<PAGE>
 
                                                                       Conformed
                                                                            Copy

                      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 [FEE REQUIRED]

  For the fiscal year ended December 31, 1996

                                      OR

      TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

   For the transition period from __________ to __________

                        Commission file number 0-14879

                              CYTOGEN CORPORATION

            (Exact name of registrant as specified in its charter)

                    Delaware                                 22-2322400
         -------------------------------                 -------------------
         (State or other jurisdiction of                  (I.R.S. employer
         incorporation or organization)                  identification no.)

  600 College Road East, CN5308, Princeton, New Jersey        08540-5308
  ----------------------------------------------------      --------------
       (Address of principal executive offices)               (Zip code)

Registrant's telephone number, including area code: (609) 987-8200.

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

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

                         Common Stock, $.01 par value
                      ----------------------------------
                               (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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]

         The aggregate market value of the registrant's 44,654,303 shares of
Common Stock held by non-affiliates of the registrant on February 28, 1997 based
on $ 5.125 per share, the last reported sale price on the NASDAQ National Market
on that date, was $228,853,303. The determination of affiliate status for this
purpose is not necessarily a conclusive determination for other purposes.

The number of shares of Common Stock outstanding as of 2/28/97 was 51,081,533
shares.

                                 Page 1 of 79
                           Exhibit Index on Page 58
<PAGE>
 
                 DOCUMENTS INCORPORATED BY REFERENCE

                 Document                                       Form 10-K Part
                 --------                                       --------------

Portions of the definitive Proxy Statement                           III
with respect to the 1997 Annual Meeting of
Stockholders (hereinafter referred to as the
"Proxy Statement"), but specifically
excluding the sections titled "Compensation
Committee Report on Executive Compensation" 
and "Performance Graph", which shall not be 
deemed to be incorporated by reference herein.

                                      -2-
<PAGE>
 
                                    PART I

Item 1.  Business

General

CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of products to
improve diagnosis and treatment of cancer and other diseases. The Company also
develops products and technologies through two wholly-owned and one
majority-owned subsidiaries: Cellcor, Inc. ("Cellcor") is a biotechnology
company developing cellular therapies for cancer and infectious diseases; AxCell
Biosciences Corporation ("AxCell") is a functional target discovery and
bioinformatics company; and Targon Corporation ("Targon") is a cancer company
formed in collaboration with Elan Corporation, plc. CYTOGEN was incorporated in
Delaware in 1981 and each of its subsidiaries is a Delaware corporation. Unless
the context otherwise indicates, as used herein, the term "Company" refers to
CYTOGEN and its subsidiaries, taken as a whole.

Currently, the Company's highest priority products and technology are: (i)
ProstaScint(TM), a monoclonal antibody-based diagnostic imaging product for
prostate cancer, which received U.S. Food and Drug Administration ("FDA")
licensure to market on October 28, 1996 (see "Cancer Diagnostic Imaging Products
-- ProstaScint"); (ii) Quadramet(TM), a cancer therapy agent for the treatment
of bone pain associated with bone metastases, for which a New Drug Application
("NDA") was accepted as filed by FDA in August 1995 (see "Cancer Therapeutic
Products -- Quadramet"); (iii) OncoScint(R) CR/OV, a monoclonal antibody-based
diagnostic imaging agent for colorectal and ovarian cancer, which received FDA
licensure to market for both single and repeat administration (see "Cancer
Diagnostic Imaging Products -- OncoScint CR/OV"); (iv) the Genetic Diversity
Library ("GDL") technology involving peptides that have potentially significant
commercial applications in high through-put screening of drug candidates, in
accelerated, functional drug discovery programs, in in vitro diagnostics, as
peptide-based therapeutics, and in the discovery of synthetic genes or
"SynGenes" (see "Research and Development -- Genetic Diversity Library
Technology"); and (v) the autolymphocyte therapy ("ALT"), developed by Cellcor
for the treatment of advanced metastatic renal cell carcinoma ("mRCC"), which
has completed Phase III development (see "Cancer Therapeutic Products -- ALT
Treatment for mRCC").

The Company's strategic plan calls for expanding the current product portfolio
through the continued in- licensing of additional products and related
technologies, such as Quadramet, the acquisition of other companies with related
or complementary products, technologies and/or services, such as Cellcor, the
development of products utilizing GDL technology, and other strategic alliances,
such as Targon. No prediction can be made, however, as to when or whether
CYTOGEN can accomplish these objectives or whether accomplishment of these
objectives will lead to new commercially-viable products or technologies.

The Company is continuing to evaluate, invest in and support the marketing
activities with respect to ProstaScint and OncoScint CR/OV. See "Marketing --
ProstaScint" and "-- OncoScint CR/OV". The Company has also assigned high
priority to the product development and commercialization programs for Quadramet
and ALT for the treatment of mRCC and other diseases. See "Cancer Therapeutic
Products". The Company continues to commit resources for research and
development of its GDL technology. See "Research and Development -- Genetic
Diversity Library Technology".

                                      -3-
<PAGE>
 
When used in this Report, the words "expects," "believes", "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties, including
those set forth under the captions "Important Factors Regarding Forward Looking
Statements", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Report, that could cause actual
results to differ materially from those projected. These forward-looking
statements speak only as of the date of this Report and the Company disclaims
any undertaking to publicly update or revise any forward-looking statements
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.

Cancer Diagnostic Imaging Products

         Overview. Currently, the Company's cancer diagnostic imaging products
consist of monoclonal antibody-based imaging agents for prostate, breast,
colorectal and ovarian cancers. The Company's imaging products utilize CYTOGEN's
proprietary targeted delivery system, employing whole monoclonal antibodies, to
deliver the diagnostic radioisotope indium-111 to malignant tumor sites. The
imaging products are supplied to hospitals and central radiopharmacies without
the radioisotope. Prior to patient administration, the radioisotope is attached
to the product by the radiopharmacist using a simple liquid transfer procedure
developed by CYTOGEN, thereby creating the radiolabeled monoclonal antibody 
product.

During an imaging procedure, the radiolabeled monoclonal antibody product is
administered intravenously into the patient. The antibody travels through the
body seeking out and binding to tumor sites. The radioactivity from the isotope
that has been attached to the antibody can be detected from outside the body by
a gamma camera. The resultant image identifies the existence, location and
extent of disease in the body. Based on clinical studies conducted to date by
physicians on behalf of CYTOGEN, the imaging agents have the potential to
provide new and useful information not available from other diagnostic
modalities regarding the existence, location and extent of the disease (and
particularly occult disease not detected by other methods) throughout the body.
CYTOGEN believes that this information has the potential to affect the way
physicians manage their patients' individual treatments. CYTOGEN also believes
that, because its products use a very low dose of one milligram or less of
antibody conjugate per administration, the products have the additional
advantages of low manufacturing cost and ease of administration.

         ProstaScint. ProstaScint is a monoclonal antibody-based imaging agent
developed to detect the presence and extent of prostate cancer. The antibody
utilized in ProstaScint is exclusively licensed to CYTOGEN. In August 1996,
CYTOGEN signed a definitive agreement with C.R. Bard, Inc. for co- marketing
rights to ProstaScint. In October 1996, CYTOGEN received FDA licensure to market
ProstaScint in two clinical settings: first, as a diagnostic imaging agent in
newly-diagnosed patients with biopsy-proven prostate cancer thought to be
clinically localized after standard diagnostic evaluation and who are at high
risk for spread of their disease to pelvic lymph nodes; and second, for use in
post- prostatectomy patients in whom there is a high suspicion of undetected
cancer recurrence. The risk for both newly-diagnosed and recurrent disease
patients is determined by several factors, including the stage of the disease
when initially diagnosed, microscopic evaluation of the primary tumor, and the
prostate specific antigen ("PSA") level. PSA is a widely used blood test
currently used for detecting and monitoring prostate cancer. In February 1997,
CYTOGEN announced the commercial launch of ProstaScint. See "Marketing --
ProstaScint."

         OncoScint CR/OV. OncoScint CR/OV received FDA licensure in the U.S. in
December 1992. This product was initially approved for single use with other
appropriate, commercially available diagnostic tests, including but not
exclusive to Computerized Tomography ("CT") and Magnetic Resonance Imaging

                                      -4-
<PAGE>
 
("MRI"), to locate malignancies outside the liver in patients with known
colorectal or ovarian cancer. In November 1995, FDA approved an expanded
indication allowing for repeat administration of Oncoscint CR/OV. OncoScint
CR/OV is now approved for sale in 12 European countries. The breast cancer
clinical development program, which involves the use of OncoScint CR/OV to
determine whether the cancer has spread to the lymph nodes (i.e., beyond the
primary tumor), was initiated in May 1995 as a result of positive findings
published by the Instituto Nazionale Tumori in Milan, Italy, and is currently in
a Phase II human clinical trial.

Cancer Therapeutic Products

         Quadramet. Quadramet has been developed as a treatment for the pain
associated with bone metastases, a condition that occurs when cancer spreads to
the bone. The Quadramet NDA was filed by FDA in August 1995 and is currently
under review.

In March 1993, CYTOGEN entered into an exclusive license agreement, as amended,
and pursuant thereto was granted by The Dow Chemical Company ("Dow") the U.S.,
Canadian and Latin American rights to Quadramet as a therapeutic
radiopharmaceutical (i) for metabolic bone disease or tumor regression for
cancer caused by metastatic or primary cancer in bone in humans or (ii) for the
treatment of disease characterized by osteoblastic response in humans. CYTOGEN
assumed responsibility for the development and commercialization of the product
at that time. See Note 6 to the Consolidated Financial Statements. In December
1994, CYTOGEN granted to The DuPont Merck Pharmaceutical Company ("DuPont
Merck") an exclusive sub-license with respect to CYTOGEN's rights to Quadramet
in its oncological applications described above.

Phase II human clinical trials have been initiated at several institutions to
expand Quadramet's use as a therapeutic drug. These trials are funded, in part,
by DuPont Merck. Phase I human clinical trials have been initiated in primary
bone tumors at Mayo Clinic, and in refractory rheumatoid arthritis at the
University of Iowa.

         ALT Treatment for mRCC. ALT treatment for metastatic renal cell
carcinoma is a proprietary immunotherapy developed by Cellcor which uses a
patient's own white blood cells to augment his or her immune system and thereby
treat cancer and other infectious diseases. In October 1995, patient accrual for
the Phase III pivotal clinical trial was completed and in January 1997, the
trial was completed. The Company is currently conducting the auditing,
unblinding and analysis of the Phase III data. If results from the trial are
favorable and FDA concurs, the Company expects to proceed with the submission of
a Biologics License Application ("BLA") in the second half of 1997. In September
of 1995, FDA approved a Treatment Investigational New Drug ("IND") for the ALT
treatment of mRCC, which makes ALT available as a treatment option to patients
with mRCC who are not able to participate in ALT clinical trials. The Treatment
IND also allows Cellcor to recover costs associated with the treatment. Cellcor
is also conducting a Phase III human clinical study in post-surgical patients
with non-metastatic kidney cancer with high risk of recurring disease. This
study examines the effect of ALT in delaying progression to metastatic disease.
This study, which was conducted at 13 sites, completed patient accrual in 1995
and the patients are followed for time to progression of their disease as well
as their survival status. Final analysis of this study is expected to be
available by mid-year 1997. ALT is also in Phase I/II development as a treatment
for chronic hepatitis B. No prediction can be made, however, as to whether or
when such trials will lead to new commercial products.

Cellcor is actively pursuing development and marketing collaborations in the
U.S. and Europe. No assurance can be given regarding the timing or success in
developing such collaborations.

         Antibody-Based Cancer Therapeutics. CYTOGEN's efforts to develop
antibody-based, cancer therapeutics are currently limited to prostate therapy.
This product utilizes technology similar to the Company's diagnostic products.
However, in the therapeutic product, the substance linked to the antibody

                                      -5-
<PAGE>
 
is a radioisotope that destroys tumor cells. The therapeutic radioisotope that
CYTOGEN uses, yttrium-90, is chemically attached to the monoclonal antibody
using CYTOGEN's proprietary technology. It is intended that the therapy product
will be supplied to radiopharmacies without the radioisotope. The radioisotope
will be attached to the product by the radiopharmacist using a simple procedure
developed by CYTOGEN.

The prostate therapy product is in a Phase II trial to determine the product's
efficacy in patients with early evidence of disease recurrence after radical
prostatectomy. Development of the ovarian therapy product, which completed Phase
II clinical trials, has been discontinued due to insufficient patient response
to justify further support of the trials.

Research and Development

         Genetic Diversity Library Technology. Long-term research, much of which
is preliminary, is being conducted by CYTOGEN on the GDL technology, formerly
referred to as TSARs\SynGenes. The GDL program consists of research on long
peptides that fold to form three-dimensional structures. These peptides, which
are biologically produced, create vast, highly diverse compound libraries.
CYTOGEN believes that the ability of these compounds to bind to predetermined
sites may mediate certain therapeutic or diagnostic effects more effectively
than other existing products. Unlike conventional small molecule drugs or short
peptides, long peptides can act more like proteins and can fold to take on very
precise biological functions such as specific recognition units ("RUs").
Depending upon the application, these RUs can act as receptors, as targeting
agents, or ligands for biological receptors. In certain applications, it may be
more advantageous to administer the synthetic gene which encodes for the RU.
Such SynGene programs are at an early stage of pre-clinical development.
Additionally, CYTOGEN believes its GDL technology can serve as a complementary
and enabling technology to support advances in combinatorial chemistry and drug
discovery. Currently, CYTOGEN is working, independently and in collaboration
with others, to develop this technology into several potential commercial
applications: in high through-put screening of drug candidates, in accelerated,
functional drug discovery (or rapid target discovery ("RTD")) programs, in in
vitro diagnostics, as peptide-based therapeutics, and in the discovery of
SynGenes.

In August 1996, AxCell was incorporated as a wholly-owned subsidiary to utilize
the RTD application of GDL technology. In the area of drug discovery, the
current high throughput drug screening arena is seen as a compound rich, target
poor environment. The lack of novel molecular targets is one factor which
currently limits the drug discovery process. The Company applies the RTD
technology to develop new molecular targets. The Company has engaged the
Battelle Institute and Southern Research Institute to expand the number of
validated molecular targets that are available for use in screening drug
compound libraries.

CYTOGEN is the exclusive licensee of certain patent and patent applications and
technology owned by the University of North Carolina at Chapel Hill covering the
GDL technology. In addition, CYTOGEN has filed its own patent applications in
the U.S. and certain foreign countries with respect to its GDL technology.

While a significant amount of basic research on the GDL technology has been done
by CYTOGEN, this technology is at an earlier stage of development than the
technology underlying the monoclonal antibody- based products described above.
CYTOGEN is actively pursuing corporate alliances and basic research and
development agreements to support and advance the GDL technology toward
commercialization. In December 1995, CYTOGEN and Elan Corporation, plc ("Elan")
established a collaborative research and development program to develop
orally-administered products using GDL technology and Elan's drug delivery
system technology. In January 1997, this research program achieved its first
research milestone

                                      -6-
<PAGE>
 
and Elan signed a definitive license agreement for worldwide rights to oral drug
delivery products which transport pharmacologic formulations across the
intestinal epithelium and certain other products derived from the collaboration.
See "Limited Field of Use License Agreements -- Elan" and Note 3 to the
Consolidated Financial Statements.

         PSMA. In 1993, CYTOGEN and Memorial Sloan-Kettering Cancer Center
("MSKCC") began a development program involving the prostate specific membrane
antigen ("PSMA") and CYTOGEN's prostate cancer monoclonal antibody, CYT-351.
PSMA is a unique antigen expressed in primary prostate cancer, prostate cancer
metastases and hormone refractory prostate cancer metastases. In July 1996, a
patent entitled "Prostate-Specific Membrane Antigen" was issued to Sloan-
Kettering Institute for Cancer Research, an affiliate of MSKCC. In November
1996, CYTOGEN exercised its option for the exclusive license to this technology.

In December 1996, CYTOGEN exclusively licensed the use of PSMA in prostate
cancer vaccines for certain immunotherapeutic treatments of prostate cancer to
Prostagen, Inc., a privately held company in New York. The agreement with
Prostagen provides for an up-front fee, several milestone payments throughout
the development of any potential products, and royalties payable if and when
products come to market.

In January 1997, CYTOGEN issued a non-exclusive option for the PSMA technology
to Boehringer Mannheim in the area of in vitro diagnostics, including reverse
transcriptase-polymerase chain reaction assays, a technique used to detect
circulating prostate cancer cells in the blood of patients. This agreement
provides CYTOGEN with an up-front fee and royalties payable if and when products
come to market. CYTOGEN is continuing discussions with other companies
interested in this aspect of the PSMA technology. No assurances can be given
regarding the success or timing of these efforts.

In 1996, Targon was granted exclusive rights to the remaining fields of use for
the PSMA technology, including recent developments in the area of prodrugs for
prostate cancer.

         Other Applications. While CYTOGEN has retained all rights for
therapeutic and in vivo diagnostic uses of the antibody utilized in ProstaScint
for itself and its affiliates, it has licensed the antibody for in vitro
diagnostic use to the Pacific Northwest Research Foundation, which in turn, has
established a collaboration with Hybritech Incorporated ("Hybritech") to exploit
this antibody in a serum-based in vitro diagnostic test. CYTOGEN will receive
royalties on product sales by Hybritech, if any.

