on September
                21, 1989)

10.9.1          Amendment No. 1, dated March 13, 1992 to Agreement dated as of
                November 25, 1988,between the Registrant and Warner-Lambert
                Company (incorporated by reference to Exhibit 10(o)(ii) to the
                Registrant's Annual Report on Form 10-K, filed with the
                Securities and Exchange Commission on March 27, 1992)

                                       39
<PAGE>

10.10           License Agreement, dated as of December 6, 1990, between the
                National Technical Information Service and the Registrant
                (incorporated by reference to Exhibit 10(t) to the Registrant's
                Registration Statement on Form S-1 (File No. 33-39576), filed
                with the Securities and Exchange Commission on March 25, 1991)

10.11           Agreement, dated as of January 1, 1995, between the Registrant
                and Applied Analytical Industries, Inc. (incorporated by
                reference to Exhibit 10.11 to the Registrant's Annual Report on
                Form 10-K filed with the Securities and Exchange Commission on
                March 28, 1995)

10.11.1         Amendment, dated April 12, 1995, to Agreement dated January 1,
                1995 between Registrant and Applied Analytical Industries, Inc.

10.11.2         Second Amendment, dated May 6, 1996, to Agreement dated January
                1, 1995 between Registrant and Applied Analytical Industries,
                Inc.

10.12           Agreement, dated as of September 23, 1993, between the
                Registrant and Ben Venue Laboratories, Inc. (incorporated by
                reference to Exhibit 10.12 to the Registrant's Annual Report on
                Form 10-K filed with the Securities and Exchange Commission on
                March 28, 1994)

10.12.1         Amendment, dated April 11, 1995, to Agreement dated September
                23, 1993 between the Registrant and Ben Venue Laboratories, Inc.

10.12.2         Amendment, dated December 12, 1995, to Agreement dated September
                23, 1993 between the Registrant and Ben Venue Laboratories, Inc.

10.13           U.S. Bioscience/Ganes PALA Research Agreement between the
                Registrant and Ganes Chemicals, Inc., signed by the Registrant
                on April 25, 1991 and countersigned by Ganes Chemicals, Inc. on
                April 29, 1991 (incorporated by reference to Exhibit 10(t) to
                the Registrant's Annual Report on Form 10-K, filed with the
                Securities and Exchange Commission on March 27, 1992)

10.14           License Agreement, dated February 14, 1992, between the
                Registrant and Schering Overseas Limited (incorporated by
                reference to Exhibit 10.14 to the Registrant's Annual Report on
                Form 10-K, filed with the Securities and Exchange Commission on
                March 31, 1993)

10.14.1         Amendment dated October 15, 1993 to License Agreement between
                the Registrant and Schering Overseas Limited (incorporated by
                reference to Exhibit 10.14.1 to the Registrant's Annual Report
                on Form 10-K filed with the Securities and Exchange Commission
                on March 28, 1994)

10.15           License Agreement dated May 10, 1994 between the Registrant and
                Scherico, Ltd. (incorporated by reference to Exhibit 10.15 to
                the Registrant's Annual Report on Form 10-K filed with the
                Securities and Exchange Commission on March 28, 1995)

10.16*          Distribution and Supply Agreement, dated as of May 10, 1993
                between the Registrant and Scherico, Ltd. (incorporated by
                reference to Exhibit 10.16 to the Registrant's Annual Report on
                Form 10-K filed with the Securities and Exchange Commission on
                March 28, 1995)

10.16.1*        Amendment to Distribution and Supply Agreement, dated as of
                August 31, 1996 between the Registrant and Scherico, Ltd.
                (incorporated by reference to Exhibit 10.16.1 to the
                Registrant's Current Report on Form 8-K/A dated September 19,
                1996, filed with the Securities and Exchange Commission on
                December 19, 1996)

                                       40
<PAGE>

10.17           Agreement, dated as of March 10, 1994 between the Registrant and
                Sipsy S.A. (incorporated by reference to Exhibit 10.17 to the
                Registrant's Annual Report on Form 10-K filed with the
                Securities and Exchange Commission on March 28, 1994)

10.18           License Agreement, effective November 28, 1990 between
                Registrant and National Technical Information Service
                (incorporated by reference to Exhibit 10.18 to the Registrant's
                Annual Report on Form 10-K filed with the Securities and
                Exchange Commission on March 28, 1994)

10.19           Stipulation of Settlement Civil Action No. 92-0678 (Dalzell, J.)
                dated January 19, 1994 (incorporated by reference to Exhibit
                10.19 to the Registrant's Annual Report on Form 10-K filed with
                the Securities and Exchange Commission on March 28, 1995)

10.20           Non-Executive Stock Option Plan (incorporated by reference to
                Exhibit 10.20 to the Registrant's Quarterly Report on Form 10-Q
                for the period ended September 30, 1996)

10.21           Form of Subscription Agreement for sale of Common Stock by the
                Registrant to investors in December 1995 (incorporated by
                reference to Exhibit 1 to the Registrant's Current Report on
                Form 8-K dated December 22, 1995)

10.22           Form of Note Purchase Agreement for sale of convertible notes by
                the Registrant to investors in December 1995 (incorporated by
                reference to Exhibit 2 to the Registrant's Current Report on
                Form 8-K dated December 22, 1995)

10.23           Form of Convertible Note issued pursuant to Note Purchase
                Agreements for sale of convertible notes by the Registrant to
                investors in December 1995 (incorporated by reference to Exhibit
                3 to Registrant's Current Report on Form 8-K dated December 22,
                1995)

10.24           Form of Registration Rights Agreement with purchasers of Common
                Stock and convertible notes issued by the Registrant to
                investors in December 1995 (incorporated by reference to Exhibit
                4 to the Registrant's Current Report on Form 8-K dated December
                22, 1995)

10.25*          Ethyol (Amifostine) Distribution and Marketing Collaboration
                Agreement between the Registrant and ALZA Corporation dated
                December 12, 1995 (incorporated by reference to Exhibit 5 to the
                Registrant's Current Report on Form 8-K/A dated December 12,
                1995, filed with the Securities and Exchange Commission on April
                29, 1996)

10.25.1         Amendment No. 2 to Distribution and Marketing Collaboration
                Agreement between the Registrant and ALZA Corporation dated as
                of February 3, 1997 (incorporated by reference to Exhibit
                10.25.2 to the Registrant's Current Report on Form 8-K dated
                February 3, 1997)

10.26           Stock Purchase Agreement between the Registrant and ALZA
                Corporation dated as of February 3, 1997 (incorporated by
                reference to Exhibit 10.25.1 to the Registrant's Current Report
                on Form 8-K dated February 3, 1997)

                Executive Compensation Plans and Arrangements

10.27           Employment Agreement, dated as of March 1, 1993 between the
                Registrant and Philip S. Schein, M.D. (incorporated by reference
                to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K
                filed with the Securities and Exchange Commission on March 28,
                1995)

10.28           U.S. Bioscience, Inc. 1987 Incentive Stock Option Plan
                (incorporated by reference to Exhibit 4.1 to the Registrant's
                Registration Statement on Form S-8 (File No. 33-43981), filed
                with the Securities and Exchange Commission on November 15,
                1991)

                                       41
<PAGE>

10.29           U.S. Bioscience, Inc. 1987 Non-Statutory Stock Option Plan
                (incorporated by reference to Exhibit 4.2 to the Registrant's
                Registration Statement on Form S-8 (File No. 33-43981), filed
                with the Securities and Exchange Commission on November 15,
                1991)

10.30           U.S. Bioscience, Inc. 1987 Special Non-Statutory Stock Option
                Plan (incorporated by reference to Exhibit 4.3 to the
                Registrant's Registration Statement on Form S-8 (File No.
                33-43981), filed with the Securities and Exchange Commission on
                November 15, 1991)

10.31           U.S. Bioscience, Inc. 1991 Special Non-Statutory Stock Option
                Plan (incorporated by reference to Exhibit 4.5 to the
                Registrant's Registration Statement on Form S-8 (File No.
                33-43981), filed with the Securities and Exchange Commission on
                November 15, 1991)

10.32           U.S. Bioscience, Inc. 1992 Stock Option Plan, as amended

10.33           Executive Benefits Plan and related Form of Split Dollar
                Agreement (incorporated by reference to Exhibit 10.28 to the
                Registrant's Annual Report on Form 10-K filed with the
                Securities and Exchange Commission on March 28, 1995)

10.34           Pension Restoration Plan (incorporated by reference to Exhibit
                10.29 to the Registrant's Annual Report on Form 10-K filed with
                the Securities and Exchange Commission on March 28, 1995)

10.34.1         Amendment 1996-1 to Pension Restoration Plan (incorporated by
                reference to Exhibit 10.33.1 to the Registrant's Annual Report
                on Form 10-K filed with the Securities and Exchange Commission
                on March 20, 1996)

10.35           U.S. Bioscience, Inc. Income Deferral Plan

10.36           U.S. Bioscience, Inc. 1996 Non-Employee Directors Stock Option
                Plan

10.37           Executive Severance Agreement, dated October 14, 1991, between
                the Registrant and Philip S. Schein, M.D. (incorporated by
                reference to Exhibit 10(v) to the Registrant's Annual Report on
                Form 10-K, filed with the Securities and Exchange Commission on
                March 27, 1992)

10.38           Amendment dated September 22, 1992 to Executive Severance
                Agreement between the Registrant and Philip S. Schein, M.D.
                (incorporated by reference to Exhibit 10.25.1 to the
                Registrant's Annual Report on Form 10-K, filed with the
                Securities and Exchange Commission on March 31, 1993)

10.39           Executive Severance Agreement, dated October 14, 1991, between
                the Registrant and Robert L. Capizzi, M.D. (incorporated by
                reference to Exhibit 10(w) to the Registrant's Annual Report on
                Form 10-K, filed with the Securities and Exchange Commission on
                March 27, 1992)

10.39.1         Amendment dated September 22, 1992 to Executive Severance
                Agreement between the Registrant and Robert L. Capizzi, M.D.
                (incorporated by reference to Exhibit 10.26.1 to the
                Registrant's Annual Report on Form 10-K, filed with the
                Securities and Exchange Commission on March 31, 1993)

10.40           Agreement, dated March 4, 1996, between the Registrant and
                Robert L. Capizzi, M.D. (incorporated by reference to Exhibit
                10.37 to the Registrant's Annual Report on Form 10-K, filed with
                the Securities and Exchange Commission on March 20, 1996)

                                       42
<PAGE>

10.41           Form of Executive Severance Agreement executed with each Senior
                Vice President, each Vice President, and the Controller of the
                Registrant (incorporated by reference to Exhibit 10.28 to the
                Registrant's Annual Report on Form 10-K, filed with the
                Securities and Exchange Commission on March 31, 1993)

10.42           Executive severance arrangement, dated March 4, 1997, between
                the Registrant and C. Boyd Clarke.

10.43           Executive severance arrangement, dated March 4, 1997, between
                the Registrant and Wolfgang Oster, M.D.

22              Subsidiaries of the Registrant

23              Consent of Ernst & Young LLP, Independent Auditors

27              Financial Data Schedule

--------------
*Confidential portions have been omitted and have been separately filed with the
Commission.

                                       43
<PAGE>

                                   SIGNATURES

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

                                                U.S. BIOSCIENCE, INC.
Date:   March 21, 1997                     By:  /s/ PHILIP S. SCHEIN, M.D.
                                                --------------------------
                                                    Philip S. Schein, M.D.
                                                    Chief Executive Officer,
                                                    and Chairman

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

  Each person in so signing also makes, constitutes and appoints Philip S.
Schein, M.D. and Robert I. Kriebel, and each of them acting alone, his true and
lawful attorney-in-fact, with full power of substitution, to execute and cause
to be filed with the Securities and Exchange Commission any and all amendments
to this report.

<TABLE>
<CAPTION>
             Signature                                        Title                               Date
             ---------                                        -----                               ----
<S>                                              <C>                                            <C> 
    /s/ PHILIP S. SCHEIN, M.D.                  Principal Executive Officer and                March 21, 1997
--------------------------------------          Director
        Philip S. Schein, M.D.                  

    /s/ C. BOYD CLARKE                          Principal Operating Officer and                March 21, 1997
--------------------------------------          Director
        C. Boyd Clarke                          

    /s/ ROBERT I. KRIEBEL                       Principal Financial Officer and                March 21, 1997
--------------------------------------          Director
        Robert I. Kriebel                       

    /s/ MARK R. BAUSINGER                       Principal Accounting Officer                   March 21, 1997
--------------------------------------
        Mark R. Bausinger

    /s/ PAUL CALABRESI, M.D.                    Director                                       March 21, 1997
--------------------------------------
        Paul Calabresi, M.D.

    /s/ ROBERT L. CAPIZZI, M.D.                 Director                                       March 21, 1997
--------------------------------------
        Robert L. Capizzi, M.D.

    /s/ DOUGLAS J. MACMASTER                    Director                                       March 21, 1997
--------------------------------------
        Douglas J. MacMaster

    /s/ ALLEN MISHER, Ph.D.                     Director                                       March 21, 1997
--------------------------------------
        Allen Misher, Ph.D.

    /s/ JONAH SHACKNAI, Esq.                    Director                                       March 21, 1997
--------------------------------------
        Jonah Shacknai, Esq.

                                                Director                                       
--------------------------------------
        Ellen V. Sigal, Ph.D.

    /s/ BETSEY WRIGHT                           Director                                       March 21 1997
--------------------------------------
        Betsey Wright
</TABLE>

                                       44
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
Report of Independent Auditors.......................................................  F-2

Consolidated Balance Sheets at December 31, 1996 and 1995............................  F-3

Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994 and the period May 7, 1987 (inception) through
December 31,1996.....................................................................  F-4

Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 and the period May 7, 1987 (inception) through
December 31, 1996....................................................................  F-5

Consolidated Statement of Stockholders' Equity for the period May 7, 1987
(inception) through December 31, 1996................................................  F-6

Notes to Consolidated Financial Statements...........................................  F-7
</TABLE>

































                                       F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


Board of Directors and Stockholders
U.S. Bioscience, Inc.

We have audited the accompanying consolidated balance sheets of U.S. Bioscience,
Inc. (a development stage enterprise) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1996, and
for the period May 7, 1987 (inception) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of U.S.
Bioscience, Inc. (a development stage enterprise) at December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, and for the period May 7,
1987 (inception) through December 31, 1996, in conformity with generally
accepted accounting principles.



                                                       /s/ ERNST & YOUNG LLP



Philadelphia, Pennsylvania
February 13, 1997

                                       F-2
<PAGE>
                              U.S. BIOSCIENCE, INC.
                        (A Development Stage Enterprise)
                           CONSOLIDATED BALANCE SHEETS
                       
<TABLE>
<CAPTION>

                                                         ASSETS   
                                                                                         DECEMBER 31,        DECEMBER 31,
                                                                                             1996                1995
                                                                                         ------------        ------------
<S>                                                                                   <C>                  <C>         
Current assets:
       Cash and cash equivalents                                                        $  13,054,800       $  41,618,800
       Investments                                                                         23,621,800           3,977,400
       Accounts receivable, net                                                             1,926,200             802,500
       Interest receivable                                                                    220,700              60,000
       Inventories                                                                          2,592,000           2,165,100
       Other                                                                                1,620,400           6,922,200
                                                                                        -------------       -------------
                 Total current assets                                                      43,035,900          55,546,000
                                                                                                        
       Property, plant and equipment at cost, less accumulated depreciation                 6,075,200           6,334,300
                                                                                        -------------       -------------
                 Total assets                                                           $  49,111,100       $  61,880,300
                                                                                        =============       =============
                                                                                                        
                                          LIABILITIES AND STOCKHOLDERS' EQUITY                          
   Current liabilities:                                                                                 
       Accrued compensation and related payroll taxes payable                           $   1,717,700       $   1,937,600
       Accrued clinical grants payable                                                      1,611,600             716,300
       Accrued product manufacturing costs payable                                            747,300             384,300
       Accrued  marketing costs payable                                                       448,500             125,900
       Accrued professional fees payable                                                      658,000             393,200
       Line of credit                                                                         664,600             676,000
       Current maturities of long-term debt                                                   732,200             721,300
       Accounts payable and other accrued liabilities                                       2,329,700           8,014,400
                                                                                        -------------       -------------
                 Total current liabilities                                                  8,909,600          12,969,000
                                                                                                        
   Long-term liabilities:                                                                               
       Long-term debt, net of current maturities                                            1,845,400           2,587,600
       Other long-term liabilities                                                          1,461,800           1,035,800
       Convertible debentures                                                                    --            16,500,000
                                                                                        -------------       -------------
                 Total long-term liabilities                                                3,307,200          20,123,400
                                                                                        -------------       -------------
                 Total liabilities                                                         12,216,800          33,092,400
                                                                                                        
   Stockholders' equity:                                                                                
       Preferred stock, $.005 par value-5,000,000 shares authorized;                                    
           none issued                                                                           --                  --
       Common stock, $.01 par value-50,000,000 shares authorized; 22,879,900                            
           shares issued and outstanding at December 31, 1996, and 21,046,800 shares                    
           issued and outstanding at December 31, 1995                                        228,800             210,500
   Additional paid-in capital                                                             151,244,400         133,157,700
   Deficit accumulated during the development stage                                      (114,617,200)       (104,929,800)
   Foreign currency translation adjustment                                                     48,200             349,500
   Unrealized loss on investments                                                              (9,900)               --
                                                                                        -------------       -------------
                 Total stockholders' equity                                                36,894,300          28,787,900
                                                                                                        