CYTOGEN believes that certain of their technologies under development may have
medical applications in various other areas, including autoimmune disorders and
infectious diseases. The Company intends to expand the research and development
of these technologies primarily through strategic alliances with other entities.
No predictions can be made regarding the establishment or the timing of such
alliances. The Company expects to devote resources to these other areas to the
extent funding is available. No prediction can be made, however, as to when or
whether the areas of research described above will yield new scientific
discoveries, or whether such research will lead to new commercial products.

Research and Development Funding

         Research and development expenditures recorded by the Company include
projects conducted by the Company and payments made to sponsored research
programs and consultants. CYTOGEN's expenses for research and development
activities (including customer sponsored programs) were $ 20.9 million, $22.6
million and $20.3 million in 1996, 1995 and 1994, respectively. These expenses
principally reflect product development efforts and support for various ongoing
clinical trials. Research and development

                                      -7-
<PAGE>
 
expenditures for customer sponsored programs, were $1,100,000, $200,000 and
$29,000 in fiscal years 1996, 1995 and 1994, respectively.

Marketing

         ProstaScint. In August 1996, CYTOGEN signed a Co-Promotion Agreement
with C.R. Bard, Inc. for the U.S. co-marketing rights to ProstaScint. Under the
agreement, the Bard Urological Division ("BUD") will market ProstaScint to its
primary customers, office and hospital-based urologists. CYTOGEN will be
responsible for manufacturing, distribution and the marketing of ProstaScint to
the medical imaging community. Both BUD and CYTOGEN will work together in
marketing to managed care organizations. The agreement provides that BUD will
make payments upon the occurrence of certain milestones and BUD will receive
performance-based compensation for its services. The agreement has an initial
term of ten years and is subject to renewal.

ProstaScint and OncoScint CR/OV are "technique-dependent" products that require
a high degree of proficiency in nuclear imaging, as well as a thorough
appreciation of the information the scan can provide. The Company believes that
this information regarding the existence, location and extent of disease has the
potential to assist a physician in making appropriate patient management
decisions. Due to the large population of prostate cancer patients and the
resulting potential for sales, the Company is placing priority on the marketing
of ProstaScint. CYTOGEN has established a network of qualified nuclear medicine
imaging centers through its Partners in Excellence ("PIE(TM)") program (each, a
"PIE Site"). Each PIE site receives rigorous training, undergoes proficiency
testing, and is subject to ongoing quality assurance protocols. To qualify as a
PIE Site, each center must be certified as proficient in the interpretation of
ProstaScint scans by the American College of Nuclear Physicians. This program
was developed in preparation for the launch of ProstaScint in February 1997, and
involved 75 PIE Sites at time of launch. The Company intends to establish
additional PIE Sites in accordance with its marketing plan and the availability
of resources.

         OncoScint CR/OV. Promotion of OncoScint CR/OV involves several
different physician audiences, including those who prescribe imaging procedures
for their patients as well as those who obtain and interpret the image.
Referring physicians are likely to be surgeons and oncologists. Imaging
physicians are nuclear medicine specialists and those diagnostic radiologists
who have sub-specialty training in nuclear medicine. Since May 1994, CYTOGEN has
been the sole marketer of OncoScint CR/OV in the U.S. In December 1995 and
January 1996, CYTOGEN signed two marketing agreements for Oncoscint CR/OV
outside of the U.S. with Faulding and CISbio. See "Faulding" and "CIS
biointernational."

         Knoll Pharmaceutical. In November 1994, CYTOGEN executed a termination
agreement (the "Termination Agreement") with Knoll Pharmaceutical Company
("Knoll"). Pursuant to the Termination Agreement, CYTOGEN has reacquired from
Knoll all U.S. marketing rights to OncoScint CR/OV, which were previously
granted to Knoll pursuant to a License, Supply and Marketing Agreement dated
December 19, 1991 (the "Knoll Agreement"). See Note 9 to the Consolidated
Financial Statements. Under the terms of the Knoll Agreement, in 1994, the
Company incurred $412,000 in co-promotion expenses, and recognized $430,000 in
co-promotion revenues.

         Faulding. In December 1995, CYTOGEN entered into a distribution
agreement (the "Faulding Agreement") with Faulding granting to Faulding the
exclusive right to distribute and sell OncoScint CR/OV in Canada. Faulding is
currently pursuing the necessary regulatory approvals to market the product in
Canada. Pursuant to the terms of the Faulding Agreement, in addition to an
up-front cash payment made upon executing the Faulding Agreement, Faulding is
required to make an additional payment to

                                      -8-
<PAGE>
 
CYTOGEN upon the receipt of certain regulatory approvals. The Faulding Agreement
also provides for payments for minimum annual purchases of OncoScint CR/OV by
Faulding, and for certain royalties based upon net sales, if any, of OncoScint
CR/OV by Faulding. The initial term of the Faulding Agreement is seven years.

         CIS biointernational. In January 1996, CYTOGEN entered into a
distribution agreement (the "CISbio Agreement") with CISbio, granting to CISbio
the exclusive right to distribute and sell OncoScint CR/OV in all the countries
of the world, except for the U.S. and Canada. CISbio re-launched OncoScint CR/OV
in nine European countries during 1996, and initiated sales in Australia.
Regulatory submissions to obtain marketing approval were initiated in four Latin
American countries and five countries in South East Asia during 1996. Pursuant
to the terms of the CISbio Agreement, in addition to an up-front cash payment
made upon executing the CISbio Agreement, CISbio is required to make an
additional payment to CYTOGEN upon the achievement of a specified marketing
milestone. The CISbio Agreement also provides for minimum annual purchases of
the components of OncoScint CR/OV by CISbio, and for certain royalties based
upon net sales, if any, of OncoScint CR/OV by CISbio. The initial term of the
CISbio Agreement is seven years following the first commercial sale of the
product by CISbio.

         Quadramet. On December 20, 1994, CYTOGEN entered into a license
agreement, as amended, (the "DP/Merck Agreement") with DuPont Merck. Under the
terms of the DP/Merck Agreement, CYTOGEN granted to DuPont Merck an exclusive
sub-license with respect to CYTOGEN's rights to Quadramet in its oncological
applications described above, pursuant to which DuPont Merck will have
responsibility for manufacturing and marketing Quadramet in the U.S., if and
when approved for marketing by FDA, and in Canada and Latin America. The Company
has retained the right to co-promote the product to nuclear medicine
specialists. In March 1997, the Company submitted to the Canadian Health
Protection Branch a New Drug Submission for marketing approval of Quadramet in
Canada. See "Cancer Therapeutic Products -- Quadramet" and Note 5 to the
Consolidated Financial Statements.

         The DP/Merck Agreement provides that CYTOGEN receives from DuPont Merck
up-front fees and milestone payments consisting of: (i) $1.0 million upon
execution of the DP/Merck Agreement, which has been paid to CYTOGEN; (ii) $4.0
million from the sale to DuPont Merck of 908,265 shares of CYTOGEN common stock,
which sale has occurred, (iii) $4.25 million to fund additional clinical
programs to expand the use and marketing of Quadramet, of which $1.3 million and
$1.5 million were received in 1995 and 1996, respectively; (iv) a $2.0 million
milestone payment if and when Quadramet receives FDA licensure; and (v) payments
based on sales, including guaranteed minimum payments. The DP/Merck Agreement,
unless earlier terminated, expires on the later of twenty years from the date of
execution of the agreement or on the date of expiration of the last to expire
patent licensed thereunder.

Targon Corporation

         Targon Corporation, formed in September 1996, is a company focused
exclusively on the rapid development, registration, manufacturing and
commercialization of oncology products. Targon was created by
CYTOGEN in collaboration with Elan and is a majority-owned subsidiary of
CYTOGEN. Elan has the right to acquire equal ownership with CYTOGEN. Targon will
utilize Elan's and CYTOGEN's competencies in drug delivery, development and
manufacturing in order to accelerate its global registration of oncology
products. Targon has the rights to five products: EL530 and EL532 purchased from
Elan; Prostatec, Oncotec and certain PSMA technology contributed by CYTOGEN.
Additional products may be added through the in-licensing of late stage oncology
products.

EL530 and EL532 are agents being developed for the treatment of solid and
hematologic malignancies. These agents inhibit the growth of cells from a wide
range of cancers. Currently, Phase I and II clinical

                                      -9-
<PAGE>
 
trials are being directed by the National Cancer Institute. Prostatec is a
second generation version of CYTOGEN's ProstaScint prostate cancer imaging
agent. An IND application is being prepared for Prostatec. Oncotec is a second
generation version of CYTOGEN's OncoScint CR/OV diagnostic imaging agent for
colorectal, ovarian and breast cancers. Oncotec is in the preclinical stage of
product development. Targon has exclusive rights to those fields of use of PSMA
technology not already licensed to third parties, including the area of prodrugs
for prostate cancer. See "Research and Development -- PSMA." Prodrugs have been
designed to have low toxicity in the body except when in the vicinity of
prostate cancer cells.

In connection with the formation of Targon, CYTOGEN completed a sale of
registered Common Stock to Elan for $5 million and Series A Convertible
Preferred Stock for $15 million, which funds are being used to fund Targon.
Targon used $10 million of such proceeds to acquire certain products from
Advanced Therapeutics Systems Ltd., a subsidiary of Elan. See Note 2 to the
Consolidated Financial Statements. CYTOGEN's Series A Convertible Preferred
Stock purchased by Elan may, at Elan's option, be either (i) exchanged for a
portion of CYTOGEN's interest in Targon which declines from 50% to 35%,
depending on the time of exchange, but no later than September 30, 2001 or (ii)
converted into shares of CYTOGEN's Common Stock. If Elan exchanges the Series A
Convertible Preferred Stock for ownership in Targon, then Elan will additionally
receive a warrant exercisable through March 31, 2003 to purchase up to one
million shares of CYTOGEN Common Stock with exercise prices (based on the time
of exercise) from between $8.40 per share to $14 over time. If Elan converts
CYTOGEN's Series A Convertible Preferred Stock into CYTOGEN Common Stock, a
maximum of 1,785,715 shares of CYTOGEN Common Stock (reducing over time) would
be issuable, depending on when the conversion occurs. If Elan exercises its
conversion right, CYTOGEN will retain full ownership of Targon.

CytoRad Incorporated

         On November 15, 1994, CYTOGEN and CytoRad Incorporated ("CytoRad")
executed an Agreement and Plan of Merger (the "CytoRad Merger Agreement") to
purchase all of CytoRad's outstanding units. Pursuant to the CytoRad Merger
Agreement, on January 20, 1995, CYTOGEN commenced an exchange offer to exchange
for each CytoRad unit (a) 1.5 shares of CYTOGEN common stock, (b) a warrant to
acquire one share of CYTOGEN common stock for $8.00 and (c) a contingent value
right ("CVR") to receive, under certain circumstances and at no additional cost,
up to an additional one-half share of CYTOGEN common stock.

         On February 27, 1995, CYTOGEN completed its acquisition of CytoRad by
merging CytoRad with and into a wholly-owned subsidiary of CYTOGEN pursuant to
the CytoRad Merger Agreement. As a result of the acquisition, CYTOGEN reacquired
all rights it had previously licensed to CytoRad. In addition, as a result of
the merger, $11.7 million of CytoRad's cash and securities, before payment of
certain of CYTOGEN's transaction costs, were acquired by the Company.

         On February 29, 1996, CYTOGEN announced that the CVRs had terminated by
their terms and were of no further value, and on January 31, 1997, the CYTOGEN
warrants expired pursuant to their terms.

Cellcor, Inc.

         In October 1995, CYTOGEN completed its acquisition of Cellcor. As a
result of its merger with Cellcor (the "Cellcor Merger"), CYTOGEN (i) issued
4,713,564 shares of Common Stock to acquire Cellcor (see Notes 1 and 4 to the
Consolidated Financial Statements), (ii) issued 5,144,388 shares of Common Stock
in connection with a related subscription offering, which raised a total of
$20.0 million and

                                      -10-
<PAGE>
 
(iii) reserved for issuance up to 606,952 shares of Common Stock issuable upon
the exercise of Cellcor stock options.

The Cellcor Merger reflects the Company's strategy to build its business
through, among other things, strategic acquisitions that add complementary
products, technologies and services to CYTOGEN's existing portfolio. In
particular, the Company has added Cellcor's proprietary ALT products and
supportive core competencies in ex vivo cell processing to its product pipeline.
See "Cancer Therapeutics Products -- ALT Treatment for mRCC".

Limited Field of Use License Agreements

         In addition to development of its own proprietary products, CYTOGEN and
Cellcor have entered into limited field of use licenses for rights in their
proprietary technology with various pharmaceutical companies in the U.S.,
Europe, and Japan. Although the terms of each agreement differ, these agreements
generally provide for royalty payments to the Company based on any future
product sales. Some of these agreements also provide for fixed payments,
purchases of CYTOGEN stock, milestone payments and payments for research
services performed by the Company.

         Elan. In December 1995, CYTOGEN entered into a Research and Development
and Option agreement with Elan (the "Elan Agreement") under which both parties
implemented a research program that combines CYTOGEN's GDL technology with
Elan's drug delivery system technology. Joint research, conducted by the
companies' scientists, exploit GDL-derived peptides that have the ability to
target drugs. Initial research focussed on the development of products that can
be administered orally and pass through the gastrointestinal tract, utilizing
specific intestinal cell surface receptors identified as being best suited to
facilitate uptake and absorption of the drug. In January 1997, Elan and CYTOGEN
announced that the research program has resulted in the successful
identification of a group of peptides which bind to four different
gastrointestinal receptors. Elan has exercised its option, and the parties have
entered into a license agreement granting Elan exclusive worldwide rights to the
GDL technology for orally administered drugs that are transported across the
gastrointestinal epithelium and other rights to other orally delivered drugs
derived from the research program. CYTOGEN will receive royalties based on
sales, if any, of such products.

         For discussion relating to limited field of use license agreements for
PSMA technology, see "Research and Development -- PSMA".

Manufacturing

         CYTOGEN has established limited commercial-scale manufacturing capacity
in Princeton, New Jersey. An Establishment License Application ("ELA") for the
facility in Princeton utilized by CYTOGEN for production of ProstaScint was
approved by FDA in October 1996 and for production of OncoScint CR/OV in
December 1992. It is expected that this facility will allow CYTOGEN to meet its
projected production requirements for the ProstaScint and OncoScint product
lines in both the U.S. and Europe for the foreseeable future, although no
assurances can be given to that effect. In November 1995, FDA

                                      -11-
<PAGE>
 
proposed new reforms that would eliminate the requirement that "specified
biologic products" be commercially manufactured in a licensed facility.
Therefore, while CYTOGEN will be required to maintain Good Manufacturing
Practices ("GMP"), under the proposed reforms, it may not be required to obtain
specific licensure of its commercial manufacturing facilities in the future.
Moreover, under the proposed reforms, CYTOGEN will retain the status of having
met FDA ELA requirements and performance standards, which it believes is an
important competitive advantage and one it is using to attract additional
contract manufacturing business. Presently, CYTOGEN has six contract
manufacturing customers for which it is providing contract manufacturing and
development services.

Cellcor has established a GMP manufacturing facility for patient-specific cell
processing in a high volume setting, suitable for commercial-scale production.

In December 1996, Cellcor entered into an agreement with Neoprobe Corporation
whereby Neoprobe will use Cellcor's cell processing and development facility and
established processes to manufacture Neoprobe's activated cell therapy. Cellcor
received an up-front fee and will record contract revenue, if any, for
development studies and on a per patient basis over the next few years.

Cellcor will pursue other opportunities to develop contract manufacturing
relationships with other biotechnology companies and academic institutions in
the field of patient specific ex vivo cell processing.

Raw Materials

         The raw materials used in the manufacture of the Company's products
include different antibodies. CYTOGEN has both exclusive and non-exclusive
license agreements which permit the use of specific monoclonal antibodies in its
products. CYTOGEN's first product, OncoScint CR/OV, uses the same monoclonal
antibody which has been supplied in clinical quantities and is being supplied in
commercial quantities by a single contract manufacturer, Lonza Biologics (which
acquired the Company's former supplier, Celltech, in 1996), through a shared
manufacturing agreement. CYTOGEN anticipates that the supplier will be able to
meet CYTOGEN's needs for commercial quantities of monoclonal antibody.

CYTOGEN currently has the in-house production capacity necessary to produce
projected commercial quantities of monoclonal antibody for manufacture of
ProstaScint and clinical quantities of other monoclonal antibodies for the
development of other diagnostic imaging and therapy products.

Cellcor's cellular therapies require the use of devices and materials
manufactured by third parties, for which Cellcor seeks to maintain multiple
sources. Cellcor relies on a single source of supply for an important monoclonal
antibody used in the cell processing procedures. There can be no assurance that
products or devices necessary to implement the Company's living cell therapies
will be continuously available or available upon terms favorable to the Company
in the future.

Human Resources

         As of December 31, 1996, the Company employed 164 persons full-time, of
whom 20 were engaged in research and development activities, 41 were engaged in
operations and manufacturing, 30 were engaged in clinical and regulatory
activities, 24 were engaged in administration and management, 16 were engaged in
marketing, 30 were engaged in Cellcor's operations and 3 were engaged in
Targon's operations. Of the Company's employees, 21 hold Ph.D. and/or M.D.
degrees, and 12 hold other advanced degrees. The Company, from time to time,
hires consultants to work on certain of its research and development and
clinical programs. The Company believes that it has been successful in
attracting skilled and experienced scientific personnel; however, competition
for such personnel is intense.

                                      -12-
<PAGE>
 
         Consistent with industry practice, the Company has a policy of using
patent and trade secret protection to preserve its right to exploit the results
of its research and development activities and, to the extent it may be
necessary or advisable, to exclude others from appropriating the Company's
proprietary technology.

The Company's policy is to aggressively protect its proprietary technology by
selectively seeking patent protection in a worldwide program. In addition to the
U.S., CYTOGEN files patent applications in Canada, major European countries,
Japan and additional foreign countries on a selective basis to protect
inventions important to the development of its business. CYTOGEN believes that
the countries in which it has obtained and is seeking patent coverage for its
proprietary technology represent the major focus of the pharmaceutical industry
in which CYTOGEN and certain of its licensees will market its and their
respective products.

CYTOGEN holds 17 current U.S. patents and 47 current foreign patents. CYTOGEN
has filed and currently has pending 17 U.S. patent applications and 19 foreign
patent applications, covering certain aspects of its technology for diagnostic
and therapeutic products, and the methods for their production and use. CYTOGEN
intends to file patent applications with respect to subsequent developments and
improvements when it believes such protection is in the best interest of
CYTOGEN.

CYTOGEN's U.S. Patent No. 4,671,958, entitled "Antibody Conjugates For The
Delivery of Compounds To Target Sites," is basic to many of CYTOGEN's current
and proposed commercial operations. This patent covers in vivo delivery methods
using site-specific attachment of compounds to antibody molecules that maintain
the antibody's ability to target and bind to antigens such as those expressed by
or associated with tumors, blood clots, infections and other disease sites. This
patent is scheduled to expire in 2004. In Europe, similar protection is afforded
by CYTOGEN's European Patent No. 0088695, entitled "Antibody Conjugates."

CYTOGEN's U.S. Patent No. 4,741,900, entitled "Antibody Metal Ion Complexes,"
provides additional patent protection for its most advanced products which
involve the targeting of radioisotopes to tumor cells for purposes of diagnosing
or treating cancer. This patent is scheduled to expire in 2004. CYTOGEN's
European Patent No. 0173629, entitled "Antibody Metal Ion Complexes" affords
similar protection in Europe.

CYTOGEN's U.S. Patent No. 4,867,973, entitled "Antibody-Therapeutic Agent
Conjugates," provides broad patent protection for many of CYTOGEN's proposed
commercial products and those of its licensees which are useful for the in vivo
targeting of therapeutic agents for the treatment of a variety of cellular
disorders. This patent is scheduled to expire in 2004.

CYTOGEN's U.S. Patent No. 5,162,504, entitled "Monoclonal Antibodies to a New
Antigenic Marker in Epithelial Prostate Cells and Serum of Prostate Cancer
Patients," provides protection for the monoclonal antibody 7E11-C5, the
targeting agent used in ProstaScint. This patent is scheduled to expire in 2009.

Cellcor holds three current U.S. patents. Cellcor has filed and currently has
pending four U.S.patent applications and two foreign patent applications.
Additional patent protection is being actively pursued for Cellcor related
proprietary technology.

CYTOGEN is the exclusive licensee of certain patents and patent applications
held by the University of North Carolina at Chapel Hill covering GDL technology.
CYTOGEN holds an exclusive license under certain patent and patent applications
held by MSKCC covering PSMA. CYTOGEN is the exclusive licensee of certain U.S.
patents and applications held by Dow covering Quadramet.

                                      -13-
<PAGE>
 
Targon is the exclusive licensee of certain patents and patent applications held
by CYTOGEN and Elan. See "Targon."

CYTOGEN may be entitled under certain circumstances to seek extension of the
terms of its patents. See "Government Regulation and Product Testing--FDA
Approval".

The Company also relies upon, and intends to continue to rely upon, trade
secrets, unpatented proprietary know-how and continuing technological innovation
to develop and maintain its competitive position. The Company typically enters
into confidentiality agreements with its licensees and any scientific
consultants, and each of CYTOGEN's and Cellcor's employees have entered into
agreements with the companies requiring that they forbear from disclosing
confidential information of the companies, and assign to the companies all
rights in any inventions made while in their employ. The Company believes that
its valuable proprietary information is protected to the fullest extent
practicable; however, there can be no assurance that (i) any additional patents
will be issued to the Company in any or all appropriate jurisdictions, (ii)
litigation will not be commenced seeking to challenge the patent protection or
such challenges will not be successful, (iii) the Company's processes or
products do not or will not infringe upon the patents of third parties, or (iv)
the scope of patents issued will successfully prevent third parties from
developing similar and competitive products. It is not possible to predict how
any patent litigation will affect the Company's efforts to develop, manufacture
or market its products.

The technology applicable to the Company's products is developing rapidly. A
substantial number of patents have been issued to other biotechnology companies.
In addition, competitors have filed applications for, or have been issued,
patents and may obtain additional patents and proprietary rights relating to
products or processes competitive with those of the Company. In addition, others
may have filed patent applications and may have been issued patents to products
and to technologies potentially useful to the Company or necessary to
commercialize its products or achieve its business goals. There can be no
assurance that the Company will be able to obtain licenses of such patents on
terms acceptable to the Company. See "Competition."

OncoScint is a registered trademark of CYTOGEN. ProstaScint, PIE and SynGene are
trademarks of CYTOGEN, pending registration. Quadramet is a trademark of Dow,
licensed to CYTOGEN.

Government Regulation and Product Testing

         The development, manufacture and sale of medical products utilizing the
Company's technology are governed by a variety of statutes and regulations in
the U.S. and by comparable laws and agency regulations in most foreign
countries.

         FDA Approval. The major regulatory impact on the diagnostic and
therapeutic products in the U.S. derives from the Federal Food, Drug and
Cosmetic Act (the "FD&C Act") and the Public Health Service Act, and from FDA
rules and regulations promulgated thereunder. These laws and regulations require
carefully controlled research and testing of products, government notification,
review and/or approval prior to marketing the products, inspection and/or
licensing of manufacturing and production facilities, adherence to good
manufacturing practices, compliance with product specifications, labeling, and
other applicable regulations.

         The medical products to which the Company intends to apply its
technology are subject to substantial governmental regulation and may be
classified as new drugs or biologics under the FD&C Act. FDA and similar health
authorities in most other countries must approve or license the diagnostic and
therapeutic products before they can be commercially marketed. In order to
obtain FDA approval, an 

                                      -14-
<PAGE>
 
applicant must submit, as relevant for the particular product, proof of safety,
purity, potency and efficacy. In most cases such proof entails extensive pre-
clinical, clinical and laboratory tests. The testing and the preparation and
prosecution of those applications by FDA is expensive and time consuming, and
may take several years to complete. Difficulties or unanticipated costs may be
encountered by the Company or its licensees in their respective efforts to
secure necessary governmental approval or licenses, which could delay or
preclude the Company or its licensees from marketing their products. Limited
indications for use or other conditions could also be placed on any such
approvals that could restrict the commercial applications of such products. With
respect to patented products or technologies, delays imposed by the government
approval process may materially reduce the period during which the Company will
have the exclusive right to exploit them, because patent protection lasts only
for a limited time, beginning on the date the patent is first granted in the
case of U.S. patent applications filed prior to June 6, 1995, and when the
patent application is first filed in the case of patent applications filed in
the U.S. after June 6, 1995, and applications filed in the European Economic
Community. The Company intends to seek to maximize the useful life of its
patents under the Patent Term Restoration Act of 1984 in the U.S. and under
similar laws if available in other countries.

The majority of the Company's diagnostic and therapeutic products will likely be
classified as new drugs or biologics and will be evaluated in a series of in
vitro, non-clinical and human clinical testing. Typically, clinical testing is
performed in three phases to further evaluate the safety and efficacy of the
drug. In Phase I, a product is tested in a small number of patients primarily
for safety at one or more dosages. In Phase II, in addition to safety, the
efficacy of the product against particular diseases is evaluated in a patient
population generally somewhat larger than Phase I. Clinical trials of certain
diagnostic and cancer therapeutic agents frequently combine Phase I and Phase II
into a single Phase I/II study. In Phase III, the product is evaluated in a
larger patient population sufficient to generate data to support a claim of
safety and efficacy within the meaning of the FD&C Act. Permission by the FDA
must be obtained before clinical testing can be initiated within the U.S. This
permission is obtained by submission of an IND application which typically
includes the results of in vitro and non-clinical testing and any previous human
testing done elsewhere. FDA has 30 days to review the information submitted and
makes a final decision whether to permit clinical testing with the drug or
biologic. A similar procedure applies to medical device and diagnostic products.

After completion of in vitro, non-clinical and clinical testing authorization to
market a drug or biologic must be granted by FDA. FDA grants permission to
market through the review and approval of either an NDA (New Drug Application)
for drugs or a BLA (Biologic License Application) for biologics. These
applications provide detailed information on the results of the safety and
efficacy of the drug conducted both in animals and humans. Additionally,
information is submitted describing the facilities and procedures for
manufacturing the drug or biologic.

Based on FDA regulations, once an application is submitted to FDA, FDA has 60
days to determine whether or not the application is sufficiently complete to be
filed. If FDA believes the application is not complete, FDA issues a
refuse-to-file letter to the sponsor.

The Prescription Drug User Fee Act has established application review times for
both NDAs and BLAs. For new drugs and biologics, FDA is to review and make a
recommendation for approval within 12 months. For drugs and biologics designated
as "priority," the review time is six months.

Once a drug or biologic is approved, the Company is required to maintain
approval status of the products by providing certain safety and efficacy
information at specified intervals. Additionally, the Company is required to
meet other requirements specified by the FD&C Act including but not limited to
the manufacture of products, labeling and promotional materials and the
maintenance of other records and 

                                      -15-
<PAGE>
 
reports. Failure to comply with these requirements or the occurrence of
unanticipated safety effects from the products during commercial marketing,
could lead to the need for product recall, or FDA initiated action, which could
delay further marketing until the products are brought into compliance. Similar
laws and regulations apply in most foreign countries where these products are
likely to be marketed.

Upon certain circumstances defined in the FD&C Act, certain products may be sold
and distributed, in limited quantities, prior to receipt of final FDA approval.
The Company believes that certain of its products may qualify for such
treatment; however, there can be no assurance that FDA will allow such sales or
distribution. FDA has established a process called the Treatment IND program
which makes investigational drugs available for the treatment of patients with a
serious or life-threatening disease. For investigational drugs to be eligible
for a Treatment IND program, there can be no comparable or satisfactory
alternative drug or therapy available to treat the particular disease in the
intended patient population. In September 1995, FDA approved a Treatment IND
program for ALT to be available as a treatment option to patients with mRCC who
were not able to participate in ALT clinical trials. The Treatment IND also
allows Cellcor to charge patients for the cost of the treatment. Cellcor has
also received authorization from FDA for cost recovery related to the treatment
of patients receiving ALT for mRCC under a compassionate use protocol. The only
patients who are eligible to participate in this program are patients who have
already received six or more treatments in a commercial or research setting.
Cellcor was treating approximately 15 patients under this protocol at the end of
1996.

         Orphan Drug Act. The Orphan Drug Act is intended to provide incentives
to manufacturers to develop and market drugs for rare diseases or conditions
affecting fewer than 200,000 persons in the U.S. at the time of application for
orphan drug designation. A drug that receives orphan drug designation and is the
first product to receive FDA marketing approval for a particular indication is
entitled to orphan drug status, a seven-year exclusive marketing period in the
U.S. for that indication. OncoScint CR/OV in its ovarian application, and ALT in
its renal cell carcinoma application have been designated orphan drugs. Under
the Orphan Drug Act, the FDA cannot approve any application by another party to
market an identical product for treatment of an identical indication unless (i)
such party has a license from the holder of orphan drug status, or (ii) the
holder of orphan drug status is unable to assure an adequate supply of the drug.
However, a drug that is considered by FDA to be different from a particular
orphan drug is not barred from sale in the U.S. during such seven-year exclusive
marketing period even if it receives marketing approval for the same product
claim.

         Other Regulations. In addition to regulations enforced by FDA, the
Company is also subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act, Nuclear Regulatory Commission and other
present and potential future federal, state or local regulations.

         Foreign Regulatory Approval. Prior to marketing its products in Western
Europe and certain other countries, the Company will be required to receive the
favorable recommendation of the CPMP followed by the appropriate government
agencies of the respective countries. Substantial requirements, comparable in
many respects to those imposed under the FD&C Act, will have to be met before
commercial sale is permissible in most countries. There can be no assurance,
however, as to whether or when governmental approvals (other than those already
obtained) will be obtained or as to the terms or scope of those approvals.

Competition

         The biopharmaceutical field is expected to continue to undergo rapid
and significant technological change as well as consolidation. Potential
competitors in the U.S. are numerous and include 

                                      -16-
<PAGE>
 
pharmaceutical, chemical, biotechnology, medical device companies and research
institutions, many of which have substantially greater capital resources,
marketing experience, research and development staffs and facilities than the
Company. This competition can be expected to become more intense as commercial
applications for biotechnology and pharmaceutical products increase. Some of
these companies may be better able than the Company to develop, refine and
market products based on monoclonal antibody-based technology, immunotherapy, or
on other technologies applicable to the diagnosis and treatment of cancer such
as CT, MRI, and chemotherapeutic products. The Company is aware that several
companies are engaged in the development of technology and products for targeted
radioisotopic and drug delivery, and cellular and gene therapies. The Company
understands that certain of these competitors are in the process of conducting
human clinical trials, have filed applications for marketing approval by
government agencies, or have received marketing approval by government agencies
of certain products which will compete with the Company's diagnostic and
therapeutic products. CYTOGEN is aware that one such company, Amersham
International, is marketing a product for use in the treatment of bone pain for
cancers which spread to bone, which is viewed as potential competition for
Quadramet. The Company is also aware that Immumomedics is marketing a product
for the diagnosis of recurrent colorectal cancer, which is viewed as potential
competition for OncoScint CR/OV. Moreover, pursuant to its limited field of use
license agreements, CYTOGEN has granted certain rights to its licensees to
develop and market cancer therapy products which may compete directly with
CYTOGEN's diagnostic and therapeutic products. CYTOGEN will receive royalties
from any sale of such licensed products and CYTOGEN believes the information
which presently is publicly available is insufficient to enable it to
definitively evaluate the likely success of these competing products.

CYTOGEN depends principally upon its patented antibody-based linker technology,
proprietary prostate antibody and its unique antigen (see "Research and
Development -- PSMA") to compete with other firms engaged in commercial
applications of antibody technology. For this reason, CYTOGEN has focused on
those applications where it believes its technology will offer significant
advantages over other existing technologies and its patents offer the most
protection.

Customers

         In fiscal year 1996, the Company received 60% of its total product
related, license and contract revenues from three (3) customers: DuPont Merck;
Elan; and Medi-Physics, Inc., a chain of radiopharmacies (see Note 7 to the
Consolidated Financial Statements).

Important Factors Regarding Forward Looking Statements

         Certain discussions set forth above regarding the Company's development
and commercialization of its products and technologies are forward looking
statements that are subject to risks and uncertainties. The statements under
this caption are intended to serve as cautionary statements within the meaning
of the Private Securities Litigation Reform Act of 1995. The following
information is not intended to limit the characterization of other statements
contained elsewhere in this Report as cautionary statements for such purpose.

The Company's FDA-approved products are "technique dependent", requiring a high
degree of proficiency in nuclear imaging. In particular, the Company has
determined that ProstaScint provides best results when used at specially trained
and experienced imaging sites. Accordingly, ProstaScint images will be
administered and interpreted only at PIE Sites where the technologists and the
physicians have received specific ProstaScint imaging training. There can be no
assurance that PIE Sites and ProstaScint will achieve market acceptance, that
this marketing strategy for ProstaScint will be successful or will result in
increased product related revenues resulting from sales of ProstaScint.

                                      -17-
<PAGE>
 
The Company has entered into arrangements with third parties to promote, market
and distribute OncoScint CR/OV and ProstaScint, and Quadramet if and when
approved for marketing by FDA. The Company will be dependent upon the expertise
and dedication of sufficient resources by these distributors in marketing these
products. There can be no assurance regarding the success of the Company's
distributors in obtaining marketing approvals in additional foreign
jurisdictions as required, in achieving milestones and achieving sales of
products resulting in royalty and other payments to the Company.

The Company's currently proposed products are at an early stage of development
and will require significant additional research and development efforts and a
commitment of substantial funds prior to any possible commercialization,
including extensive preclinical and clinical testing as well as lengthy
regulatory clearance. Any delays, difficulties or failure to obtain regulatory
approval for the Company's products, would impact the Company's results of
operations. There can be no assurance that the Company's research and
development efforts will be successful, that any of its potential products will
prove to be safe and efficacious in clinical trials or that such efforts will
result in commercially successful products.

In addition, the Company's currently proposed products are subject to, or the
Company is seeking possible, research and development and licensing arrangements
with third party collaborators. Therefore, the Company is and may be dependent
upon the expertise and dedication of sufficient resources by third parties to
develop and commercialize products based on the Company's technologies. Should a
collaborative partner fail to develop or commercialize a product, the Company
may not receive any future revenues from that product. There can be no assurance
that any such development or commercialization would be successful.

Moreover, there can be no assurance that the Company will be able to establish
additional collaborative or licensing arrangements, that any such arrangements
or licenses will be timely and on terms favorable to the Company, or that
current or future collaborative or licensing arrangements will ultimately be
successful.

The Company does not make public forecasts regarding the timing or outcome of
FDA-related activities. No assurance can be given regarding FDA approval of
products currently under development or future products.

The Company's success will also be influenced by certain issues arising in
connection with the Company's patent and proprietary technology and certain
competitive factors. See "Patents and Proprietary Information" and
"Competition."