                                                                                        -------------       -------------
                 Total liabilities and stockholders' equity                             $  49,111,100       $  61,880,300
                                                                                        =============       ============= 
</TABLE>                                                  
                                                         See accompanying notes.
                                      F-3
<PAGE>
                              U.S. BIOSCIENCE, INC.
                        (A Development Stage Enterprise)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                       YEAR ENDED DECEMBER 31,            
                                                      --------------------------------------------------    FOR THE PERIOD     
                                                                                                              MAY 7 ,1987
                                                                                                             (INCEPTION) TO
                                                             1996             1995             1994         DECEMBER 31, 1996
                                                        -------------     -------------     -------------   ------------------

<S>                                                     <C>               <C>               <C>               <C>          
Revenues:
   Net sales                                            $  10,785,200     $   8,724,000     $   7,209,700     $  35,938,400
   Net investment income                                    2,335,300         1,223,100         1,234,700        27,385,300
   Licensing, royalty and other income                      7,343,500        21,398,000           102,000        33,082,800
                                                        -------------     -------------     -------------    -------------
                                                           20,464,000        31,345,100         8,546,400       96,406,500

Expenses:
   Cost of sales                                            2,955,700         2,558,500         1,694,400         9,482,100
   Selling, general and administrative costs               12,274,800        16,583,400        13,232,700        89,924,800
   Research and development costs                          14,383,300        12,186,000        17,607,900        99,546,400
   Provision for litigation                                      --                --                --          10,165,000
   Interest expense                                           537,600           255,000            52,400         1,905,400
                                                        -------------     -------------     -------------    -------------
                                                           30,151,400        31,582,900        32,587,400      211,023,700
                                                        -------------     -------------     -------------    -------------

Net loss                                                $  (9,687,400)    $    (237,800)    $ (24,041,000)   ($114,617,200)
                                                        =============     =============     =============    =============



Net loss per common share                               $       (0.43)    $       (0.01)   $       (1.19)
                                                        =============     =============    =============



Weighted average number of common shares outstanding      22,395,600        20,436,100        20,127,200
                                                        =============     =============    =============

</TABLE>
                                                         See accompanying notes.
                                      F-4
<PAGE>
                              U.S. BIOSCIENCE, INC.
                        (A Development Stage Enterprise)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>



                                                                      YEAR ENDED DECEMBER 31,                  PERIOD MAY 7, 1987
                                                           ------------------------------------------------       (INCEPTION)
                                                                                                                    THROUGH
                                                                1996              1995            1994           DECEMBER 31, 1996
                                                            --------------    ------------     -------------    -------------------
<S>                                                         <C>               <C>              <C>               <C>             
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
   Net loss                                                 $  (9,687,400)    $   (237,800)    $ (24,041,000)    $  (114,617,200)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
      Depreciation                                              1,054,800        1,031,300         1,015,000           5,053,000
      Compensation element of stock option grants                    --               --           1,330,300           5,303,400
      Loss (gain) on investments                                    8,700           (1,200)          140,600             148,100
      Amortization of debenture interest                          154,300           44,400              --               198,700
      Change in accounts receivable                            (1,123,700)         (10,800)         (537,400)         (1,926,000)
      Change in interest receivable                              (160,700)          64,100            55,400            (220,700)
      Change in inventories                                      (482,900)        (325,500)          266,900          (2,658,200)
      Change in other current assets                            5,312,500       (6,142,600)          278,200          (1,572,600)
      Change in current liabilities                            (4,166,400)       5,106,200        (2,199,400)          7,297,900
      Provision for litigation                                       --            (59,500)         (105,500)         10,000,000
      Change in other long-term liabilities                       426,000          (69,700)          130,500           1,461,700
                                                            -------------     ------------     -------------     ---------------
           Total adjustments                                    1,022,600         (363,300)          374,600          23,085,300
                                                            -------------     ------------     -------------     ---------------
           Net cash provided by (used in) operating
             activities                                        (8,664,800)        (601,100)      (23,666,400)        (91,531,900)

Cash flows provided by (used in) investing activities:
      Proceeds from investments matured and sold               43,212,500       25,197,200       516,460,100       3,157,616,600
      Purchase of investments                                  62,875,300)      16,427,100)      481,137,300)     (3,181,391,300)
      Purchase of property, plant and equipment                (1,057,200)        (516,600)       (1,281,400)        (10,891,400)
                                                            -------------     ------------     -------------     ---------------
           Net cash provided by (used in) investing
             activities                                        20,720,000)       8,253,500        34,041,400         (34,666,100)

Cash flows provided by (used in) financing activities:
      Proceeds from issuance of common stock and
        private placement of securities                           191,900       18,694,700              --           128,496,200
      Proceeds from exercise of stock options                   1,258,800          360,900           405,300           7,475,000
      Proceeds from loan                                             --          2,400,000           646,000           3,219,100
      Proceeds from line of credit                                 92,100          676,000              --               768,100
      Repayment of long-term debt                                (689,200)        (214,700)             --              (903,900)
                                                            -------------     ------------     -------------     ---------------
           Net cash provided by (used in) financing
             activities                                           853,600       21,916,900         1,051,300         139,054,500

Effect of exchange rate changes on cash                           (32,800)         367,600            96,700             198,300
                                                            -------------     ------------     -------------     ---------------
Net increase (decrease) in cash and cash equivalents           28,564,000)      29,936,900        11,523,000          13,054,800
Cash and cash equivalents-beginning of period                  41,618,800       11,681,900           158,900                --
                                                            -------------     ------------     -------------     ---------------
Cash and cash equivalents-end of period                     $  13,054,800     $ 41,618,800     $  11,681,900     $    13,054,800
                                                            =============     ============     =============     ===============
Supplemental cash flow disclosure:
          Interest paid to affiliate                                 --               --                --       $     1,005,800
          Interest paid                                     $     629,100     $    210,900     $      26,300     $       878,400
          Subordinated debentures and accrued interest
            converted to common stock                       $  16,841,700             --                --       $    16,841,700

</TABLE>

                                                         See accompanying notes.
                                      F-5
<PAGE>
                              U.S. BIOSCIENCE, INC.
                        ( A Development Stage Enterprise)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
        FOR THE PERIOD MAY 7, 1987 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>

                                                                                                                             
                                                                     COMMON STOCK                    CLASS B STOCK           
                                                            NUMBER OF                         NUMBER OF                      
                                                             SHARES            AMOUNT          SHARES            AMOUNT      
                                                         -------------    ---------------    -----------    ---------------  
<S>                                                          <C>          <C>                  <C>           <C>             
Issuance of shares for initial cash contribution
  of capital ($.01 per share of common stock
  and $.005 per share of Class B stock)                      4,500,000    $      45,000        1,000,000     $       5,000   
    Net loss for the period May 7, 1987 (inception)
       through December 31, 1987                                  --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1987                                 4,500,000           45,000        1,000,000             5,000   
    Net loss for the year ended December 31, 1988                 --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1988                                 4,500,000           45,000        1,000,000             5,000   
    Proceeds from exercise of stock options                      1,300             --               --                --     
    Compensation related to stock options                         --               --               --                --     
    Issuance of shares ($12.00 per share, less costs)        1,250,000           12,500             --                --     
    Conversion of class B stock to common stock                500,000            5,000       (1,000,000)           (5,000)  
    Net loss for the year ended December 31, 1989                 --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1989                                 6,251,300           62,500             --                --     
    Proceeds from exercise of stock options                    142,900            1,400             --                --     
    Compensation related to stock options                         --               --               --                --     
    Issuance of shares ($18.00 per share, less costs)        2,012,500           20,200             --                --     
    Net loss for the year ended December 31, 1990                 --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1990                                 8,406,700           84,100             --                --     
    Proceeds from exercise of stock options                    250,300            2,500             --                --     
    Compensation related to stock options                         --               --               --                --     
    Issuance of shares ($57.00 per share, less costs)        1,150,000           11,500             --                --     
    Issuance of shares for a 2 for 1 stock dividend          9,807,000           98,000             --                --     
    Net loss for the year ended December 31, 1991                 --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1991                                19,614,000          196,100             --                --     
    Proceeds from exercise of stock options                    132,200            1,400             --                --     
    Compensation related to stock options                         --               --               --                --     
    Net loss for the year ended December 31, 1992                 --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1992                                19,746,200          197,500             --                --     
    Proceeds from exercise of stock options                     53,300              500             --                --     
    Compensation related to stock options                         --               --               --                --     
    Net loss for the year ended December 31, 1993                 --               --               --                --     
    Foreign currency translation adjustment                       --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1993                                19,799,500          198,000             --                --     
    Proceeds from exercise of stock options                     37,600              400             --                --     
    Class action settlement                                    548,200            5,500             --                --     
    Compensation related to stock options                         --               --               --                --     
    Net loss for the year ended December 31, 1994                 --               --               --                --     
    Foreign currency translation adjustment                       --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1994                                20,385,300          203,900             --                --     
    Proceeds from exercise of stock options                    101,400            1,000             --                --     
    Class action settlement                                       --               --               --                --     
    Proceeds from private placement of securities              560,100            5,600             --                --     
    Net loss for the year ended December 31, 1995                 --               --               --                --     
    Foreign currency translation adjustment                       --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1995                                21,046,800          210,500             --                --     
    Proceeds from exercise of stock options                    255,500            2,500             --                --     
    Conversion of warrants                                         200             --               --                --     
    Conversion of debentures                                 1,577,400           15,800             --                --     
    Net loss for the year ended  December  31, 1996               --               --               --                --     
    Foreign currency translation adjustment                       --               --               --                --     
    Unrealized loss on investments                                --               --               --                --     
                                                         -------------    -------------    -------------     -------------   
Balance at December 31, 1996                                22,879,900    $     228,800             --       $        --     
                                                         =============    =============    =============     =============   
</TABLE>
<PAGE>