                                      -18-
<PAGE>
 
Item 2.  Properties

         The Company's corporate headquarters is located in Princeton, New
Jersey. CYTOGEN currently leases approximately 107,700 square feet of
administrative, laboratory and manufacturing space in three locations in
Princeton. The lease for its 56,900 square foot laboratory and manufacturing
facility in Princeton will expire on February 28, 2003 and provides two 5-year
renewal options. The lease for CYTOGEN's 31,400 square foot office space in
Princeton will expire on June 15, 1997, subject to CYTOGEN's right to renew. In
February 1997, CYTOGEN renewed this lease for 22,676 square feet of office space
through August 2002. CYTOGEN also leases an additional 19,400 square feet at a
third location in Princeton, under a lease which will expire in December 1999.
This third location is used for laboratories and support for production of
commercial product. CYTOGEN expects to remain in the Princeton area for the
foreseeable future. As of December 31, 1996, the Company had invested
approximately $10 million for improvements in these buildings it occupies.

         Cellcor leases 21,500 square feet in Newton, Massachusetts, which
houses all of Cellcor's administrative staff and research and operations groups.
The lease for this facility will expire on February 29, 2000. Approximately 25%
of the facility has been sub-leased to another company under a short-term lease
arrangement.

         The Company believes its facilities are in good operating condition and
that all real property and equipment are adequate for all present and proposed
uses thereof.

Item 3.  Legal Proceedings

None

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

None

                                      -19-
<PAGE>
 
                     EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers of the Company and their respective ages and
positions with the Company as of March 1, 1997 are as follows:
<TABLE> 
<CAPTION> 
         Name                               Age                        Position
         ----                               ---                        --------
<S>                                         <C>              <C> 
Thomas J. McKearn                           48               Chairman, Chief Executive Officer and President

T. Jerome Madison                           56               Vice President, Finance, Chief Financial Officer
                                                             and Secretary

Robert J. Broeze                            44               Vice President, Operations

Jane M. Maida                               41               Corporate Controller

Graham S. May                               48               Vice President, Medical Affairs

Frederick M. Miesowicz                      48               Vice President and Vice President and General
                                                             Manager of Cellcor

John D. Rodwell                             50               Sr. Vice President and Chief Scientific Officer

Richard J. Walsh                            53               Vice President, Marketing and Commercial
                                                             Development
</TABLE> 

         All executive officers are elected annually by the Board of Directors.
There is no family relationship among any of the executive officers or
directors.

Business Experience

         Thomas J. McKearn joined CYTOGEN in July 1981 as Vice President,
Research and Development. He has served as CYTOGEN's Chairman since May 1996,
Chief Executive Officer since January 1994 and as President of CYTOGEN since
September 1991. Dr. McKearn previously served as Executive Vice President of
CYTOGEN from June 1990 to August 1991 and Senior Vice President, Scientific
Affairs of CYTOGEN through June 1990. He has been a director of CYTOGEN since
1981. Dr. McKearn has also served as a director of Targon since 1996 and as
President and a director of Cellcor since 1995. From 1978 until he joined
CYTOGEN, Dr. McKearn was an Assistant Professor in the Department of Pathology
at the University of Pennsylvania and Head of the Immunoprotein Laboratory at
the Hospital of the University of Pennsylvania. He retains a position as Adjunct
Associate Professor in the Department of Pathology at the University of
Pennsylvania. Dr. McKearn is a member of the Scientific Advisory Board for Rider
College. Dr. McKearn holds a B.A. degree from Indiana University, a Ph.D. degree
in Immunology from the University of Chicago and an M.D. degree from the
Pritzker School of Medicine at the University of Chicago.

         T. Jerome Madison joined CYTOGEN in October 1993 as Vice President,
Finance, Chief Financial Officer and Secretary. He has been a director of
CYTOGEN since December 1994. Mr. Madison has also served as Chief Financial
Officer and a director of Targon, and as Chairman, President, Chief Executive
Officer and Treasurer of Axcell since 1996, and as Vice President, Secretary and
a director of Cellcor since 1995. He is the sole stockholder, and an officer and
director of Somerset Central Corporation, a New Jersey corporation through which
Mr. Madison provides his services to the Company. Previously, Mr. Madison served
as President, Chief Executive Officer and General Partner of Montgomery
Partners, a venture capital group, from 1991 to 1993 and as President, Chief
Executive Officer and General Partner of Founders Court,

                                    - 20 -
<PAGE>
 
also a venture capital group, from 1986 to 1991. Mr. Madison was Vice President
for finance and administration of CYTOGEN from 1982 to 1986. Prior to first
joining CYTOGEN, he served as Corporate Controller for Rorer Group Inc. (now
Rhone-Poulenc Rorer). Mr. Madison holds a B.S. from The Wharton School of the
University of Pennsylvania and an M.B.A. from Monmouth University. He is also a
Certified Public Accountant.

         Robert J. Broeze joined CYTOGEN in May 1990 as Director, Pharmaceutical
Development. He served as CYTOGEN's Director, Manufacturing, Senior Director,
Manufacturing & Technical Operations and as Executive Director, Manufacturing &
Technical Operations until February 1997, when he was promoted to Vice
President, Operations. Prior to joining CYTOGEN, Dr. Broeze held the position of
Director, Process Development at Collaborative Research, Inc., a development
stage biotechnology company engaged in the development and manufacture of
biomedical products for research, diagnostic and clinical use, from 1989 to
1990. Dr. Broeze holds B.S. and Ph.D. degrees in Biology from Rensselaer
Polytechnic Institute.

         Jane M. Maida joined CYTOGEN in March 1997 as Corporate Controller.
Before joining CYTOGEN, Ms. Maida served as Chief Financial and Information
Officer for Mustard Seed, Inc., a behavioral health care company, from 1995.
Prior to that position, she was Chief Financial Officer of Morphogenesis, Inc.,
a biotechnology focused on cellular immunology. From 1986 to 1994, Ms. Maida was
Corporate Controller and Assistant Secretary for The Liposome Company, a
biotechnology company. Ms. Maida holds a B.S. in Education from the University
of Pennsylvania and a M.S. in Accounting from the State University of New York
at Albany. She is also a Certified Public Accountant.

         Graham S. May joined CYTOGEN in January 1997 as Vice President, Medical
Affairs. Most recently, he was a Principal in the Global Health Care Practice of
Gemini Consulting Inc., an international management consultant company, from
1995 to 1996. Prior to that, Dr. May was with Pharmacia, U.S., for almost 10
years, first as Medical Director of the Hospital Products division, and finally
as Executive Medical Director of Kabi Pharmacia, Inc. Dr. May has been a
visiting scientist at the Clinical Trials Branch, National Heart, Lung, and
Blood Institute at the National Institutes of Health. He holds undergraduate and
medical degrees from Cambridge University, England, and is a member of the
Faculty of Pharmaceutical Medicine.

         Frederick M. Miesowicz joined CYTOGEN in October 1995 as Vice
President. He also serves as Vice President and General Manager of Cellcor.
Prior to joining CYTOGEN, Dr. Miesowicz served as Cellcor's Senior Vice
President of Scientific Affairs since October 1992. Dr. Miesowicz has an
extensive background in cellular therapies. Prior to joining Cellcor, he managed
the United States and European SteriCell Division of Terumo Medical Corp. and
was with E.I. DuPont de Nemours & Company for over 14 years. In 1986, he assumed
development responsibility for DuPont's cellular therapy business, working with
the National Cancer Institute and others on ex vivo immunotherapies (lymphokine
activated killer cells and tumor infiltrating lymphocytes for cancer). He holds
a B.S. in Chemistry from Siena College and a Ph.D.in Chemistry from Harvard
University.

         John D. Rodwell joined CYTOGEN in September 1981. He served as
Director, Chemical Research, then as Vice President, Discovery Research from
1984 to 1989, and as Vice President, Research and Development from 1989 to July
1996, at which time he assumed his present responsibilities as Sr. Vice
President and Chief Scientific Officer. Dr. Rodwell has also served as Chief
Science Officer and a director of AxCell since 1996. From 1980 to 1981, Dr.
Rodwell was a Research Assistant Professor and, from 1976 to 1980, he was a
postdoctoral fellow, both in the Department of Microbiology at the University of
Pennsylvania School of Medicine, where he currently is an Adjunct Associate
Professor in the Department of Microbiology. Dr. Rodwell is a director and
treasurer of the Diversity Biotechnology Consortium located in Sante Fe, New
Mexico, which funds basic research in the area of molecular diversity. He holds
a B.A. degree from the University of Massachusetts, an M.S. degree in Organic
Chemistry from Lowell Technological Institute and a Ph.D. degree in Biochemistry
from the University of California at Los Angeles.

                                    - 21 -
<PAGE>
 
         Richard J. Walsh joined CYTOGEN in June 1994 as Vice President,
Corporate Development. He assumed his present responsibilities as Vice
President, Marketing and Commercial Development in November 1996. Mr. Walsh
served as Vice President of Biotechnology Acquisitions for American Cyanamid
Company from 1992 to 1994. Prior to that position, for six years he was Vice
President, Product Licensing and Technology Transfer at The Warner-Lambert
Company. From 1967 through 1986, Mr. Walsh held a variety of domestic and
international sales, marketing and licensing positions within Parke-Davis and
its parent, The Warner-Lambert Company. Mr. Walsh holds a B.S. degree in
Pharmacy from the University of Cincinnati.

                                    - 22 -
<PAGE>
 
                                    PART II

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

         CYTOGEN Common Stock is traded on the NASDAQ National Market tier of
The NASDAQ Stock Market under the trading symbol "CYTO."

         The table below sets forth the high and low sale prices for CYTOGEN
Common Stock for each of the calendar quarters indicated, as reported by the
NASDAQ National Market.
<TABLE> 
<CAPTION> 
1995                                                               High              Low
----                                                               ----              ---
<S>                                                                <C>               <C> 
First Quarter..................................................    5-1/4             3-1/16
Second Quarter.................................................    5-1/4             2-15/16
Third Quarter..................................................    6-1/2             4-1/4
Fourth Quarter.................................................    5-15/16           3-17/32
                              
1996                          
----

First Quarter..................................................    9-11/16           5-3/8
Second Quarter.................................................    9-1/16            5-15/16
Third Quarter..................................................    8-3/4             5-9/32
Fourth Quarter.................................................    6-13/16           4-5/8
</TABLE> 
         As of February 28, 1997 there were approximately 5,655 holders of
record of the Common Stock.

         CYTOGEN has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. Declaration of dividends on the Common Stock will
depend, among other things, upon future earnings, the operating and financial
condition of the Company, its capital requirements, and general business
conditions.

         For information concerning the issuance of the shares of CYTOGEN's 
Series A Convertible Preferred Stock issued under Section 4(2) of the Securities
Act, see "Business--Targon Corporation".

                                    - 23 -
<PAGE>

Item 6.   Selected Financial Data

      The following selected financial information has been derived from the
financial statements of the Company for each of the five fiscal years in the
period ended December 31, 1996, which have been audited by Arthur Andersen LLP,
the Company's independent public accountants. The financial summaries set forth
below should be read in conjunction with the financial statements, including the
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other information provided elsewhere in this report.

<TABLE> 
<CAPTION> 
                                                             1996            1995            1994          1993       1992
                                                           ----------------------------------------------------------------- 
                                                                   (All amounts in thousands, except per share data)
<S>                                                       <C>            <C>            <C>          <C>         <C> 
Consolidated Statements of Operations Data:                
Revenues                                                  $    5,730     $     4,985    $   2,458    $  10,354   $   13,367
                                                           ----------    ------------    ---------    ---------   ----------
                                                           
Research and development                                      20,915          22,594       20,321       24,844       21,680
Selling and marketing                                          4,143           4,493        5,536        9,399        2,679
Acquisition of technology and marketing rights                     -          45,878        4,647            -            -
General and administrative                                     5,534           4,804        3,962        7,016        5,394
                                                           ----------    ------------    ---------    ---------   ----------
      Total Operating expenses                                30,592          77,769       34,466       41,259       29,753
                                                           ----------    ------------    ---------    ---------   ----------
                                                           
      Loss from operations                                   (24,862)        (72,784)     (32,008)     (30,905)     (16,386)
Non-operating income (expense)                                 1,096             264         (798)       1,676        3,447
                                                           ----------    ------------    ---------    ---------   ----------
                                                           
Net loss                                                     (23,766)        (72,520)     (32,806)     (29,229)     (12,939)
Dividends on preferred stock                                       -               -            -            -       (1,293)
                                                           ----------    ------------    ---------    ---------   ----------
                                                           
Net loss to common stockholders                           $  (23,766)    $   (72,520)   $ (32,806)   $ (29,229)  $  (14,232)
                                                           ==========    ============    =========    =========   ==========
Net loss per common share                                 $    (0.49)    $     (2.11)   $   (1.38)   $   (1.38)  $    (0.75)
                                                           ==========    ============    =========    =========   ==========
Weighted average common shares outstanding                    48,401          34,333       23,822       21,121       18,994
                                                           ==========    ============    =========    =========   ==========
                                                           
Consolidated Balance Sheets Data:                          
                                                           
Cash, restricted cash and short term investments           $  34,681     $    29,135    $   7,700     $ 23,764    $  35,738
Total assets                                                  41,944          37,149       19,690       34,635       52,775
Long term liabilities                                          1,855           3,275        4,310          192          276
Redeemable common stock                                            -               -        2,000        2,000        2,000
Stockholders' equity                                          32,927          25,276        4,368       21,731       45,411
</TABLE> 

                                     -24-
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         From time to time, as used herein, the term "Company" may include
CYTOGEN Corporation ("CYTOGEN") and its wholly-owned and majority-owned
subsidiaries Cellcor, Inc. ("Cellcor") and Targon Corporation ("Targon"),
respectively, taken as a whole, where appropriate.

Results of Operations

         Background. To date, the Company's revenues have resulted primarily
from (i) payments received from the sale of research and manufacturing services
pursuant to agreements, (ii) fees generated from the licensing of its technology
and marketing rights to its products, (iii) product related revenues on sales of
its OncoScint products in the U.S. and Western Europe and (iv) the cost recovery
related to the treatment of patients receiving autolymphocyte therapy ("ALT")
for metastatic renal cell carcinoma ("mRCC") under a compassionate protocol and
Treatment Investigational New Drug ("Treatment IND") program.

         Currently, sales of OncoScint CR/OV in both the U.S. and European
markets are limited, in part, because OncoScint CR/OV is a "technique-dependent"
product that requires a high degree of proficiency in nuclear imaging, as well
as a thorough appreciation of the information the scan can provide. Since May
1994, CYTOGEN has been the sole marketer of OncoScint CR/OV in the U.S. In
December 1995 and January 1996, CYTOGEN entered into agreements with Faulding
(Canada) Inc. ("Faulding") and CIS biointernational ("CISbio"), respectively, to
market and distribute OncoScint CR/OV outside the U.S. Faulding is currently
pursuing the necessary regulatory approvals in Canada. CISbio has relaunched
OncoScint CR/OV in nine of the twelve European countries where the product has
been approved for marketing, and is in the process of relaunching in the rest of
the countries while initiating steps to obtain regulatory approvals for
additional markets in accordance with the terms of the agreement.

         In October 1996, CYTOGEN received marketing approval from FDA for
ProstaScint, its prostate cancer imaging product. In preparation for the launch
of ProstaScint in February 1997, CYTOGEN has developed its Partners in
Excellence ("PIE") or PIE(TM) Program by establishing a network of qualified
nuclear medicine sites and physicians. Each site will be trained and certified
in acquiring, processing and interpreting antibody-derived images. ProstaScint
can be directed to such qualified sites, thus providing quality control and
support. CYTOGEN has also signed an agreement (the "Co-Promotion Agreement")
with C.R. Bard, Inc. ("Bard") to co-promote ProstaScint.

         Revenues. Total revenues were $5.7 million in 1996, $5.0 million in
1995 and $2.5 million in 1994. Product related revenues were $1.5 million, $1.4
million and $1.4 million in 1996, 1995 and 1994, respectively, and consisted
primarily of domestic sales of OncoScint CR/OV.

         License and contract revenues for 1996, 1995 and 1994 were $4.2
million, $3.6 million and $1.0 million, respectively, and included milestone and
up-front payments of $845,000 in 1996, $2.1 million in 1995 and $1.0 million in
1994. The 1996 milestone and up-front payments were derived primarily from Bard
and CISbio. The 1995 milestone payments consisted primarily of $2.0 million from
The Dow Chemical Company ("Dow"), which was received upon the Company's filing
of the New Drug Application ("NDA") with FDA. In 1994, CYTOGEN received a $1.0
million up-front payment from The DuPont Merck Pharmaceutical Company ("DuPont
Merck") upon its entering into an agreement (the "DP/Merck Agreement") with
CYTOGEN to manufacture and market Quadramet in the U.S. See Note 5 to the
Consolidated Financial Statements. Revenues from the sale of manufacturing and
research services were $3.4 million in 1996 compared to $1.5 million in 1995 and
$47,000 in 1994. The 1996 contract revenues consisted primarily of $1.5 million
realized from DuPont Merck for continued clinical development of Quadramet and
$1.3 million from Elan Corporation, plc and affiliated corporations
(collectively, "Elan"). In 1995, CYTOGEN recorded $1.3 million of contract
revenue from DuPont Merck. In 1994, CYTOGEN recorded an aggregate of $47,000 of
contract revenues from Bracco Industria Chimica S.p.A and Chiron B.V. 
("Chiron").

                                      -25-
<PAGE>
 
         Operating Expenses. Total operating expenses were $30.6 million in
1996, $77.8 million in 1995 and $34.5 million in 1994. The decrease from the
prior year periods is largely attributable to the one-time non-cash charges of
$45.9 million recorded in 1995 for acquisition of technology and marketing
rights from CytoRad Incorporated ("CytoRad") and Cellcor and $4.6 million
recorded in 1994 for acquisition of marketing and technology rights from Knoll
Pharmaceuticals Company ("Knoll"), Chiron, and CytoRad. In addition, in 1995 and
1994, the Company recorded charges of $2.9 million and $1.1 million,
respectively, for inventory writedowns of commercial inventory relating to
OncoScint CR/OV. The 1996 operating expenses continued to reflect the Company's
efforts to focus on its highest priority products and technology, which are (i)
ProstaScint, (ii) Quadramet, (iii) OncoScint CR/OV, (iv) the GDL technology and
(v) ALT therapy for mRCC.

         Research and development expenses were $20.9 million in 1996, $22.6
million in 1995 and $20.3 million in 1994. These expenses principally reflect
product development efforts and support for various ongoing clinical trials.
During 1995 and 1994, the Company charged $2.9 million and $1.1 million,
respectively, to research and development expenses for inventory writedowns of
commercial inventory relating to OncoScint CR/OV.

         Selling and marketing expenses were $4.1 million in 1996, $4.5 million
in 1995 and $5.5 million in 1994. The decrease from the prior year periods is
primarily attributable to the reduction of promotional expenses associated with
OncoScint CR/OV and in 1995, included the reduction of salaries and employee
related expenses that resulted from the restructuring of CYTOGEN's sales force.

         Acquisition of technology and marketing rights expenses were $45.9
million in 1995 and included $19.7 million and $26.2 million of one-time
non-cash charges representing the amounts by which the purchase prices exceeded
the fair value of net assets acquired in connection with the CytoRad and Cellcor
mergers, respectively. In 1994, CYTOGEN recorded $4.6 million for acquisition of
technology and marketing rights, which included $2.4 million and $800,000 of
one-time charges for the acquisition of marketing rights to OncoScint CR/OV from
Knoll and Chiron, respectively, and $1.4 million of legal and investment banking
fees related to the CytoRad merger.

         General and administrative expenses were $5.5 million in 1996, $4.8
million in 1995 and $4.0 million in 1994. The increase from the prior year
periods is primarily attributable to increased spending for professional and
consulting services.

         Other Income/Expense. Net gains on investments for 1996 and 1995 were
$1.5 million and $857,000, respectively, compared to a net loss of $470,000 in
1994. The increase from the prior year periods is due primarily to higher
average cash and short term investment balances for the periods. The net loss in
1994 is attributable primarily to a $1.5 million loss recorded in 1994 as a
result of the sale of government securities due to the rise in interest rates.
This loss was partially offset by interest income of approximately $1.0 million
in 1994.

         Interest expense was $451,000 in 1996, $593,000 in 1995 and $328,000 in
1994, and consisted primarily of imputed interest on liabilities associated with
CYTOGEN's termination agreements with Knoll and Chiron.

         Net Loss. Net losses were $23.8 million, $72.5 million and $32.8
million in 1996, 1995 and 1994, respectively. Losses per share were $0.49, $2.11
and $1.38 in 1996, 1995 and 1994, respectively, on 48.4 million, 34.3 million
and 23.8 million average shares outstanding in each year, respectively. As
discussed above, the decrease from the prior year periods in the net loss and
net loss per common share is primarily

                                      -26-
<PAGE>
 
attributable to the charges to the statement of operations for the acquisition
of technology and marketing rights. At December 31, 1996, the Company had
outstanding (i) options to purchase up to 3.9 million shares of CYTOGEN common
stock under its various stock option plans with exercise prices ranging from
$0.83 to $18.33 per share and (ii) warrants to purchase 4.3 million shares of
CYTOGEN common stock with exercise prices ranging from $8.00 to $18.87 per
share. The loss per share calculation stated above does not take into account
the shares issuable in connection with such options and warrants as their effect
is antidilutive.

Liquidity and Capital Resources

         The Company's cash, restricted cash and short term investments were
$34.7 million as of December 31, 1996, compared to $29.1 million as of December
31, 1995. The cash used for operating activities and purchases of property and
equipment for 1996 were $25 million and $886,000, respectively, compared to
$25.8 million and $595,000 used in the same period of 1995.

         Historically, the Company's primary sources of cash have been proceeds
from the issuance and sale of its stock through public offerings and private
placements, product related revenues, the sale of research and manufacturing
services, fees paid under its license agreements and interest earned on its cash
and short term investments.

         CYTOGEN Capital Stock. In January 1996, Fletcher Capital Markets, Inc.
("Fletcher") purchased an aggregate of 1.0 million shares of CYTOGEN common
stock at an aggregate price of approximately $4.7 million, or $4.70 per share,
pursuant to an option granted to Fletcher in May 1994, as amended.

         During 1996, CYTOGEN sold to a European institutional investor (i)
729,394 shares of common stock in April for an aggregate purchase price of $5.0
million, (ii) 913,909 shares of common stock in October for an aggregate
purchase price of $5.0 million, and (iii) 776,791 shares of common stock in
November for an aggregate purchase price of approximately $4.0 million.

         In September 1996, CYTOGEN sold 225,000 shares of common stock to
Fletcher Fund, L.P., a Delaware limited partnership ("Fletcher Fund") for an
aggregate price of $1.5 million or $6.529 per share, upon the exercise of a put
right granted to CYTOGEN pursuant to an investment agreement, as amended in
April 1996, between CYTOGEN and Fletcher Fund.

         In September 1996, at the time of the establishment of Targon (see Note
2 to the Consolidated Financial Statements), Elan purchased 932,535 shares of
CYTOGEN common stock for $5 million and 1,000 shares of CYTOGEN's newly created
Series A Convertible Preferred Stock for $15 million. Targon used $10 million of
the proceeds of CYTOGEN's investment in Targon to acquire certain technology
from Advanced Therapeutics Systems Ltd, an affiliate of Elan.

         Product Related Revenues. OncoScint CR/OV. To date, sales of OncoScint
CR/OV have not been significant and are not expected to become a significant
source of cash flow in 1997. In November 1994, the Company executed a
termination agreement (the "Termination Agreement") with Knoll, pursuant to
which the Company is required to pay to Knoll, over a four-year period and
without interest, $3.0 million to reacquire all U.S. marketing rights to
OncoScint CR/OV (the "U.S. Rights") and $5.0 million of liabilities previously
incurred under the terms of a license, supply and marketing agreement (the
"Knoll Agreement") executed in December 1991. The payment of this liability is
made as follows: $3.1 million in 1995; $1.6 million in 1996; $1.6 million in
1997; and $1.7 million in 1998.

                                      -27-
<PAGE>
 
         In December 1994, CYTOGEN entered into a disengagement agreement (the
"Disengagement Agreement") with Chiron to reacquire the exclusive marketing and
distribution rights in Europe (the "European Rights") and purchase certain
business assets relating to the European Rights. The resulting liability of
CYTOGEN to Chiron will be paid over three years and without interest, as
follows: $200,000 in 1995; $300,000 in 1996; and $377,000 in 1997. Payment is
secured by a mortgage covering approximately 11 acres of undeveloped real
property owned by the Company in Ewing, New Jersey. This obligation is
non-recourse to the Company.

         In December 1995 and January 1996, CYTOGEN entered into agreements with
Faulding and CISbio, respectively, to market and distribute OncoScint CR/OV
outside the U.S. Faulding is currently pursuing the necessary regulatory
approvals in Canada. As described above, CISbio is actively marketing OncoScint
CR/OV in certain countries in Europe. In addition to one-time, up-front cash
payments for execution of the agreements, which amounts were recognized by the
Company in 1996, each of Faulding and CISbio will be required to make payments
upon the achievement of certain milestones, payments for the purchase of
products and royalties on net sales, if any.

         ProstaScint. In August 1996, CYTOGEN entered into the Co-Promotion
Agreement with Bard to market and promote ProstaScint, pursuant to which Bard
will make payments upon the occurrence of certain milestones, which include
expansion of co-marketing rights in selected countries outside the U.S. During
the term of the Co-Promotion Agreement, Bard will receive performance-based
compensation for its services.

         In October 1996, ProstaScint was approved for marketing by FDA. In
connection with the ProstaScint launch in February 1997, CYTOGEN has developed
the PIE Program (as described above) and significant resources could be
required.

         ALT. Beginning October 1995, as a result of the Cellcor merger, the
Company's product related revenues included the cost recovery related to the
treatment of patients receiving ALT under a compassionate protocol, and in 1996
also included the cost recovery associated with the Treatment IND program.

         Research Services and Licenses. Pursuant to the terms of the DP/Merck
Agreement between CYTOGEN and DuPont Merck, CYTOGEN will receive from DuPont
Merck future payments of up to $1.4 million towards additional clinical
programs, a $2.0 million milestone payment if and when Quadramet receives FDA
approval, additional payments upon achievement of certain other milestones and
payments based on sales, including guaranteed minimum payments. During 1996,
CYTOGEN recorded $1.5 million in license and contract revenues from DuPont
Merck. See Note 5 to the Consolidated Financial Statements.

         CYTOGEN acquired an exclusive license in the U.S. from Dow for
Quadramet in 1993. This license was later amended in 1995 and 1996. See Note 6
to the Consolidated Financial Statements. The Company will be required to pay to
Dow $4.0 million if and when Quadramet receives FDA approval. The agreement
provides for additional payments by the Company upon achievement of certain
milestones and royalties on net sales of the product once commercialized,
including guaranteed minimum payments.

         In December 1995, the Company and Elan entered into an agreement (the
"Elan Agreement"), under which Elan will provide the funding necessary for the
Company to fulfill its obligations under the research program, with aggregate
payments for work performed by CYTOGEN not to exceed $1.5 million during the
first sixteen months of the research program. During 1996, CYTOGEN recorded $1.3
million in contract revenues from Elan. See Note 3 to the Consolidated Financial
Statements.

                                      -28-
<PAGE>
 
         The Company's capital and operating requirements, as described above,
may further change depending upon several factors, including: (i) the amount of
resources which the Company devotes to clinical evaluations and the
establishment of manufacturing, marketing and sales capabilities; (ii) results
of preclinical testing, clinical trials and research and development activities;
and (iii) competitive and technological developments. The Company plans to
continue to control spending and expects that its cash position at December 31,
1996 will be adequate to support the Company's operations into 1998.

         The Company's financial strategy is to meet its capital and operating
requirements through revenues from existing products, the establishment of
strategic marketing alliances and research and development partnerships, the
acquisition, in-licensing and development of other technologies, products or
services, subcontract manufacturing revenues, license and contract revenues,
sale of equity securities as market conditions permit, interest income, and a
continued commitment to control spending. Certain of these transactions may
require payments by the Company in either cash or stock in addition to the costs
associated with developing and marketing any product or technology and, if
successful, may increase long term revenues. There can be no assurance as to the
strategy's success or that any resulting funds will be sufficient to meet the
Company's cash requirements through the time that product related resources are
sufficient to cover the Company's operating expenses.

         The foregoing discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties. In
addition to the risks discussed above, among other factors that could cause
actual results to differ materially from expected results are the following: (i)
the timing and results of clinical studies; (ii) market acceptance of the
Company's products, including programs designed to facilitate use of the
products, such as the PIE Program; (iii) the profitability of its products; (iv)
the ability to attract, and the ultimate success of strategic partnering
arrangements, collaborations, and acquisition candidates; (v) the ability to
attract additional contract manufacturing customers; (vi) the ability of the
Company and its partners to identify new products as a result of those
collaborations that are capable of achieving FDA approval, that are
cost-effective alternatives to existing products and that are ultimately
accepted by the key users of the product; (vii) the success of the Company's
distributors in obtaining marketing approvals in Canada and in additional
European countries, in achieving milestones and achieving sales of products
resulting in royalties; and (viii) the Company's ability to access the capital
markets in the future for continued funding of existing projects and for the
pursuit of new projects.

Item 8.  Financial Statements and Supplementary Data

         The response to Item 8 is submitted as a separate section of this Form
10-K.

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

         None.

                                      -29-
<PAGE>
 
                                   PART III

Item 10. Directors and Executive Officers of the Registrant

      Information regarding the Company's Directors is incorporated by
reference to the information contained under the captions "Nominees for
Directors" and "Section 16(a) Benefical Ownership Reporting Compliance" in the
Company's Proxy Statement. Information regarding the Company's Executive
Officers is set forth in Part I of this Form 10-K.

Item 11. Executive Compensation

      Incorporated by reference to the information contained under the caption
"Executive Compensation" in the Company's Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      Incorporated by reference to the information contained under the caption
"Security Ownership of Management and Principal Stockholders" in the Company's
Proxy Statement.

Item 13. Certain Relationships and Related Transactions

      Incorporated by reference to the information contained under the caption
"Certain Transactions" in the Company's Proxy Statement.

                                      -30-
<PAGE>
 
                                    PART IV

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

   (a) Documents filed as a part of the Report:

   (1) and (2)

   The response to this portion of Item 14 is submitted as a separate section of
   this Form 10-K.

   (3) Exhibits -- Each management contract or compensatory plan or
       --------
       arrangement required to be filed as an exhibit hereto pursuant to Item
       14(c) of this report is listed in Exhibit Nos. 10.8.1, 10.8.2, 10.8.3,
       10.9.1, 10.9.2, 10.9.3, 10.9.4, 10.21, 10.27.1, 10.27.2, 10.31, 10.32,
       10.38 and 10.39 below.
<TABLE> 
<CAPTION> 

     Exhibit No.
     ----------
     <S>                <C> 
     2.1          -     Agreement and Plan of Merger, dated November 15, 1994
                        among the registrant, CytoRad Acquisition Corp., a
                        wholly-owned subsidiary of the registrant, and CytoRad
                        Incorporated./17/
                        
     2.2.1        -     Agreement and Plan of Merger, dated June 15, 1995 among
                        the registrant, Cellcor Acquisition Corp. (formerly
                        known as Small-C Acquisition Corp.), a wholly-owned
                        subsidiary of the registrant, and Cellcor, Inc./20/
                        
     2.2.2        -     First Amendment to Agreement and Plan of Merger, dated
                        September 7, 1995 by and among the registrant, Cellcor
                        Acquisition Corp. and Cellcor, Inc./23/
                        
     3.1.1        -     Restated Certificate of Incorporation of CYTOGEN
                        Corporation, as amended./27/
                        
     3.1.2        -     Certificate of Designations, Powers, Preferences and
                        Rights of the Series A Convertible and Exchangeable
                        Preferred Stock of CYTOGEN Corporation./28/
                        
     3.2          -     By-Laws of CYTOGEN Corporation, as amended./14/
                        
     4.1          -     Specimen of Common Stock Certificate./5/
                        
     10.1         -     Voting and Subscription Agreement, dated June 15, 1995
                        among the registrant,Cellcor Acquisition Corp. and the
                        entities listed on Schedule I thereto./21/
                        
     10.2         -     Form of Registration Rights Agreement for Common Stock
                        between CYTOGEN Corporation and certain persons listed
                        on Schedule A thereto./22/
                        
     10.3.1       -     Agreement effective as of June 2, 1983 between American
                        Cyanamid Company and CYTOGEN Corporation./1/
</TABLE> 

                                      -31-
<PAGE>
 
<TABLE> 

     <S>                <C> 
     10.3.2       -     First Amendment dated January 29, 1985 to License
                        Agreement between American Cyanamid Company and CYTOGEN
                        Corporation./1/
                        
     10.4.1       -     Non-Exclusive License Agreement dated April 24, 1989
                        between Eli Lilly and Company and CYTOGEN 
                        Corporation./7/
                        
     10.4.2       -     Non-Exclusive License Agreement dated April 24, 1989
                        between Eli Lilly and Company S.A. and CYTOGEN
                        Corporation./7/
                        
     10.4.3       -     Stock Purchase Agreement, dated as of August 22, 1989,
                        between Eli Lilly and Company and CYTOGEN 
                        Corporation./6/
                        
     10.5.1       -     Production and Supply Agreement, dated September 29,
                        1989, between CYTOGEN Corporation and Celltech
                        Limited./10/
                        
     10.5.2       -     Amendment No. 1 to the Production and Supply Agreement,
                        dated September 15, 1991, between CYTOGEN Corporation
                        and Celltech Limited./11*/
                        
     10.5.3       -     Agreement, dated November 7, 1991, between CYTOGEN
                        Corporation and Celltech Limited (the "Celltech
                        Agreement")./11*/
                        
     10.5.4       -     Amendment No. 3 to the Production and Supply Agreement,
                        dated January 9, 1992, between CYTOGEN Corporation and
                        Celltech Limited./13*/
                        
     10.5.5       -     Amendment No. 4 to the Production and Supply Agreement,
                        dated January 9, 1992, between CYTOGEN Corporation and
                        Celltech Limited./13*/
                        
     10.5.6       -     Amendment No. 5 to the Production and Supply Agreement,
                        dated March 10, 1992, between CYTOGEN Corporation and
                        Celltech Limited./13*/
                        
     10.5.7       -     Amendment No. 1 to the Celltech Agreement, dated March
                        9, 1992, between CYTOGEN Corporation and Celltech
                        Limited./13*/
                        
     10.6.1       -     Lease Agreement, dated as of March 16, 1987, by and
                        between Peregrine Investment Partners I, as lessor, and
                        CYTOGEN Corporation, as lessee./2/
                        
     10.6.2       -     Amendment, dated as of October 16, 1987, to Lease
                        Agreement between Peregrine Investment Partners I and
                        CYTOGEN Corporation./4/
                        