                              RESTUBBED FROM ABOVE



<TABLE>
<CAPTION>

                                                                                                                       TOTAL
                                                               ADDITIONAL       ACCUM-                                 STOCK-
                                                                PAID-IN         ULATED           OTHER                HOLDERS'
                                                                CAPITAL         DEFICIT         EQUITY                 EQUITY
                                                            -------------   --------------     -------------     --------------
<S>                                                        <C>               <C>               <C>               <C>          
Issuance of shares for initial cash contribution
  of capital ($.01 per share of common stock
  and $.005 per share of Class B stock)                    $   1,000,000     $        --       $        --       $   1,050,000
    Net loss for the period May 7, 1987 (inception)
       through December 31, 1987                                    --          (1,030,500)             --          (1,030,500)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1987                                   1,000,000        (1,030,500)             --              19,500
    Net loss for the year ended December 31, 1988                   --          (1,556,800)             --          (1,556,800)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1988                                   1,000,000        (2,587,300)             --          (1,537,300)
    Proceeds from exercise of stock options                          400              --                --                 400
    Compensation related to stock options                        305,900              --                --             305,900
    Issuance of shares ($12.00 per share, less costs)         14,061,400              --                --          14,073,900
    Conversion of class B stock to common stock                     --                --                --                --
    Net loss for the year ended December 31, 1989                   --          (5,743,300)             --          (5,743,300)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1989                                  15,367,700        (8,330,600)             --           7,099,600
    Proceeds from exercise of stock options                      143,500              --                --             144,900
    Compensation related to stock options                        269,000              --                --             269,000
    Issuance of shares ($18.00 per share, less costs)         33,009,700              --                --          33,029,900
    Net loss for the year ended December 31, 1990                   --          (4,924,900)             --          (4,924,900)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1990                                  48,789,900       (13,255,500)             --          35,618,500
    Proceeds from exercise of stock options                    3,349,600              --                --           3,352,100
    Compensation related to stock options                      1,038,900              --                --           1,038,900
    Issuance of shares ($57.00 per share, less costs)         61,444,300              --                --          61,455,800
    Issuance of shares for a 2 for 1 stock dividend              (98,000)             --                --                --
    Net loss for the year ended December 31, 1991                   --          (6,540,100)             --          (6,540,100)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1991                                 114,524,700       (19,795,600)             --          94,925,200
    Proceeds from exercise of stock options                    1,336,400              --                --           1,337,800
    Compensation related to stock options                      1,452,400              --                --           1,452,400
    Net loss for the year ended December 31, 1992                   --         (20,225,800)             --         (20,225,800)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1992                                 117,313,500       (40,021,400)             --          77,489,600
    Proceeds from exercise of stock options                      614,300              --                --             614,800
    Compensation related to stock options                        906,900              --                --             906,900
    Net loss for the year ended December 31, 1993                   --         (40,629,600)             --         (40,629,600)
    Foreign currency translation adjustment                         --                --            (291,800)         (291,800)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1993                                 118,834,700       (80,651,000)         (291,800)       38,089,900
    Proceeds from exercise of stock options                      404,900              --                --             405,300
    Class action settlement                                    7,753,200              --           7,758,700
    Compensation related to stock options                      1,330,300              --                --           1,330,300
    Net loss for the year ended December 31, 1994                   --         (24,041,000)             --         (24,041,000)
    Foreign currency translation adjustment                         --                --             395,700           395,700
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1994                                 128,323,100      (104,692,000)          103,900        23,938,900
    Proceeds from exercise of stock options                      359,900              --                --             360,900
    Class action settlement                                    2,241,200              --                --           2,241,200
    Proceeds from private placement of securities              2,233,500              --                --           2,239,100
    Net loss for the year ended December 31, 1995                   --            (237,800)             --            (237,800)
    Foreign currency translation adjustment                         --                --             245,600           245,600
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1995                                 133,157,700      (104,929,800)          349,500        28,787,900
    Proceeds from exercise of stock options                    1,256,300              --                --           1,258,800
    Conversion of warrants                                         4,500              --                --               4,500
    Conversion of debentures                                  16,825,900              --                --          16,841,700
    Net loss for the year ended  December  31, 1996                 --          (9,687,400)             --          (9,687,400)
    Foreign currency translation adjustment                         --                --            (301,300)         (301,300)
    Unrealized loss on investments                                  --                --              (9,900)           (9,900)
                                                           -------------     -------------     -------------     -------------
Balance at December 31, 1996                               $ 151,244,400     $(114,617,200)    $      38,300        36,894,300
                                                           =============     =============     =============     =============
</TABLE>


                                                         See accompanying notes.
                                      F - 6

<PAGE>


                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996

1. Organization

         U.S. Bioscience, Inc. (the "company"), was incorporated in the State of
Delaware on May 7, 1987. Following the initial issuance of its shares in August
1987, the company was 80% owned by U.S. Healthcare, Inc., ("USHC"). In October
1987, USHC paid a special dividend to its stockholders in the form of the
company's common stock. USHC distributed 46% of the company's common stock and
retained a 34% equity interest in the company. In August 1992, USHC distributed
its remaining shares in the company to USHC shareholders as a dividend.

         The company entered into an agreement with Marion Laboratories, Inc.
("Marion"), in September 1989 pursuant to which Marion purchased 1,250,000
shares of newly issued U.S. Bioscience common stock pursuant to a Stock Purchase
Agreement for a total investment of $15,000,000; net proceeds to the company,
after related costs, were $14,073,900. By January 1996, Marion had sold its
entire holding of U.S. Bioscience common stock.

         In February 1990, the company completed a public offering of 2,012,500
shares of common stock, realizing net proceeds of $33,029,900. In May 1991, the
company completed a second public offering of 1,150,000 shares of common stock,
realizing net proceeds of $61,455,800.

         In December 1995, the company consummated a private placement of
securities pursuant to which it sold a total of 560,056 shares of common stock
for an aggregate price of $3.5 million and issued $16.5 million in three year,
4% unsecured convertible debentures for an aggregate price of $16.5 million, for
a total financing of $20 million, excluding related fees and expenses. Net
proceeds realized by the company in this private placement were $18,739,100. The
investors who purchased the convertible notes converted the entire issue into
1,577,366 shares of the company's common stock during the first half of 1996.

         At the company's annual stockholders meeting on April 22, 1996, the
company's stockholders approved a 1 for 2 reverse stock split effected April 23,
1996. Accordingly all references to the number of shares and per share amounts
included in the financial statements and related notes thereto, reflect the 1
for 2 reverse stock split.

         The company established in 1993 two wholly-owned operating
subsidiaries; USB Pharma B.V. incorporated in The Netherlands and USB Pharma
Limited incorporated in the United Kingdom. USB Pharma B.V. operates the
company's manufacturing plant located in Nijmegen, The Netherlands, and USB
Pharma Limited manages the company's European clinical research activities. In
1995 the company established two wholly-owned subsidiaries in the State of
Delaware, USB Resources, Inc. and USB Technologies, Inc., both of which were
inactive during 1995 and 1996.

         The company is a pharmaceutical company specializing in the development
and commercialization of products for patients with cancer and allied diseases.
For accounting purposes, the company is considered a "development stage
enterprise." Through December 31, 1996, the company's revenues have been derived
principally from investment income, from the sale of drug products, Hexalen,
NeuTrexin and Ethyol, licensing of rights to develop and market certain
products, and from contract development activities. Expenses incurred have been
primarily for the development of its drugs and related therapies, marketing and
sales activities and corporate organizational and administrative activities.


                                      F-7


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

2. Significant Accounting Policies

Principles of Consolidation

         The consolidated financial statements include the accounts of U.S.
Bioscience, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.

Use of Estimates

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

Cash and Cash Equivalents

         The company generally classifies as cash equivalents all highly liquid
instruments with a maturity of three months or less at the time of purchase.

Investments

         The company follows Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under this
standard management determines the appropriate classifications of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The investments held by the company at December 31, 1996 and
1995 were classified as available for sale, with the unrealized gains and losses
reported as a separate component of stockholders' equity. At December 31, 1995,
the fair value approximated cost and accordingly there was no adjustment to
stockholders' equity.