     10.7.1       -     Lease Agreement, dated November 14, 1989 between College
                        Road Associates, Limited Partnership and CYTOGEN
                        Corporation./10/
                        
     10.7.2       -     Lease Agreement, dated as of February 20, 1986, between
                        College Road Associates and CYTOGEN Corporation, as
                        amended on June 27, 1986./8/
</TABLE> 

                                      -32-
<PAGE>
 
<TABLE> 

     <S>                <C> 
     10.7.3       -     Lease Agreement, dated as of December 23, 1981, by and
                        between The Trustees of Princeton University and CYTOGEN
                        Corporation, as amended on March 27, 1986./8/
                        
     10.7.4       -     Lease Agreement, dated as of November 26, 1991, between
                        College Road Associates, Limited Partnership and CYTOGEN
                        Corporation./11/
                        
     10.8.1       -     1989 Employee Stock Option Plan./4/
                        
     10.8.2       -     CYTOGEN Corporation Standard Form Employee Executive
                        Officer Incentive Stock Option Agreement./9/
                        
     10.8.3       -     CYTOGEN Corporation Standard Form Employee Executive
                        Officer Non-Qualified Stock Option Agreement./9/
                        
     10.9.1       -     1988 Stock Option Plan for Non-Employee Directors./4/
                        
     10.9.2       -     Amendment to the CYTOGEN Corporation 1988 Stock Option
                        Plan for Non-Employee Directors dated May 22, 1996./27/
                        
     10.9.3       -     CYTOGEN Corporation Standard Form Non-Employee Director
                        Non-Qualified Stock Option Agreement./9/
                        
     10.9.4       -     CYTOGEN Corporation Standard Form 1992 Employee Non-
                        Qualified Stock Option Agreement./13/
                        
     10.10        -     Standard Form of Indemnification Agreement entered into
                        between CYTOGEN Corporation and its officers, directors,
                        and consultants./6/
                        
     10.11        -     1989 Stock Option Policy for Outside Consultants./6/
                        
     10.12        -     Agreement, dated as of December 31, 1992, by and among
                        CYTOGEN Corporation, Unilever N.V., Unilever PLC,
                        Unilever UK Central Resources Ltd. and Unipath 
                        Ltd./13*/
                        
     10.13.1      -     License Agreement dated as of March 31, 1993 between
                        CYTOGEN Corporation and The Dow Chemical Company./12*/
                        
     10.13.2      -     Amendment of the License Agreement between CYTOGEN
                        Corporation and The Dow Chemical Company dated September
                        5, 1995./26*/
                        
     10.13.3      -     Second Amendment to the License Agreement between
                        CYTOGEN Corporation and The Dow Chemical Company dated
                        May 20, 1996./29*/
                        
     10.14        -     Investment Agreement dated as of February 24, 1994
                        between CYTOGEN Corporation and Fletcher Capital
                        Markets, Inc./18/
</TABLE> 

                                      -33-
<PAGE>
 
<TABLE> 

     <S>                <C> 
     10.15.1      -     Amended and Restated Investment Agreement, dated as of
                        May 6, 1994, between CYTOGEN Corporation and Fletcher
                        Capital Markets, Inc./15/
                        
     10.15.2      -     Amendment to the Option Agreement between CYTOGEN
                        Corporation and Fletcher Capital Markets, Inc. dated
                        August 10, 1995./22/
                        
     10.15.3      -     Second Amendment to the Option Agreement between CYTOGEN
                        Corporation and Fletcher Capital Markets, Inc. dated
                        November 15, 1995./25/
                        
     10.16.1      -     License Agreement by and between CYTOGEN Corporation and
                        The DuPont Merck Pharmaceutical Company./14*/
                        
     10.16.2      -     Amendment to the License Agreement between CYTOGEN
                        Corporation and The DuPont Merck Pharmaceutical Company
                        dated March 29, 1996./26*/
                        
     10.17        -     Agreement to Terminate License, Supply and Marketing
                        Agreement, dated as of November 1, 1994, between CYTOGEN
                        Corporation and Knoll Pharmaceutical Company./14/
                        
     10.18        -     Letter Agreement, dated November 1, 1994, between
                        CYTOGEN Corporation and Knoll Pharmaceutical 
                        Company./14/
                        
     10.19        -     Disengagement Agreement, dated December 30, 1994,
                        between CYTOGEN Corporation and Chiron B.V./14*/
                        
     10.20        -     1992 CYTOGEN Corporation Employee Stock Option Plan II,
                        as amended./14/
                        
     10.21        -     Stock Compensation and Performance Option Agreement,
                        dated December 8, 1994, between CYTOGEN Corporation and
                        Dr. Thomas J. McKearn./14/
                        
     10.22        -     License Agreement, dated March 10, 1993, between CYTOGEN
                        Corporation and The University of North Carolina at
                        Chapel Hill, as amended./19*/
                        
     10.23        -     Option and License Agreement, dated July 1, 1993,
                        between CYTOGEN Corporation and Sloan-Kettering
                        Institute for Cancer Research./19*/
                        
     10.24.1      -     Investment Agreement between CYTOGEN Corporation and
                        Fletcher Fund L.P. dated September 8, 1995./22/
                        
     10.24.2      -     First Amendment to Investment Agreement between CYTOGEN
                        Corporation and Fletcher Fund, L.P. dated April 26,
                        1996./26/
                        
     10.25        -     Technology Licensing and Service Agreement, dated 
                        March 14, 1994, between Cellcor, Inc. and SRL, Inc./16/
                        
     10.26        -     Lease Agreement between Cellcor, Inc. and Leon H. Cohen,
                        Trustee of 200 Wells Avenue Realty Trust, dated January
                        31, 1990, as amended./24/

</TABLE> 

                                      -34-
<PAGE>
 
     10.27.1  -    CYTOGEN Corporation 1995 Stock Option Plan. /25/

     10.27.2  -    Amendment No. 1 to the CYTOGEN Corporation 1995 Stock Option 
                   Plan dated May 22, 1996. /27/
             
     10.28    -    Research and Development and Option Agreement, dated 
                   December 14, 1995, between CYTOGEN Corporation and Elan 
                   Corporation, plc. /25/*
             
     10.29    -    Distribution Agreement, dated December 22, 1995, between
                   CYTOGEN Corporation and Faulding (Canada) Inc. /25/*

     10.30    -    Distribution Agreement, dated January 16, 1996, between
                   CYTOGEN Corporation and CIS biointernational. /25/*
                   
     10.31    -    Severance Agreement effective as of January 1, 1994 between 
                   CYTOGEN Corporation and Thomas J. McKearn, M.D., Ph.D. /25/
             
     10.32    -    Description of Severance Agreement with Richard J. Walsh. 
                   /25/
             
     10.33    -    Horosziewicz - CYTOGEN Agreement, dated April 20, 1989,
                   between CYTOGEN Corporation and Julius S. Horosziewicz, M.D.,
                   DMSe. /25/*
                   
     10.34    -    Securities Purchase Agreement between CYTOGEN Corporation 
                   and Elan International Services, Ltd., dated as of 
                   September 26, 1996. /28/
             
     10.35    -    Warrant to purchase CYTOGEN common stock, issued to Elan 
                   International Services, Ltd., dated September 26, 1996. /28/
             
     10.36    -    Joint Development and Operating Agreement among CYTOGEN 
                   Corporation, Elan Corporation, plc. and Targon Corporation 
                   dated September 26, 1996. /28/**
             
     10.37    -    Marketing and Co-Promotion Agreement between CYTOGEN 
                   Corporation and C.R. BARD, Inc. effective August 1, 1996. 
                   /28/**
             
     10.38    -    Employee Leasing Agreement between CYTOGEN Corporation and 
                   Somerset Central Corporation dated September 26, 1996.
             
     10.39    -    Severance Agreement effective as of March 26, 1996 between 
                   CYTOGEN Corporation and John D. Rodwell, Ph.D.
             
     21       -    Subsidiaries of CYTOGEN Corporation.


                                    - 35 -
<PAGE>
 
     23       -    Consent of Arthur Andersen LLP.

     27       -    Financial Data Schedule (submitted to SEC only in electronic 
                   format).

     99       -    Standard Form of Confidentiality Agreement (as executed by 
                   all officers and employees). /2/

----------------------

1     Filed as an exhibit to Form S-l Registration Statement (No. 35-5533) and
      incorporated herein by reference.

2     Filed as an exhibit to Form 10-K Annual Report for Year Ended January 2,
      1988 (Commission File No. 0-14879) and incorporated herein by reference.

3     Filed as an exhibit to Form 10-K Annual Report for Year Ended December 31,
      1988 (Commission File No. 0-14879) and incorporated herein by reference.

4     Filed as an exhibit to Form S-8 Registration Statement (No. 33-30595) and
      incorporated herein by reference.

5     Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement
      (No. 33-5533) and incorporated herein by reference.

6     Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement
      (No. 33-31280) and incorporated herein by reference.

7     Filed as an exhibit to Pre-Effective Amendment No. 2 to Form S-1
      Registration Statement (No. 33-31280) and incorporated herein by
      reference.

8     Filed as an exhibit to Pre-Effective Amendment No. 1 to Form S-1
      Registration Statement (No. 33-35430) and incorporated herein by
      reference.

9     Filed as an exhibit to Form 10-K Annual Report for the Year Ended December
      29, 1990 (Commission File No. 0-14879) and incorporated herein by
      reference.

10    Filed as an exhibit to Amendment No. 1 to Form 10-K Annual Report for the
      Year Ended December 29, 1990 (Commission File No. 0-14879) and
      incorporated herein by reference.

11    Filed as an exhibit to Form 10-K Annual Report for the Year Ended December
      28, 1991 (Commission File No. 0-14879) and incorporated herein by
      reference.

12    Filed as an exhibit to Form 10-Q/A-1 Amendment to Quarterly Report for the
      quarter ended July 3, 1993 (Commission File No. 0-14879) and incorporated
      herein by reference.

13    Filed as an exhibit to Form 10-K Annual Report for the Year Ended January
      2, 1993 (Commission File No. 0-14879) and incorporated herein by
      reference.

                                    - 36 -
<PAGE>
 
14    Filed as an exhibit to Form S-4 Registration Statement (No. 33-88612) and
      incorporated herein by reference.

15    Filed as an exhibit to Form 10-Q Quarterly Report for the quarter ended
      March 31, 1994 (Commission File No. 0-14879), as amended, and incorporated
      herein by reference.

16    Filed as Exhibit 10.1 to Cellcor, Inc.'s Form 10-Q Quarterly Report for
      the quarter ended March 31, 1994 (Commission File No. 0-19823) and
      incorporated herein by reference.

17    Filed as an exhibit to Form 8-K dated November 15, 1994 (Commission File
      No. 0-14879) and incorporated herein by reference.

18    Filed as an exhibit to Form 10-K Annual Report for the year ended January
      1, 1994 (Commission File No. 0-14879) and incorporated herein by
      reference.

19    Filed as an exhibit to Form 10-K Annual Report for the year ended December
      31, 1994 (Commission File No. 0-14879) and incorporated herein by
      reference.

20    Filed as an exhibit to Form 8-K dated June 15, 1995 (Commission File 
      No. 0-14879) and incorporated herein by reference.

21    Filed as Annex B to the Joint Proxy Statement/Prospectus dated July 17,
      1995 and incorporated herein by reference.

22    Filed as an exhibit to Form S-4 Registration Statement (No. 33-62617) and
      incorporated herein by reference.

23    Filed as Annex A to the Joint Proxy Statement/Prospectus constituting part
      of the Registration Statement on Form S-4 (No. 33-62617) and incorporated
      herein by reference.

24    Filed as Exhibit 10.09 to Cellcor, Inc.'s Form S-1 Registration Statement
      (No. 33-45448) and incorporated herein by reference.

25    Filed as an exhibit to Form 10-K Annual Report for the year ended December
      31, 1995 (Commission File No. 0-14879) and incorporated herein by
      reference.

26    Filed as an exhibit to Form 10-Q Quarterly Report for the quarter ended
      March 31, 1996 (Commission File No. 0-14879) and incorporated herein by
      reference.

27    Filed as an exhibit to Form 10-Q Quarterly Report for the quarter ended
      June 30, 1996 (Commission File No. 0-14879) and incorporated herein by
      reference.

28    Filed as an exhibit to Form 10-Q Quarterly Report for the quarter ended
      September 30, 1996 (Commission File No. 0-14879) and incorporated herein
      by reference.

29    Filed as an exhibit to Form 10-Q/A-1 Amendment to Quarterly Report for the
      quarter ended June 30, 1996 (Commission File No. 0-14879) and incorporated
      herein by reference.

                                    - 37 -
<PAGE>
 
 * CYTOGEN Corporation has received confidential treatment of certain provisions
   contained in this exhibit pursuant to an order issued by the Securities and
   Exchange Commission. The copy filed as an exhibit omits the information
   subject to the confidentiality grant.

**   CYTOGEN Corporation has requested confidential treatment of certain
     provisions contained in this exhibit. The copy filed as an exhibit omits
     the information subject to the confidentiality request.

     (b)   Reports on Form 8-K:

            None

     (c)   Exhibits:

            The Exhibits filed with this Form 10-K are listed above in response
            to Item 14(a)(3).

     (d)   Financial Statement Schedules:

            None

                                    - 38 -
<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 on the 24th day of
March, 1997.

                                         CYTOGEN CORPORATION

                                         By: /s/ Thomas J. McKearn
                                             ---------------------
                                             Thomas J. McKearn
                                             Chairman, Chief Executive Officer 
                                             and President

                                                 
                               POWER OF ATTORNEY

   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. McKearn and T. Jerome Madison or either
of them, his attorney-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Annual Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that either of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

                                    - 39 -
<PAGE>
 
   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

              
<TABLE> 
<CAPTION> 

              
               Signature                                     Title                                            Date 
               ---------                                     -----                                            ----
   <S>                                      <C>                                                      <C> 
  /s/ Thomas J. McKearn                     Chairman, Chief Executive Officer and                    March 24, 1997 
  ---------------------------                President (Principal Executive Officer) 
      Thomas J. McKearn                    
                                           
  /s/ T. Jerome Madison                     Vice President, Chief Financial Officer,                 March 24, 1997 
  ---------------------------                Secretary and Director (Principal 
      T. Jerome Madison                      Financial and Accounting Officer) 

                                            Director                                                                
  ---------------------------
      Charles E. Austin

  /s/ John E. Bagalay, Jr.                  Director                                                 March 24, 1997 
  ---------------------------
      John E. Bagalay, Jr.

  /s/ Ronald J. Brenner                     Director                                                 March 24, 1997 
  ---------------------------
      Ronald J. Brenner

  /s/ James A. Grigsby                      Director                                                 March 24, 1997 
  ---------------------------
      James A. Grigsby

  /s/ Robert F. Hendrickson                 Director                                                 March 24, 1997 
  ---------------------------
      Robert F. Hendrickson

  /s/ William C. Mills III                  Director                                                 March 24, 1997 
  ---------------------------
      William C. Mills III

  /s/ Donald E. O'Neill                     Director                                                 March 24, 1997 
  ---------------------------
      Donald E. O'Neill

</TABLE> 


                                    - 40 -
<PAGE>
 
                          Annual Report on Form 10-K

                      Fiscal Year Ended December 31, 1996

                 Item 8, Item 14(a)(1) and (2) and Item 14(d)

                              CYTOGEN CORPORATION

                             Princeton, New Jersey


                                    - 41 -
<PAGE>
 
Form 10-K Item 14(a)(1) and (2) and Item 14(d)

CYTOGEN CORPORATION AND SUBSIDIARIES


(1)      Consolidated Financial Statements
         ---------------------------------

         The following consolidated financial statements of CYTOGEN Corporation
and Subsidiaries together with the related notes and report of Arthur Andersen
LLP, independent public accountants, are included in Item 8:


<TABLE> 
<CAPTION> 
                                                                                                                 Page in
                                                                                                                 Form 10-K
                                                                                                                 ---------
<S>                                                                                                              <C> 
Report of Independent Public Accountants........................................................................      43

Consolidated Balance Sheets as of December 31, 1996 and 1995 ...................................................      44

Consolidated Statements of Operations--Years Ended December 31, 1996, 1995
  and 1994......................................................................................................      45

Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1996
  1995 and  1994................................................................................................      46

Consolidated Statements of Cash Flows--Years Ended December 31, 1996, 1995
  and 1994......................................................................................................      47

Notes to Consolidated Financial Statements......................................................................      48

</TABLE> 

                                    - 42 -
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To CYTOGEN CORPORATION:


   We have audited the accompanying consolidated balance sheets of CYTOGEN
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

   In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CYTOGEN Corporation and
Subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.




                                                            ARTHUR ANDERSEN LLP

Philadelphia, PA
  January 24, 1997

  
                                    - 43 -
<PAGE>

                      CYTOGEN CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                  (all amounts in thousands, except share data)


<TABLE> 
<CAPTION> 
                                                                                                        December 31,
                                                                                                ----------------------------
                                                                                                    1996            1995
                                                                                                ----------------------------
<S>                                                                                             <C>              <C> 
Assets:                                                                                                       
Current Assets:                                                                                               
   Cash and cash equivalents                                                                    $    20,296      $    27,551
   Short-term investments                                                                             4,469            1,201
   Restricted cash                                                                                    9,916              383
   Accounts receivable, net                                                                             439              284
   Inventories                                                                                          258              356
   Other current assets                                                                                 241              360
                                                                                                ------------     ------------
       Total current assets                                                                          35,619           30,135
                                                                                                ------------     ------------
                                                                                                                  
Property and Equipment:                                                                                           
   Leasehold improvements                                                                            10,023            9,850
   Equipment and furniture                                                                            7,248            6,535
                                                                                                ------------     ------------
                                                                                                     17,271           16,385
   Less- Accumulated depreciation and amortization                                                  (12,455)         (10,923)
                                                                                                ------------     ------------
       Net property and equipment                                                                     4,816            5,462
                                                                                                ------------     ------------
Other Assets                                                                                          1,509            1,552
                                                                                                ------------     ------------
                                                                                                $    41,944      $    37,149
                                                                                                ============     ============
                                                                                                                  
Liabilities and Stockholders' Equity:                                                                             
Current Liabilities:                                                                                              
   Accounts payable and accrued liabilities                                                     $     5,338      $     6,385
   Current portion of long-term liabilities                                                           1,824            2,213
                                                                                                ------------     ------------
       Total current liabilities                                                                      7,162            8,598
                                                                                                ------------     ------------
Long-Term Liabilities                                                                                 1,855            3,275
                                                                                                ------------     ------------
Commitments and Contingencies (Note 15)                                                                             
                                                                                                                     
Stockholders' Equity:                                                                                                
   Preferred stock, $.01 par value, 5,400,000 shares authorized -                                                    
       Series A Convertible Preferred Stock, $.01 par value, 1,000 shares                                            
       authorized, issued and outstanding in 1996                                                       --               --
   Common stock, $.01 par value, 89,600,000 shares authorized, 51,079,000 and                                    
       46,040,000 shares issued and outstanding in 1996 and 1995, respectively                          511              460
   Additional paid-in capital                                                                       284,527          253,122
   Unrealized (loss) gain on short-term investments                                                      (5)              34
   Accumulated deficit                                                                             (252,106)        (228,340)
                                                                                                ------------     ------------
       Total stockholders' equity                                                                    32,927           25,276
                                                                                                ------------     ------------
                                                                                                $    41,944      $    37,149
                                                                                                ============     ============
</TABLE> 

       The accompanying notes are an integral part of these statements.

                                     -44-
<PAGE>
                     CYTOGEN CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (all amounts in thousands, except per share data)

<TABLE> 
<CAPTION> 
                                                                                      YEAR ENDED DECEMBER 31,
                                                                      -------------------------------------------------------
                                                                         1996                 1995                  1994
                                                                      -------------------------------------------------------
<S>                                                                  <C>                   <C>                   <C> 
Revenues:
   Product related                                                   $     1,507           $     1,377           $     1,411
   License and contract                                                    4,223                 3,608                 1,047
                                                                      -----------           -----------           -----------

                      Total Revenues                                       5,730                 4,985                 2,458
                                                                      -----------           -----------           -----------

Operating Expenses:
   Research and development                                               20,915                22,594                20,321
   Selling and marketing                                                   4,143                 4,493                 5,536
   Acquisition of technology and marketing rights                            --                 45,878                 4,647
   General and administrative                                              5,534                 4,804                 3,962
                                                                      -----------           -----------           -----------

                      Total Operating Expenses                            30,592                77,769                34,466
                                                                      -----------           -----------           -----------

                      Loss from Operations                               (24,862)              (72,784)              (32,008)

Gain (loss) on investments, net                                            1,547                   857                  (470)
Interest expense                                                            (451)                 (593)                 (328)
                                                                      -----------           -----------           -----------

Net Loss                                                             $   (23,766)          $   (72,520)          $   (32,806)
                                                                      ===========           ===========           =========== 

Net Loss per Common Share                                            $     (0.49)          $     (2.11)          $     (1.38)
                                                                      ===========           ===========           =========== 

Weighted Average Common Shares Outstanding                                48,401                34,333                23,822
                                                                      ===========           ===========           =========== 
</TABLE> 



       The accompanying notes are an integral part of these statements.

                                     -45-
<PAGE>

                     CYTOGEN CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 (All amounts in thousands, except share data)
<TABLE> 
<CAPTION> 
                                                                                   Unrealized 
                                            Series A                               Gain (Loss)
                                            Convertible               Additional      on            Accu-              Total
                                            Preferred     Common       Paid-in     Short-Term       mulated         Stockholders'
                                             Stock         Stock       Capital     Investments      Deficit            Equity
                                            ----------------------------------------------------------------------------------- 
<S>                                        <C>          <C>         <C>            <C>           <C>                <C> 
Balance, January 1, 1994                   $     -      $    211    $  144,534     $      --     $   (123,014)      $    21,731
                                                                                              
Issued 3,402,680 shares of common stock          -            34        14,382            --             --              14,416
Issued 197,942 shares of common stock                                                         
   per settlement of lawsuit                     -             2           998            --             --               1,000
Granted 10,000 shares of common stock            -           --             27            --             --                  27
Net loss                                         -           --             --            --          (32,806)          (32,806)
                                            ----------------------------------------------------------------------------------- 
Balance, December 31, 1994                       -           247       159,941            --         (155,820)            4,368
                                                                                              
Issued 5,223,182 shares of common stock          -            52        21,477            --             --              21,529
Redemption of common stock                       -             3         1,372            --             --               1,375
Issued 10,748,800 shares of common stock in                                                   
   connection with the acquisitions of                                                        
   CytoRad Inc. and Cellcor Inc.                 -           107        50,802            --             --              50,909
Issued 5,144,388 shares of common stock in                                                    
   connection with a subscription offering       -            51        19,480            --             --              19,531
Granted 15,000 shares of common stock            -           --             50            --             --                  50
Unrealized gain on investments                   -           --             --            34             --                  34
Net loss                                         -           --             --            --          (72,520)          (72,520)
                                            ----------------------------------------------------------------------------------- 
Balance, December 31, 1995                       -           460       253,122            34         (228,340)           25,276
                                                                                              
Issued 1,000 shares of preferred stock           -           --          4,854            --             --               4,854
Issued 5,029,402 shares of common stock          -            51        26,525            --             --              26,576
Granted 10,000 shares of common stock            -           --             26            --             --                  26
Unrealized loss on investments                   -           --           --             (39)            --                 (39)
Net loss                                         -           --           --              --          (23,766)          (23,766)
                                            ----------------------------------------------------------------------------------- 
Balance, December 31, 1996                 $     -      $    511    $  284,527     $      (5)    $   (252,106)      $    32,927
                                            ----------------------------------------------------------------------------------- 

</TABLE> 
         The accompanying notes are an integral part of these statements.

                                     -46-
<PAGE>



                     CYTOGEN CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                          (All amounts in thousands)

<TABLE> 
<CAPTION>                                                                                        
                                                                                           YEAR ENDED DECEMBER 31,
                                                                           --------------------------------------------------------
                                                                               1996                  1995                 1994     
                                                                           --------------------------------------------------------
<S>                                                                        <C>                    <C>                   <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                              
Net Loss                                                                    $  (23,766)            $ (72,520)            $ (32,806)
                                                                           --------------------------------------------------------
Adjustments to Reconcile Net Loss to Cash Used for
 Operating Activities:
    Depreciation and Amortization                                                1,532                 1,546                 1,009  
    Imputed Interest                                                               451                   593                   328  
    Stock Grants                                                                    70                    78                    62  
    Amortization of Deferred Charges                                               (17)                  (17)                 (110) 
    Acquisition of Technology and Marketing Rights                                  --                45,878                 3,220  
    Inventory Writedown                                                             --                 2,926                 1,074  
    Changes in Assets and Liabilities, Net of Effect from Acquisitions:                                                             
         Accounts receivable, net                                                 (155)                 (255)                  (71) 
         Receivable from CytoRad Incorporated                                       --                    --                   (62) 
         Inventories                                                                98                   (82)                 (145) 
         Other current assets                                                      119                   469                   238  
         Other assets                                                               43                   291                  (327) 
         Accounts payable and accrued liabilities                               (1,091)               (2,170)                  667  
         Other liabilities                                                      (2,243)               (2,461)                 (722)
                                                                           -----------           -----------           -----------  

                      Total adjustments                                         (1,193)               46,796                 5,161
                                                                           -----------           -----------           -----------  

         Net cash used for operating activities                                (24,959)              (25,724)              (27,645)
                                                                           -----------           -----------           -----------  


CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in Short Term Investments                                   (3,307)               (1,167)               19,690 
(Increase) in Restricted Cash                                                   (9,533)                 (383)                   -- 
Purchases of Property and Equipment                                               (886)                 (595)               (2,835) 
Net Cash Acquired in CytoRad Acquisition                                            --                10,455                    -- 
Net Cash Used to Acquire Cellcor Inc.                                               --                (3,463)                   --  
                                                                           -----------           -----------           -----------  
         Net cash provided by (used in) investing activities                   (13,726)                4,847                16,855
                                                                           -----------           -----------           -----------  


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock                                          26,576                41,060                14,416 
Proceeds from Issuance of Series A Preferred Stock                               4,854                    --                    --
Redemption of Common Stock                                                          --                  (332)                   -- 
                                                                           -----------           -----------           -----------  
         Net cash provided by financing activities                              31,430                40,728                14,416
                                                                           -----------           -----------           -----------  


Net (Decrease) Increase in Cash and Cash Equivalents                            (7,255)               19,851                 3,626
Cash and Cash Equivalents, Beginning of Year                                    27,551                 7,700                 4,074
                                                                           -----------           -----------           -----------  
Cash and Cash Equivalents, End of Year                                      $   20,296            $   27,551            $    7,700
                                                                           ===========           ===========           ===========  
</TABLE> 


       The accompanying notes are an integral part of these statements.

                                     -47-
<PAGE>
<PAGE>
 
                      CYTOGEN CORPORATION AND SUBSIDIARY
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


Business

     CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the discovery, development, manufacture and marketing of
products to improve diagnosis and treatment of cancer and other diseases. In
October 1996, CYTOGEN received marketing approval from FDA for ProstaScint,
CYTOGEN's prostate cancer diagnostic imaging product. In November 1995, FDA
approved the PLA supplement for OncoScint CR/OV, expanding the approved
indication to include repeat administration of the product. OncoScint CR/OV was
initially approved by FDA in December 1992 but restricted to a single
administration per patient. In August 1995, the NDA for Quadramet (or Samarium
153 EDTMP), CYTOGEN's treatment for the severe pain associated with cancer that
spreads to the bone, was officially filed by FDA. In order to develop,
manufacture and commercialize its products effectively, the Company will require
additional financing.

     Operations of the Company are subject to certain risks and uncertainties
including, but not limited to uncertainties related to product market acceptance
and clinical trials, technological uncertainty, uncertainties of future
profitability, access to capital, dependence on collaborative relationships and
key personnel.

Basis of Consolidation

     The consolidated financial statements include the accounts of CYTOGEN and
its wholly-owned and majority-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation. Unless the context otherwise
indicates, as used herein, the term "Company" refers to CYTOGEN and its
subsidiaries, taken as a whole.

Use of Estimates

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

Cash and Cash Equivalents

     Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.

Short-Term Investments

     At December 31, 1996 and 1995, the Company's short term investments are
classified as available for sale and are carried at fair value based on quoted
market prices. Differences between an investment's amortized cost and fair value
are charged directly to stockholders' equity, net of income taxes. Accordingly,

                                    - 48 -
<PAGE>
 
a net unrealized loss of $5,000 has been recorded as separate components of
stockholders' equity at December 31, 1996.

Restricted Cash

     In 1996, CYTOGEN and Elan created Targon, a new U.S.-based cancer company
(see Note 2). Through this collaboration, CYTOGEN contributed its own funds to
Targon and received funds from Elan which are restricted to use for Targon. At
December 31, 1996, the aggregate amount of these funds totaled $9.9 million and
are classified as restricted cash in the accompanying balance sheets.

Accounts Receivable

     As of December 31, 1996 and 1995, accounts receivable was net of an
allowance for doubtful accounts of $546,000 and $536,000, respectively. The
Company charged to expense $10,000 for a provision for doubtful accounts in both
1996 and 1995.

Inventory

      The Company's inventory is primarily related to OncoScint CR/OV. Inventory
is stated at the lower of cost or market using the first-in, first-out method
and consisted of :

<TABLE> 
<CAPTION> 

                                     1996                     1995
                                  -----------              ----------
     <S>                          <C>                      <C> 
     Raw Materials                $   74,000               $   46,000
     Finished Goods                  184,000                  310,000
                                  -----------              ----------
                                  $  258,000               $  356,000
                                  ===========              ==========
</TABLE> 

Property and Depreciation

     Equipment and furniture are stated at cost net of depreciation and a
$215,000 reserve for idle equipment. Leasehold improvements are amortized on a
straight-line basis over the lease period or the estimated useful life,
whichever is shorter. Equipment and furniture are depreciated on a straight-line
basis over five years. Expenditures for repairs and maintenance are expensed as
incurred. For 1996, 1995 and 1994, repairs and maintenance expenses were
$394,000, $274,000 and $382,000, respectively.

Other Assets

     Other assets consist primarily of undeveloped real property with a net book
value of $1.3 million, which is valued at the lower of cost or market (see Note
9).

Revenue Recognition

     Product related revenues include product sales by CYTOGEN to its customers
and distributors. Product sales are recognized upon shipment of finished goods.
Product related revenues also include the recovery of costs associated with the
treatment of patients who have received ALT for metastatic renal cell carcinoma
under a compassionate protocol and Treatment IND program, based on the expected
payments from third party payors and patients.

     License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, the sale of research and
manufacturing services and materials, and revenues from other miscellaneous
sources. Revenues from milestone payments are recognized when all parties concur
that the

                                    - 49 -
<PAGE>
 
events stipulated in the agreement have been achieved. Revenues from cost-plus
contracts are recognized when the costs are incurred.

Research and Development

     Research and development expenditures consist of projects conducted by the
Company and payments made to sponsored research programs and consultants. All
research and development costs are expensed as incurred. Research and
development expenditures for customer sponsored programs were $1.1 million,
$200,000 and $29,000 in 1996, 1995 and 1994, respectively.

Patent Costs

     Patent costs are expensed as incurred.

Common Stock Outstanding

     As a result of the Cellcor merger, the issued and outstanding shares of
Cellcor common stock and preferred stock ("Cellcor Shares") were converted into
the right to receive shares of CYTOGEN common stock. As of December 31, 1996,
certain holders of Cellcor Shares had not yet exchanged their Cellcor Shares for
shares of CYTOGEN common stock. For accounting purposes, all Cellcor Shares were
deemed exchanged for issued and outstanding shares of CYTOGEN common stock as of
the date of the Cellcor merger (see Note 4).

Loss Per Share

     Net loss per common share is based upon the weighted average common shares
outstanding during each period. Common stock equivalents and other potentially
dilutive securities are not included as their effect is antidilutive.

Reclassification

     Certain reclassifications have been reflected in the 1994 and 1995
financial statements to conform with the 1996 presentation.

2.   TARGON CORPORATION:

     Targon was established in September 1996 pursuant to agreements between
CYTOGEN and Elan. Targon is a majority-owned (99.75%) subsidiary of CYTOGEN.
Elan purchased 932,535 shares of CYTOGEN common stock for $5 million and 1,000
shares of CYTOGEN's newly created Series A Convertible Preferred Stock for $15
million, which proceeds are being used to fund Targon. Targon used $10 million
of these proceeds to acquire certain technology from Advanced Therapeutics
Systems Ltd., an affiliate of Elan. The Series A Convertible Preferred Stock has
a liquidation value of $5 million. Accordingly, for accounting purposes, the
Company recorded the Series A Convertible Preferred Stock investment as a net
capital contribution of $5 million. The Series A Convertible Preferred Stock of
CYTOGEN held by Elan may, at Elan's option, be either (i) exchanged for a
portion of the Company's interest in Targon which declines from 50% to 35%,
depending on the time of exchange, but no later than September 30, 2001 or (ii)
converted into shares of common stock of CYTOGEN. If Elan elects to exchange the
Series A Convertible Preferred Stock for a portion of the Company's interest in
Targon, then Elan will be entitled through March 31, 2003 to exercise a warrant
to purchase up to 1 million shares of CYTOGEN common stock, at an exercise price
per share which escalates from $8.40 to $14 over the life of the warrant. If
Elan elects to convert the Series A Convertible Preferred Stock into CYTOGEN
common stock, it will receive a number of shares which declines from 1,785,715
shares to 1,071,429 shares, depending on the time of conversion. If Elan
exercises its conversion right, then the Company will

                                    - 50 -
<PAGE>
 
retain its ownership interest in Targon. Elan must elect to exchange its Series
A Convertible Preferred Stock no later than March 31, 2001. Any shares of Series
A Convertible Preferred Stock not exchanged or converted by March 31, 2003 will
be automatically converted into CYTOGEN common stock on that date. The Series A
Convertible Preferred Stock has no special dividend rights, however if dividends
are declared on CYTOGEN common stock, then holders of Series A Convertible
Preferred Stock will be entitled to such dividends as they would have received
had they converted their shares of Series A Convertible Preferred Stock into
common stock immediately prior to the dividend. Each share of Series A
Convertible Preferred Stock carries a liquidation value of $5,000 per share. In
connection with the formation of Targon, the Company contributed certain
technology to Targon.

3.   ELAN CORPORATION:

     In December 1995, CYTOGEN entered into the Elan Agreement with Elan under
which both parties will implement a research program that combines CYTOGEN's GDL
technology with Elan's drug delivery system technology to collaboratively
develop orally administered products. Elan will provide the funding necessary
for the Company to fulfill its obligations under the research program with
aggregate payments for work performed by CYTOGEN not to exceed $1.5 million
during the first 16 months of the research program. During 1996, CYTOGEN
recorded $1.3 million in contract revenues from Elan. In January 1997, Elan has
been granted the worldwide rights to certain oral drug delivery and other
products derived from the collaboration.