Inventories

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

Property, Plant and Equipment

         Buildings, furniture, equipment and leasehold improvements are stated
at cost less accumulated depreciation and amortization. Buildings, furniture and
equipment are depreciated by the straight-line method over their useful lives
for financial reporting purposes and under an accelerated method for federal
income tax purposes. Leasehold improvements are depreciated by the straight-line
method over the shorter of their useful lives or the life of the lease for
financial reporting purposes and under an accelerated method for federal income
tax purposes.

Product Revenues

         Product revenues are recognized upon shipment of inventory to the
customer. The company's product revenues to date have principally been domestic
sales of drug products Hexalen and NeuTrexin primarily to drug wholesalers in
the United States and sales of Ethyol to the company's distribution partners.
During 1996 a significant portion of the company's sales were to ALZA
Corporation, the company's US distribution partner for Ethyol.

                                       F-8


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Research and Development Costs

         For financial reporting purposes, all costs of research and development
activities are expensed as incurred.


Patents and Trademarks

         It is the company's practice to seek patent and trademark protection on
processes and products in various countries. Patent and trademark application
costs are expensed as incurred.


Income Taxes

         Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes".


Foreign Currency Translation

         The financial statements of foreign subsidiaries have been translated
into U.S. dollars in accordance with FASB Statement No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using exchange
rates in effect at the balance sheet date. Income statement amounts have been
translated using monthly average exchange rates for the year. The gains and
losses resulting from the changes in exchange rates from year to year have been
reported separately as a component of stockholders' equity.


Net Loss per Share

         Net loss per share is calculated based on the weighted average number
of common shares outstanding. Stock options outstanding have not been included
in the net loss per share calculations since their effect would be antidilutive.
All such calculations have been restated to reflect the 1 for 2 reverse stock
split approved at the company's annual meeting and effected April 23, 1996.


Accounting for Stock Options

         The company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock options. Note 11 of these notes to
consolidated financial statements includes the required disclosure and pro forma
information provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("FASB 123"). Under APB 25, because the exercise price
of the company's stock options equals the market price of the underlying common
stock on the date of grant, no compensation expense is recognized.





                                       F-9


<PAGE>

                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. Investments

         Investments are comprised of the following:

<TABLE>
<CAPTION>

                                                                             Fair Value at
             Name of Issuer                  Principal      Amortized        Balance Sheet
           and Title of Each                  Amount           Cost               Date
----------------------------------------------------------------------------------------------
December 31, 1996

<S>                                      <C>               <C>               <C>        
U.S. Government obligations
    Treasury Notes                       $ 6,990,700       $ 6,991,300       $ 6,980,000
    Treasury Bills                         1,948,300         1,948,300         1,948,300
    Federal Home Loan Bank                 1,000,000         1,000,000           999,700
                                         -----------       -----------       -----------
                                           9,939,000         9,939,600         9,928,000
Corporate Bonds                            1,002,600         1,000,500         1,002,200
Corporate Discount Notes                  12,690,200        12,697,900        12,691,600
                                         -----------       -----------       -----------
Total                                    $23,631,800       $23,638,000       $23,621,800
                                         ===========       ===========       ===========
December 31, 1995                                                          
U.S. Government obligations                                                
     Treasury Bills                      $   974,400       $   974,400       $   974,400
Corporate Bonds                            3,002,600         3,001,200         3,003,000
                                         -----------       -----------       -----------
Total                                    $ 3,977,000       $ 3,975,600       $ 3,977,400
                                         ===========       ===========       ===========
</TABLE>
                                                                        
The investments held at December 31, 1996 will all mature during 1997 


4. Inventories

         Inventory balances at December 31, are as follows:


                                      1996                       1995
                                -----------------          -----------------
Raw Materials                   $         850,500          $         813,300
Work in process                         1,121,500                    893,000
Finished goods                            620,000                    458,800
                                -----------------          -----------------
Total                           $       2,592,000          $       2,165,100
                                =================          =================



                                      F-10


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. Property, Plant and Equipment

         Property, plant and equipment balances at December 31, are as follows:


                                                     1996              1995
                                                 -----------      -------------
Land, buildings, and leasehold improvements      $ 2,071,900      $   2,106,500
Equipment, furniture and fixtures                  9,079,700          8,173,500
Accumulated depreciation                          (5,076,400)        (3,945,700)
                                                 -----------      -------------
Property, plant and equipment, net               $ 6,075,200      $   6,334,300
                                                 ===========      =============

6. Long-Term Debt

         Long-term debt at December 31, consisted of:


                                           1996               1995
                                      -------------       ------------
MELF equipment loan                   $     252,800       $    323,600
Mortgage loan                               589,400            685,300
Term loan                                 1,700,000          2,300,000
Convertible debentures                           --         16,500,000
Capital lease obligations                    35,400                 --
                                      -------------       ------------
                                      $   2,577,600       $ 19,808,900
Less current portion                        732,200            721,300
                                      -------------       ------------
Long-term debt                        $   1,845,400       $ 19,087,600
                                      =============       ============


         Maturities of long-term debt for each of the five years succeeding
December 31, 1996 are; 1997-- $732,200; 1998--$733,600; 1999--$625,400;
2000--$81,400; 2001--$49,700; and thereafter $355,300.

         In April 1993, the company received $500,000 from the Commonwealth of
Pennsylvania Machinery and Equipment Loan Fund Program (MELF), which provides
financing for companies expanding employment in the Commonwealth. Proceeds of
this loan were used to purchase laboratory equipment for the company's
analytical laboratory located in Exton, Pennsylvania. The loan will amortize
over a seven-year term and bears interest at a rate of 2% per annum.

         In May 1994, USB Pharma B.V., entered into a mortgage loan with
Cooperatieve Rabobank B.A. in the amount of Dutch Guilders 1,180,000
(approximately $680,000) secured by the land and buildings of its manufacturing
facility in Nijmegen, The Netherlands and guaranteed by U.S. Bioscience, Inc.
Proceeds of this loan were used to partly fund the purchase of additional
equipment for the company's manufacturing facility in The Netherlands. The
mortgage loan has a 15-year term, requires quarterly Dutch Guilder installments
of principal repayment which began in March 1995 and bears a quarterly variable
interest rate. Interest is payable quarterly in Dutch Guilders and the current
interest rate is 5.75%.

                                      F-11


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         In June 1995, the company received a term loan from its principal bank
in the amount of $2,400,000. This loan will amortize monthly over four years,
bears an annual interest rate of 6.86% and is collateralized by a portion of the
company's investment portfolio.

         In December 1995, the company issued a $20 million private placement of
securities which consisted of 560,056 common shares issued for an aggregate
price of $3.5 million and $16.5 million in unsecured convertible debentures
("Debentures"). The Debentures were to mature on December 6, 1998 and bore
interest at the rate of 4% per annum. The company had the right to prepay the
Debentures upon payment of a 21.21% premium. The company also had the right to
require the conversion of the Debentures, which right the company could have
exercised at any time or from time to time on or after March 27, 1996. During
the first half of 1996, the investors who purchased the Debentures, converted,
in six separate conversions, the entire issue receiving 1,577,366 shares of the
company's Common Stock. The shares issued in the conversions also included
15,316 shares in payment of accrued interest on the converted principal. The
conversion price was 82.5% of the average market price for the Common Stock for
the five consecutive trading days ending one trading day prior to the date that
each conversion notice was received by the company. The net proceeds from this
placement in the amount of $18,739,100 were added to the company's working
capital.

7. Line of Credit

         In June 1995, the company established a $1,000,000 credit line with an
international financial institution. This line of credit is denominated in Dutch
Guilders, currently bears an annual interest rate of 4.56% and is utilized by
the company's subsidiary, USB Pharma B.V., for funding working capital
requirements. As of December 31, 1996 approximately $665,000 of this credit line
has been utilized. The credit line is guaranteed by U.S. Bioscience, Inc. and
collateralized by a portion of the company's investment portfolio.

8. Commitments

         The company leases office, warehouse and laboratory space under four
operating leases, the last of which terminates in March 2002. Future minimum
annual lease payments total $2,196,500 and are as follows: 1997 -- $889,400;
1998 -- $758,700; 1999 -- $162,400, 2000 and 2001 -- $133,500 in each year and
$119,000 in 2002. Rent expense for the year ended December 31, 1996 was
$911,400; 1995 -- $989,800; 1994 -- $1,187,700; and May 7, 1987 (inception)
through December 31, 1996 was $6,532,700. As part of the company's January 1995
internal restructuring, the company reduced its office space in the company's
principal office in West Conshohocken, Pennsylvania from 38,000 sq. ft. to
approximately 26,400 sq. ft. The lease on the company's principal office expires
in October 1998.