4.   CELLCOR, INC. AND CYTORAD INCORPORATED:

     In October 1995, CYTOGEN completed its acquisition of Cellcor and the
related subscription offering (the "Subscription Offering"). As a result,
CYTOGEN issued (i) 4,713,564 shares of CYTOGEN common stock to acquire Cellcor
(see Note 1) and (ii) 5,144,388 shares of CYTOGEN common stock in connection
with the Subscription Offering raising a total of $20 million, and has reserved
for issuance up to 606,952 shares of CYTOGEN common stock issuable upon the
exercise of the options that were outstanding under the Cellcor employee stock
option plans at the time of the merger. The transaction was accounted for by
using the purchase method of accounting, whereby the Company recorded a
one-time, non-cash charge of approximately $26.2 million for acquisition of
technology rights to its statement of operations in 1995, representing the
amount by which the purchase price exceeded the fair value of net assets
acquired from Cellcor.

     In February 1995, CYTOGEN completed its acquisition of CytoRad, under which
CYTOGEN exchanged for each outstanding CytoRad unit (i) 1.5 shares of CYTOGEN
common stock, (ii) a warrant to acquire one share of CYTOGEN common stock which
had expired on January 31, 1997 and (iii) a contingent value right ("CVR") to
receive, under certain circumstances and at no additional cost, up to one-half
share of CYTOGEN common stock. On February 29, 1996, the Company announced that
the CVRs expired by their terms and were of no further value. Accordingly, the
Company no longer had an obligation to issue shares of its common stock to
holders of CVRs on January 31, 1997. As a result of the merger, the Company
acquired $11.7 million of CytoRad's cash and securities, before payment of
certain transaction costs. In addition, CYTOGEN recorded approximately $19.7
million for acquisition of technology and marketing rights as a charge to its
statement of operations in 1995, representing the amount by which the purchase
price exceeded the fair value of net assets acquired from CytoRad.

5.   DUPONT MERCK:

     Pursuant to the terms of the DP/Merck Agreement between CYTOGEN and DuPont
Merck, CYTOGEN received from DuPont Merck an up-front cash payment of $1.0
million in December 1994, $4.0 million in January 1995 for the sale of 908,265
shares of CYTOGEN common stock to DuPont Merck and $1.3 million and $1.5 million
in 1995 and 1996, respectively, to fund additional clinical programs to expand
the use and marketing of Quadramet. The DP/Merck Agreement further provides for
future payments of up to $1.4

                                    - 51 -
<PAGE>
 
million toward additional clinical programs, a $2.0 million milestone payment if
and when Quadramet receives FDA approval, additional payments upon achievement
of certain other milestones and payments based on sales, including guaranteed
minimum payments.

6.   THE DOW CHEMICAL COMPANY:

     In 1993, CYTOGEN acquired from Dow an exclusive license in the U.S. for
Quadramet. This license was amended in 1995 to expand the territory to include
Canada and Latin America, and in 1996 to expand the field to include all
osteoblastic diseases. In 1995, upon the filing of the NDA for Quadramet with
FDA, the Company recorded a one-time licensing fee of $2.0 million from Dow for
their use of Quadramet's NDA filing package. At the same time, the Company was
required to pay to Dow $1.0 million. The Company will be required to pay to Dow
$4.0 million if and when Quadramet receives FDA approval. The agreement provides
for additional payments by the Company upon achievement of certain milestones
and royalties on net sales of the product once commercialized, including
guaranteed minimum payments.

7.   REVENUES FROM MAJOR CUSTOMERS:

     Customers who contributed 10% or more of the Company's total product
related, license and contract revenues were as follows:

<TABLE> 
<CAPTION> 

              Customer                                  1996              1995             1994
              --------                                  ----              ----             ----
     <S>                                                <C>               <C>              <C> 
     DuPont Merck (Note 5)                              27%               27%              41%
     Elan (Note 3)                                      23                 -                -
     Medi-Physics, Inc.                                 10                12                -
     Dow (Note 6)                                        -                39                -
     Knoll (Note 9)                                      -                 -               16

     Medi-Physics, Inc. is a chain of radiopharmacies.

</TABLE> 

8.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

<TABLE> 
<CAPTION> 

                                                1996                  1995
                                             ---------              ---------
     <S>                                   <C>                    <C> 
     Payroll                               $ 1,436,000            $ 1,267,000
     Accounts payable                        1,301,000              1,307,000
     Research contracts and materials        1,039,000                965,000
     Professional and legal                    376,000              1,487,000
     Other accruals                          1,186,000              1,359,000
                                           -----------            -----------
                                           $ 5,338,000            $ 6,385,000
                                           ===========            ===========

</TABLE> 

9.  LONG TERM LIABILITIES:

<TABLE> 
<CAPTION> 

                                                1996                  1995
                                             ---------              ---------
     <S>                                   <C>                    <C> 
     Due to Knoll                          $ 2,993,000            $ 4,237,000
     Due to Chiron                             343,000                785,000
     Capital lease obligations                 343,000                448,000
     Deferred charges                                -                 18,000
                                           -----------            -----------
                                             3,679,000              5,488,000
     Less:  Current portion                 (1,824,000)            (2,213,000)
                                           -----------            -----------
                                           $ 1,855,000            $ 3,275,000
                                           ===========            ===========

</TABLE> 

                                    - 52 -
<PAGE>
 
     CYTOGEN and Knoll entered into the Knoll Agreement for the co-promotion of
OncoScint CR/OV in the U.S., under which CYTOGEN recorded $430,000 in
co-promotion revenues in 1994. In November 1994, CYTOGEN executed the
Termination Agreement with Knoll. Pursuant to the Termination Agreement, the
Company has reacquired all the U.S. Rights, which were previously granted to
Knoll. The resulting liability of CYTOGEN to Knoll will be paid over a four-year
period and without interest, as follows: $3.1 million in 1995; $1.6 million in
1996; $1.6 million in 1997; and $1.7 million in 1998. In 1994, CYTOGEN recorded
a non-recurring charge of $2.4 million for the reacquisition of the U.S. Rights.
Imputed interest of $355,000, $521,000 and $328,000 relating to the obligation,
which was discounted based upon a 10% interest rate, was recorded in 1996, 1995
and 1994, respectively.

     In December 1994, the Company entered into the Disengagement Agreement with
Chiron. Under the Disengagement Agreement, the Company reacquired the European
Rights, which were previously granted to Chiron, and purchased certain business
assets relating to the European Rights. The resulting liability of CYTOGEN to
Chiron will be paid over three years and without interest, as follows: $200,000
in 1995, $300,000 in 1996 and $377,181 in 1997. Payment is secured by a mortgage
covering approximately 11 acres of undeveloped real property owned by the
Company in Ewing, New Jersey. This obligation is non-recourse to the Company. As
a result of the reacquisition of the European Rights, CYTOGEN recorded a
non-recurring charge of $800,000 in 1994. Imputed interest of $58,000 and
$71,000 relating to the obligation, which was discounted based upon a 10%
interest rate, was recorded in 1996 and 1995, respectively.

     The Company leases certain equipment under capital leases which will expire
on various dates through 2000. Property and equipment leased under
non-cancelable capital leases have a net book value of $343,000 at December 31,
1996. Payments to be made under capital lease obligations (including interest of
$48,000) are as follows: $132,000 in 1997, $126,000 in 1998, $119,000 in 1999
and $15,000 in 2000.

10.  COMMON STOCK:

     Under an option agreement granted to Fletcher in May 1994, as amended, the
Company sold to Fletcher (i) 1.8 million shares of CYTOGEN common stock in
August 1995, at an aggregate price of $7.3 million, or $4.058 per share, (ii)
500,000 shares of CYTOGEN common stock in November 1995, at an aggregate price
of $2.3 million, or $4.696 per share, and (iii) an aggregate of 1.0 million
shares of CYTOGEN common stock in January 1996, at an aggregate price of $4.7
million, or $4.70 per share.

     Pursuant to an investment agreement between the Company and Fletcher Fund,
the Company sold to Fletcher Fund (i) 665,352 shares of CYTOGEN common stock in
September 1995, for an aggregate purchase price of $2.7 million and (ii) 225,000
shares of CYTOGEN common stock in September 1996 for an aggregate price of $1.5
million, or $6.529 per share.

     In November 1995, the Company sold 1,256,565 shares of CYTOGEN common stock
to a European institutional investor (the "Investor") in a private placement
transaction pursuant to Regulation S of the Securities Act for an aggregate
price of $5.0 million. The Company also sold to the Investor (i ) 729,394 shares
of CYTOGEN common stock in April 1996 for an aggregate price of $5.0 million,
(ii) 913,909 shares of CYTOGEN common stock in October 1996 for an aggregate
price of $5.0 million pursuant to a Stock Purchase Agreement between CYTOGEN and
the Investor, dated as of August 27, 1996, as amended (the "Purchase
Agreement"), and (iii) 776,791 shares of CYTOGEN common stock in November 1996
for an aggregate price of $4.0 million under the Purchase Agreement.

                                    - 53 -
<PAGE>
 
     See Notes 2, 4 and 5 for information related to CYTOGEN's issuance of
common stock in connection with Targon, the Cellcor merger, CytoRad merger and
DP/Merck Agreement.

11.  STOCK OPTIONS AND GRANTS:

     The Company has various stock option plans that provide for the issuance of
incentive and non-qualified stock options to employees, non-employee directors
and outside consultants, for which an aggregate of 6,370,500 shares of common
stock have been reserved. The persons to whom options may be granted and the
number, type, and terms of the options vary among the plans. Options are granted
with an exercise term of 10 years and generally become exercisable in
installments over periods of up to 5 years at an exercise price determined
either by the plan or equal to the fair market value of the common stock at the
date of grant. Under certain circumstances, vesting may accelerate. Activity
under these plans was as follows:

<TABLE> 
<CAPTION> 

                                              Number of            Price Range
                                               Shares               Per Share
                                              ---------            -----------
     <S>                                      <C>                 <C> 
     Balance at January 1, 1994               1,687,310           $ 1.00 - 17.00
       Granted                                  778,080             2.44 -  6.19
       Exercised                                 (2,680)            1.00 -  3.88
       Cancelled                               (334,770)            3.88 - 17.00
                                              ---------

     Balance at December 31, 1994             2,127,940           $ 1.00 - 17.00
        Granted                               1,425,607             2.69 -  5.47
        Exercised                               (91,400)            1.00 -  3.88
        Cancelled                              (509,290)            2.69 - 17.00
                                              ---------

     Balance at December 31, 1995             2,952,857           $ 2.69 - 17.00
        Granted                               1,073,770             5.00 -  9.28
        Exercised                              (254,907)            2.69 -  7.50
        Cancelled                              (248,780)            2.69 -  7.50
                                              ---------

     Balance at December 31, 1996             3,522,940           $ 2.69 - 17.50
                                              =========

</TABLE> 

     At December 31, 1996, options to purchase 1,025,162 shares were exercisable
and 2,803,888 shares were available for issuance of additional options that may
be granted under the plans.

     In connection with the Cellcor merger (see Note 4), CYTOGEN reserved for
issuance 606,952 shares of common stock that will become issuable upon the
exercise of the Cellcor stock options. At December 31, 1996, 364,819 Cellcor
stock options were outstanding at exercise prices ranging from $0.83 to $18.33
and 316,230 Cellcor stock options were exercisable.

     In 1996, 1995 and 1994, respectively, 10,000, 15,000 and 10,000 shares of
common stock were granted to the officers of the Company. The expense related to
these commitments to grant shares of stock is based upon the fair value of those
shares on the date of the commitment and is recognized over the period beginning
with such commitment and ending with the actual grant.

                                    - 54 -
<PAGE>
 
     The Company applies Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and the related interpretations in accounting
for its stock option plans. The disclosure requirement of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock- Based
Compensation," was adopted by the Company in 1996. Had compensation cost of the
Company's common stock option plan been determined under SFAS No. 123, the
Company's net loss would have been increased to the following pro forma amounts:

<TABLE> 
<CAPTION> 

                                                    Year Ended December 31
                                                    ----------------------
                                                     1996            1995
                                                    ------          ------
     <S>                                         <C>            <C> 
     Net loss, as reported                       $(23,766,000)  $(72,520,000)
     Pro forma net loss                          $(26,023,000)  $(72,967,000)

     Net loss per common share, as reported            $(0.49)        $(2.11)
     Pro forma net loss per common share               $(0.54)        $(2.13)

</TABLE> 

     The average fair value of the options during 1996 and 1995 is estimated as
$3.35 per share and $3.20 per share, respectively, on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 1996
and 1995: dividend yield of zero, volatility of 70.72% and 69.57%, respectively,
risk-free interest rate 5.90% and 6.04%, respectively, and an expected life of 5
years. Because the SFAS No. 123 method of accounting is not required to be
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation charge may not be representative of that to be expected in future
years.

12.  RELATED PARTY TRANSACTIONS:

     Consulting services are provided under an agreement with a company owned by
an officer of the Company, who is a member of the Board of Directors. The annual
fees under the agreement were $230,000, $208,000 and $180,000 in 1996, 1995 and
1994, respectively.

13.   PENSION PLANS:

      The Company maintains a defined contribution pension plan. The
contribution is determined by the Board of Directors each year and is based upon
a percentage of gross wages of eligible employees. The plan provides for vesting
over five years, with credit given for prior service. The Company also makes
contributions under a 401(k) plan in amounts which match up to 50% of the salary
deferred by the participants. Matching is capped at 6% of deferred salaries.
Total pension expense was $328,000, $311,000 and $256,000 for 1996, 1995 and
1994, respectively.

                                    - 55 -
<PAGE>
 
14.   INCOME TAXES:

      As of December 31, 1996, CYTOGEN had federal net operating loss
carryforwards of approximately $142 million. The Company also had federal and
state research and development tax credit carryforwards of approximately $6
million. The net operating loss and credit carryforwards began to expire in
1995.

      The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been an
"ownership change". Such an "ownership change" as described in Section 382 of
the Internal Revenue Code may limit the Company's utilization of its net
operating loss and tax credit carryforwards.

      Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Based upon the Company's
earnings history, a valuation allowance for deferred tax assets is required to
reduce the Company's net deferred tax assets to the amount realizable at present
(zero).

      Significant components of the Company's deferred tax assets for federal
and state income taxes are as follows (in thousands):

<TABLE> 
<CAPTION> 
                                                                                           1996               1995
                                                                                           ----               ----
<S>                                                                                     <C>               <C>  
Deferred tax assets:

   Net operating loss carryforwards                                                     $ 48,234          $  41,800
   Capitalized research and development expenses                                          25,900             19,300
   Research and development credit                                                         6,000              5,000
   Reacquisition of technology and marketing rights                                            0              1,500
   Inventory reserves                                                                          0              2,800
   Other, net                                                                                140                830
                                                                                        --------          ---------
     Total deferred tax assets                                                            80,274             71,230
     Valuation allowance for deferred tax assets                                         (80,274)           (71,230)
                                                                                        --------          ---------
       Net deferred tax assets                                                          $      -          $       -
                                                                                        ========          =========
</TABLE> 

      In 1995, CYTOGEN acquired CytoRad and Cellcor (see Note 4), both of which
have net operating loss carryforwards totalling $10.0 million and $50.8 million,
respectively. Due to Section 382 limitation, approximately $10 million of
CytoRad and $12.2 million of Cellcor carryforwards may be available to offset
future taxable income. A 100% valuation allowance was established on the
acquisition dates as realization of these tax assets is uncertain.

15.   COMMITMENTS AND CONTINGENCIES:

      The Company leases its facilities and certain equipment under
non-cancelable operating leases that expire at various times through 2003. Rent
expense incurred on these leases was $1.8 million, $1.2 million and $1.2 million
in 1996, 1995 and 1994, respectively. Minimum future obligations under the
operating leases total $9.1 million as of December 31, 1996 and will be paid as
follows: $1.8 million in 1997, $1.8 million in 1998, $1.8 million in 1999, $1.4
million in 2000, $1.2 million in 2001 and an aggregate of $1.1 million in 2002
through 2003.

      The Company is obligated to make minimum future payments under research
and development contracts that expire at various times. As of December 31, 1996,
the minimum future payments under contracts with fixed terms totalled $142,000
and will be paid as follows: $138,000 in 1997 and $4,000 in 1998. Under
contracts whose expirations are not fixed, the annual minimum payments are
$35,000 in


                                    - 56 -
<PAGE>
 
1997, $45,000 in 1998, $55,000 in 1999, $65,000 in 2000, $75,000 in 2001 and
thereafter. In addition, the Company is obligated to pay royalties on revenues
from commercial products developed from the research, including certain
guaranteed minimum payments.

                                    - 57 -
<PAGE>
 
<TABLE> 
<CAPTION> 

                                 EXHIBIT INDEX
                                 -------------
                              
Exhibit                                                                                           Sequentially
Number                  Description                                                               Numbered Page
------                  -----------                                                               ------------- 
<S>       <C>                                                                                     <C> 
10.38     Employee Leasing Agreement between CYTOGEN Corporation and Somerset Central
          Corporation dated September 26, 1996.                                                              59

10.39     Severance Agreement effective as of March 26, 1996 between CYTOGEN Corporation and John
          D. Rodwell, Ph.D.                                                                                  70

21        Subsidiaries of CYTOGEN Corporation                                                                76

23        Consent of Arthur Andersen LLP                                                                     78

27        Financial Data Schedule (Submitted to SEC only in electronic format)
</TABLE> 



                                    - 58 -