         The company has entered into various license agreements with unrelated
parties which provide the company with rights to develop, produce and market
drugs and related therapies which the company believes demonstrate effectiveness
in the treatment of cancer and allied diseases. The agreements allow the company
to use certain knowledge and patent rights of the licensors. Terms of the
agreements require the company to pay percentage fees and royalties of varying
amounts based upon defined future net sales, if any, and in general, variable
percentages of any royalty income received from foreign licensees. Some of the
agreements also require minimum annual payments and the payment of lump sums
upon the achievement of certain milestones in the clinical development of the
chemical compound.



                                      F-12


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         For the years ended December 31 listed below, the company has incurred
sales related royalty expense as follows:

                                                     Royalty
                         Year                        Expense
                         ----                        -------
                Prior to 1994                     $  183,600
                         1994                        260,300
                         1995                        328,800
                         1996                        488,700
                                                  ----------
                        Total                     $1,261,400
                                                  ==========

         As of December 31, 1996, the company had contracted and continues to
contract with third parties to serve as clinical investigators of certain
investigational drugs through terms, in general, expiring in 1997 and 1998. The
clinical investigators are compensated on a percentage of completion basis,
subject to compliance with other elements of the agreements. As of December 31,
1996, the clinical investigator agreements, in the aggregate, provide for
minimum payments of approximately $2,844,400 over the terms of the agreements,
of which approximately $922,500 had been paid through December 31, 1996.

9. Major Distribution and Marketing Agreements

         In December 1995, the company entered into an exclusive marketing and
distribution agreement with ALZA Corporation ("ALZA") for Ethyol in the United
States. Under the terms of this Agreement, ALZA has exclusive rights to market
Ethyol in the United States for five years and is responsible for sales and
marketing; the company's sales force co-promotes the product with ALZA. After
the five-year period, which ALZA has an option to extend for one year, marketing
rights to Ethyol revert to the company, and ALZA will receive payments from the
company for ten years based on sales of Ethyol in the United States. ALZA paid
the company $14 million in December 1995 and $6 million in January 1996 as
initial fees for the rights noted above. The company recorded as income the
entire initial $20 million fee in the fourth quarter of 1995. The $6 million
January payment was reflected in "Other Current Assets" in the December 31, 1995
consolidated balance sheet. The company also accrued, in the fourth quarter of
1995, a one-time $2.0 million charge related to Ethyol U.S. launch expenses as
part of the company's co-promotion arrangement with ALZA. This accrual was
reflected in "Other Accrued Liabilities" in the December 31, 1995 consolidated
balance sheet. There can be no assurance that the marketing of Ethyol in the
United States will result in meaningful revenues to the company.

         In May 1996, the company entered into a co-promotion agreement with
ALZA to co-promote the company's products, Hexalen and NeuTrexin in the United
States. Under the terms of this agreement, the company pays ALZA a commission,
which is based upon a percentage of net sales of Hexalen and NeuTrexin in the
United States above a base level of sales. The commission payment is subject to
an annual minimum and the commission percentage rises as net sales increase.
Under the terms of the agreement, ALZA's sales force co-promotes Hexalen and
NeuTrexin and the company makes sales of both products to wholesalers and
distributors. The agreement may be terminated at any time on six months notice
by either party after June 30, 1998. At the end of the co-promotion term, the
agreement provides for ALZA to be paid residual commission payments for a term
which varies based on the reason for termination. The residual commissions are
based on a percentage of net sales during the residual period subject to a
maximum payment of a decreasing percentage of actual commission payments made to
ALZA under the agreement during the co-promotion period. There can be no
assurance that the marketing of Hexalen and NeuTrexin in the United States will
result in meaningful revenues to the company.


                                      F-13


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         The company has entered into an exclusive marketing and distribution
agreement ("Agreement") with Scherico Ltd., ("Scherico") a subsidiary of
Schering Plough Corporation, for Ethyol in the countries comprising the EU and
EFTA (the "European Territories"). Under the original terms of its Agreement
with Scherico, the company would have shared in operating profits/losses (as
defined in the Agreement) generated from marketing and sales of Ethyol in
Germany, United Kingdom, Spain, Italy and France (the "Major Markets") for a
period of up to two years from November 23, 1994, the date of approval of Ethyol
in the United Kingdom. With respect to 1995, Scherico invoiced the company $4.2
million for the company's share of operating losses. This amount was recorded as
an expense in 1995 and reflected as "Other Accrued Liabilities" in the December
31, 1995 consolidated balance sheet and was paid in April of 1996.

         In September 1996, the company and Scherico entered into an amendment
to the original agreement ("Scherico Amendment") pursuant to which, retroactive
to January 1, 1996, Scherico began to purchase Ethyol from the company at a
price based on a percentage of in-market net sales and the company stopped
participating in operating profits/losses previously shared by the parties. In
conjunction with the Scherico Amendment, Scherico paid the company a total of
$6.2 million in the fourth quarter of 1996.

         Under the terms of the amended Agreement, Scherico's exclusive rights
to market the product will continue for seven years from January 1, 1997. During
such seven-year period the company will sell Ethyol to Scherico at a price based
upon a percentage of in-market net sales. The company may co-promote Ethyol with
Scherico for the two years following such seven-year period. Thereafter, the
company will reacquire sole marketing rights subject to the reverse royalty
payable to Scherico as described below. Under certain circumstances Scherico is
required to pay the company milestone payments when regulatory approvals, if
any, are obtained. There can be no assurance that all milestone payments will be
made to the company under the amended Agreement.

         After reacquiring sole marketing rights, the company will pay Scherico
a percentage of its Ethyol sales, if any, from the European Territory for a
period of three years. The company will supply Ethyol to Scherico throughout the
term of the Agreement. Scherico may terminate the Agreement at any time by
providing 180 days written notice to the company of its desire to terminate the
agreement. There can be no assurance that the Agreement will not be terminated
by Scherico. There can be no assurance that the marketing of Ethyol in the
European Territories will result in meaningful revenues to the company.

10. Common Stock

         Voting rights of common stock are one vote per share and voting rights
of the Class B stock were fifty votes per share, respectively. In connection
with Marion's purchase of common stock, all outstanding Class B stock was
converted into common stock on a share-for-share basis in September 1989. The
authorization of the Class B stock was eliminated in February 1990.

         In December 1991, the Board of Directors, by unanimous vote, authorized
a 100% common stock dividend on the outstanding shares of common stock. The
company issued 9,807,000 shares of common stock in connection with this
dividend.

         In May 1992, the company's Certificate of Incorporation was amended to
increase the number of authorized shares of common stock of the company from
50,000,000 shares to 100,000,000 shares. Adoption of this amendment permits the
company's Board of Directors, without further approval of the company's
stockholders, except as may be required by Delaware law or the rules of the
American Stock Exchange, to


                                      F-14


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

issue additional shares of the company's common stock, from time to time as the
Board of Directors may determine, for such consideration as the Board of
Directors establishes. This amendment was adopted to replace the shares
previously issued in the stock dividend described above and to provide
flexibility in structuring possible acquisitions of other businesses, to enable
the company to raise additional equity capital if and when needed and allow the
Board of Directors, in its discretion, to declare stock splits or stock
dividends in the future. The company has no present definitive plans,
arrangements or understandings, other than shares to be issued pursuant to the
exercise of stock options pursuant to the company's stock option plans and the
exercise of the 1,096,500 warrants currently outstanding which were issued in
1995 under a class-action litigation settlement and the issuance of the
1,178,882 shares of common stock to ALZA pursuant to the terms of the February
1997 stock purchase agreement described in Note 14 below, with respect to
possible acquisitions, financings, stock splits or dividends requiring the
availability of additional authorized common stock.

         In April 1995, the company, as part of a class action litigation
settlement, issued 1,096,634 warrants to purchase from the company one share of
U.S. Bioscience common stock for each warrant. The warrants are exercisable for
three years from date of issuance, April 24, 1995, at an exercise price of
$9.20. Upon issuance of the warrants, the company transferred to stockholders'
equity $2,241,200 representing the remainder of a $10,165,000 litigation
provision established in 1993 to provide for the cost of these warrants. During
1994, $7,758,700 of the provision was transferred to stockholders' equity upon
issuance into escrow of a common stock component of the settlement. Pursuant to
the Warrant Agreement between the company and ChaseMellon Shareholder Services,
L.L.C., the number of outstanding warrants was unaffected by the April 23, 1996
1 for 2 reverse stock split. The warrant exercise price and the number of
warrant shares exercisable upon exercise of a warrant certificate were
automatically proportionally adjusted. Warrants exercised subsequent to the 1
for 2 reverse stock split will require the warrant holder to present two
warrants and an exercise price of $18.40 in order to receive one share of the
company's common stock. Fractional shares will not be issued upon the exercise
of warrants. Warrant certificates that upon exercise would produce a fractional
share will receive, in place of the fractional share, cash equal to the
exercise price of a whole share on the day immediately preceding the day the
warrant certificate is presented for exercise multiplied by such fraction.

         In May 1995, the company adopted a Preferred Stock Purchase Rights Plan
(the "Rights Plan") designed to protect company stockholders in the event of
takeover actions that would deny them the full value of their investment. Each
stock certificate representing outstanding shares of Common Stock of the company
also represents the same number of rights to purchase, under certain
circumstances, shares of Series A Junior Preferred Stock of the company (the
"Rights"). The Rights will become exercisable only in the event, with certain
exceptions, a person or group of related persons accumulates 15 percent or more
of the company's voting stock. The Rights will expire on May 29, 2005.
Subsequent to the reverse stock split, each Right will entitle the holder to buy
two one-hundredths of a share of the new Series A Junior Preferred Stock at a
price of $30. In addition, upon the occurrence of certain events, holders of the
Rights will be entitled to purchase either company stock or shares in an
"acquiring entity" at half the market value. The company generally will be
entitled to redeem the Rights at one-twentieth of one cent ($.0005) per Right at
any time until the tenth day following the acquisition by any person or group of
related persons of 15 percent or more of the company's outstanding voting stock.
Until such time, the Rights automatically trade with the underlying common
stock.

         On April 22, 1996, the company's stockholders, at the company's annual
meeting, approved an amendment to the company's Certificate of Incorporation to
effect a 1 for 2 reverse stock split in which each two shares of the company's
Common Stock, par value $.005 per share, whether issued and outstanding or held
in treasury, were reclassified into one new share of Common Stock, par value
$.01 per share. The

                                      F-15


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

amendment to the company's Certificate of Incorporation reduced the number of
authorized shares of Common Stock from 100,000,000 to 50,000,000 shares and
increased the par value of the Common Stock from $.005 per share to $.01 per
share. No fractional shares were issued and any stockholder of record entitled
to a fractional share by reason of the reverse stock split received, in lieu
thereof, cash in an amount determined on a weighted average basis by the
consolidation of fractional shares, aggregated and sold in the open market by
ChaseMellon Shareholder Services, L.L.C., as agent for the holders of fractional
shares. The effect of the 1 for 2 reverse stock split on the Rights was to
increase the portion of a share of Series A Junior Preferred Stock of the
company purchasable upon exercise of a Right, should it become exercisable, from
one one-hundredth (1/100) of a share of Series A Junior Preferred Stock to two
one-hundredths (2/100) of a share of Series A Junior Preferred Stock, and to
increase the exercise price of a Right from $15 to $30.

         At December 31, 1996, 3,769,100 shares of common stock were reserved
for issuance pursuant to company stock option plans and 548,182 shares of common
stock were reserved for issuance pursuant to the exercise of outstanding
warrants.

11. Stock Option Plans

         The company has adopted various stock option plans, primarily as
incentives for recipients to remain affiliated with the company. Except for a
limited number of option grants where the ability to exercise is based upon the
achievement of benchmarks, options outstanding under the option plans are
exercisable at rates from 20% to 33 1/3% per year, generally beginning one year
from the date of grant. With the exception of options granted to certain
consultants and advisors all options expire 10 years from the date of grant.

         The company currently grants stock options under three stock option
plans: the Non-Executive Stock Option Plan, which was established in 1994 and is
used to provide option incentives to employees who are not officers or directors
of the company for purposes of Section 16 of the Securities Exchange Act of
1934, as amended and the regulations thereunder, and consultants and advisors to
the company; the 1992 Stock Option Plan, which is used to provide option
incentives to Section 16 officers and directors; and the 1996 Non- employee
Directors Plan, which is used to provide options in lieu of fees to electing
non-employee directors.

Detail information concerning all stock option plans is as follows:

<TABLE>
<CAPTION>



                          1987         1987         1987         1990         1991         1992     NON-EXECUTIVE   1996
                       INCENTIVE   NON-STATUTORY  SPECIAL      SPECIAL      SPECIAL    STOCK OPTION STOCK OPTION    NON-
                      STOCK OPTION STOCK OPTION NON-STATUTORY DIRECTORS   NON-STATUTORY    PLAN         PLAN      EMPLOYEE
                          PLAN         PLAN     STOCK OPTION STOCK OPTION STOCK OPTION                           DIRECTORS
                                                    PLAN         PLAN         PLAN                               STOCK OPTION
                                                                                                                    PLAN
                      -------------------------------------------------------------------------------------------------------
<S>                        <C>          <C>           <C>          <C>         <C>          <C>                <C>        <C>
OPTIONS AUTHORIZED       1,000,000    1,000,000      500,000      250,000    1,000,000    1,750,000    1,250,000     50,000
                      ======================================================================================================
OPTIONS OUTSTANDING        327,200      748,700       90,000       40,000      517,400      872,400            0          0
    DECEMBER 31, 1993
   GRANTED                       0            0            0            0            0      373,300       80,800          0
   EXERCISED               (14,300)           0       (2,900)     (10,000)           0      (10,400)           0          0
   CANCELED                (39,200)           0      (35,700)           0      (63,100)    (135,700)      (2,500)         0
                      -------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING        273,700      748,700       51,400       30,000      454,300    1,099,600       78,300          0
    DECEMBER 31, 1994
   GRANTED                       0            0            0            0            0      123,000      338,400          0
   EXERCISED               (11,700)     (20,000)           0            0      (14,800)     (45,600)      (9,300)         0
   CANCELED                (61,600)    (144,400)      (2,800)     (30,000)    (121,100)    (220,400)     (39,200)         0
                      -------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING        200,400      584,300       48,600            0      318,400      956,600      368,200          0
     DECEMBER 31, 1995
   GRANTED                       0            0            0            0            0      687,800      505,700          0
   EXERCISED               (24,500)     (30,500)     (11,700)           0      (36,700)    (121,800)     (30,300)         0
   CANCELED                 (3,800)           0            0            0      (57,000)     (26,500)    (143,800)         0
-----------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING        172,100      553,800       36,900            0      224,700    1,496,100      699,800          0
     DECEMBER 31, 1996
=============================================================================================================================
</TABLE>
                                      F-16


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         A summary of stock option prices and exercisable shares is as follows:

<TABLE>
<CAPTION>

                                                       TOTAL       OPTION       OPTION      WEIGHTED           SHARES
                                                     ACTIVITY     PRICE PER    PRICE PER    AVERAGE          EXERCISABLE
                                                     ALL PLANS      SHARE        SHARE      EXERCISE             AT
                                                     (SHARES)       (LOW)       (HIGH)       PRICE            YEAR-END
                                                   -----------------------------------------------------------------------
<S>                                                    <C>          <C>         <C>          <C>               <C>    
OPTIONS OUTSTANDING DECEMBER 31, 1993                  2,595,700    $0.15       $36.20       $10.05            785,600
   GRANTED                                               454,100    $0.15       $16.50        $7.77              --
   EXERCISED                                             (37,600)   $0.15       $15.75       $10.77              --
   CANCELED                                             (276,200)   $0.15       $27.80       $17.26              --
                                                   -----------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1994                  2,736,000    $0.15       $36.20        $8.95           1,145,300
   GRANTED                                               461,400    $4.62       $10.26        $5.80              --
   EXERCISED                                            (101,400)   $0.15        $4.88        $3.55              --
   CANCELED                                             (619,500)   $4.88       $30.20       $17.10              --
                                                   -----------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1995                  2,476,500    $4.62       $30.20        $6.51           1,180,850
   GRANTED                                             1,193,500   $10.00       $16.75       $13.07              --
   EXERCISED                                            (255,500)   $4.88       $10.25        $4.93              --
   CANCELED                                             (231,100)   $4.88       $30.20       $13.63              --
--------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING DECEMBER 31, 1996                  3,183,400    $4.62       $30.20        $8.66           1,283,400
==========================================================================================================================
</TABLE>

The price range of outstanding and exercisable stock options as at December 31,
1996 is as follows:
<TABLE>
<CAPTION>


                                        OPTIONS      WEIGHTED       WEIGHTED       OPTIONS       WEIGHTED
                                         OUT-         AVERAGE       AVERAGE        EXERCIS-       AVERAGE
RANGE OF OPTION EXERCISE PRICES        STANDING      REMAINING      EXERCISE         ABLE        EXERCISE
                                          AT         CONTRACT        PRICE            AT           PRICE
                                       YEAR-END        LIFE                        YEAR-END
                                                      (YEARS)
----------------------------------------------------------------------------------------------------------
<C>                                      <C>           <C>           <C>            <C>            <C>  
 $4.62 - $4.88                           1,808,800     5.93           $4.87         1,148,700      $4.87
 $5.25 - $10.00                            115,600     9.20           $8.38            12,800      $6.40
 $10.13 - $12.75                           535,000     9.26          $11.90            28,900     $11.21
 $13.25 - $22.00                           679,000     9.40          $15.00            51,000     $21.00
 $22.75 - $30.20                            45,000     5.41          $27.72            42,000     $27.54
----------------------------------------------------------------------------------------------------------
 $4.62 - $30.20                          3,183,400     7.34           $8.66         1,283,400      $6.42
==========================================================================================================   
</TABLE>

         The exercise price of options currently granted under the plans is
equal to the fair market value of the underlying share of common stock at the
time of grant. Options for which the exercise price is less than the fair market
value at the time of grant are considered compensatory and the difference in
value is charged to operations over the vesting period of the option.

         The company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("FASB 123") requires the use of
option valuation models that were not developed for use in valuing stock
options. Under APB 25, because the exercise price of the company's stock options
equals the market price of the underlying common stock on the date of grant, no
compensation expense is recognized.



                                      F-17


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         Pro forma information regarding net income and earnings per share is
required by FASB 123, which also requires that the information be determined as
if the company has accounted for stock options granted subsequent to December
31, 1994 under the fair value method of FASB 123. The fair value for the
company's stock options granted subsequent to December 31, 1994 is estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1995 and 1996; risk-free interest rate of
6.28%; no expected dividend payments; volatility factors of the expected market
price of the company's common stock, based on historical volatility, of 0.8999
and 0.4252, respectively; and a weighted-average expected life of the option of
8 years.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. As noted above, the company's stock options are
vested over an extended period. In addition, option models require the input of
highly subjective assumptions including future stock price volatility. Because
the company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimates, in managements opinion, the Black-
Scholes model does not necessarily provide a reliable measure of the fair value
of the company's stock options.

         For purposes of pro forma disclosure under FASB 123, the estimated fair
value of the company's options is amortized over the option's vesting period.
The company's pro forma information is as follows:


                                                  1996               1995
                                              --------------     -------------
  Net loss as reported under APB 25             ($9,687,400)        ($237,800)
  Stock option expense per FASB 123              (1,304,400)         (297,200)
  Pro forma net loss                           ($10,991,800)        ($535,000)
                                               ------------         ---------
  Pro forma net loss per common share                ($0.49)           ($0.03)

         Because FASB 123 is applicable only to options granted subsequent to
December 31,1994, its pro forma effect will not be fully reflected until the
year 2000 due to the five year vesting period of options granted in 1995, the
initial year implementation of stock option accounting under FASB 123 is
required for disclosure by the company.

12. Employee Benefit Plans

         The company has a defined contribution pension plan covering
substantially all of its U. S. employees, subject to age and service
requirements. In addition, the company has an Employee Savings Plan 401(k)
available for all of its U.S. employees subject to age and service requirements
and matches employee contributions in an amount equal to the lesser of one-third
of the employee's contribution or 2% of the employee's compensation subject to
government tax regulation limits. The company also provides a deferred
compensation program for certain executives of the company. The company funded
Employee Savings Plan 401(k) costs during 1996 on a monthly basis. The company
funded pension costs on a quarterly basis in 1996. Amounts accrued under the
deferred compensation plan are reflected as "Long-term Liabilities" in the
company's consolidated balance sheet. Costs of the Employee Pension Plan, the
Employee Savings Plan 401(k) and the deferred compensation plans were for the
years ended December 31, 1994--$876,400, 1995--$949,200 and 1996--$993,000.
Employee benefit plan costs for the period May 7, 1987 (inception) through
December 31, 1996 total $5,248,600.

                                      F-18


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. Income Taxes

         As of December 31, 1996, the company had a net operating loss carry
forward of approximately $123,729,000 for federal income tax purposes. In
addition, the company had a research and development tax credit carry forward of
$4,630,000.

         The company records deferred tax assets and liabilities for the tax
effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. A valuation allowance equal to the net deferred tax asset has been
recorded on the basis of the uncertainty with respect to the ultimate
realization of the net deferred tax assets. Due to this uncertainty, no benefit
has been recorded for the year ended December 31, 1996 or any prior period for
any net operating loss carryforwards or other deferred tax assets generated
during the year.

         Significant components of the company's estimated deferred tax assets
and liabilities as at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>


                                                                  1996                            1995
                                                             --------------                 -----------
<S>                                                           <C>                          <C>              
Deferred tax assets
     Net operating loss carryforwards(1)                       $ 45,783,100                 $ 42,179,200     
     Book over income tax depreciation                              155,500                       94,800
     Research and development tax credits                         4,630,000                    4,043,000
     Other non-salary compensation and benefits                     676,200                      501,800
     Other, principally reserves                                    283,200                      237,500
                                                               ------------                 ------------
     Total deferred tax assets                                   51,528,000                   47,056,300
Deferred tax liabilities                                                                
     Prepaid expenses                                              (121,600)                     (97,000)
                                                               ------------                 ------------
     Total deferred tax liabilities                                (121,600)                     (97,000)
                                                               ------------                 ------------
                                                                 51,406,400                   46,959,300
Valuation allowance for net deferred tax assets                 (51,406,400)                 (46,959,300)
                                                               ------------                 ------------
Net deferred tax assets                                        $          0                 $          0
                                                               ============                 ============
</TABLE>
                                                                            
(1)  Includes estimated state and foreign net operating loss carryforwards of
     $1,746,600.

         Approximately $10,153,200 of tax benefits related to the exercise of
stock options is included in the net operating loss carryforwards listed above.
Although not a component of tax expense, the reserve for the future realization
of this asset is reflected in the valuation allowance and will be credited to
additional paid-in capital if and when realized.

         The reconciliation of the expected tax benefit for the years ended
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>

                                                                      1996                        1995
                                                                ----------------            ----------------
<S>                                                             <C>                         <C>             
Tax benefit at expected rate                                    $      3,728,000            $         80,850
Permanent differences                                                   (271,900)                   (206,450)
Research and development tax credit                                      587,700                     448,640
State and foreign taxes, net                                            (428,200)                    918,320
Stock option benefit recorded in equity                                  739,000
Other                                                                     92,500                      48,040
                                                                       4,447,100                   1,289,400
                                                                ----------------            ----------------
Increase in valuation allowance                                       (4,447,100)                 (1,289,400)
                                                                ----------------            ----------------
Tax benefit                                                     $              0            $              0
                                                                ================            ================

</TABLE>
                                      F-19


<PAGE>



                              U.S. BIOSCIENCE, INC.
                        (A development stage enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The federal income tax carryforwards expire as follows:


                                              Research and
                         Net Operating         Development
                             Losses              Credits
                         -------------         -----------
2002                  $          1,000       $            0
2003                         1,250,000               46,000
2004                         5,206,000              140,000
2005                         6,750,000              192,000
2006                        23,486,000              545,000
2007                        21,993,000              889,000
2008                        27,367,000            1,072,000
2009                        24,430,000              710,000
2010                         3,659,000              473,000
2011                         9,587,000              563,000
                      ----------------       --------------
                      $    123,729,000       $    4,630,000
                      ================       ==============

         The timing and manner in which the company will utilize net operating
loss and research and development tax credit carryforwards in any year, or in
total, may be limited by provisions of the Internal Revenue Service Tax Code
regarding changes in the ownership of the company. Such limitations may have an
impact on the ultimate realization of these federal income tax carryforwards.

14. Subsequent Event

         In February 1997, the company and ALZA entered into a Stock Purchase
Agreement pursuant to which ALZA agreed to purchase and the company agreed to
sell, subject to certain closing conditions, including, inter alia,
Hart-Scott-Rodino clearance, 1,178,882 shares of the company's Common Stock for
an aggregate investment of $21,526,400. The purchase price was set at 120% of
the average closing price of the company's Common Stock as traded on the
American Stock Exchange for the 10 days preceding the date of the agreement. The
company is committed to invest a portion of the proceeds in programs supporting
Ethyol. The purchase and sale of these shares of common stock is expected to
occur upon completion of the closing conditions.















                                      F-20


<PAGE>


                              U.S. BIOSCIENCE, INC.

                                    FORM 10-K

                                  EXHIBIT INDEX
EXHIBIT

3.2        Bylaws, as amended

10.11.1    Amendment, dated April 12, 1995, to Agreement dated
           January 1, 1995 between Registrant and Applied
           Analytical Industries, Inc.

10.11.2    Second Amendment, dated May 6, 1996, to Agreement
           dated January 1, 1995 between Registrant and Applied
           Analytical Industries, Inc.

10.12.1    Amendment, dated April 11, 1995, to Agreement dated
           September 23, 1993 between the Registrant and Ben
           Venue Laboratories, Inc.

10.12.2    Amendment, dated December 12, 1995, to Agreement
           dated September 23, 1993 between the Registrant and
           Ben Venue Laboratories, Inc.

10.32      U.S. Bioscience, Inc. 1992 Stock Option Plan, as amended

10.35      U.S. Bioscience, Inc. Income Deferral Plan

10.36      U.S. Bioscience, Inc. 1996 Non-Employee Directors Stock Option Plan

10.42      Executive severance arrangement, dated March 4,
           1997, between the Registrant and C. Boyd Clarke.

10.43      Executive severance arrangement, dated March 4,
           1997, between the Registrant and Wolfgang
           Oster, M.D.

22         Subsidiaries of the Registrant

23         Consent of Ernst & Young LLP, Independent Auditors

27         Financial Data Schedule