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, 1998

                                       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 333-02015

                               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) 750-8200.

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. [ ]

         The aggregate market value of the  registrant's  shares of Common Stock
held by non-affiliates of the registrant on February 1, 1999, based on $1.28 per
share,  the last reported sale price on the NASDAQ National Market on that date,
was $71,957,705.  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  February  1, 1999 was
64,618,331 shares.


<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE


                                                                      FORM 10-K
                              DOCUMENT                                   PART
                              --------                                ---------

Portions of the definitive  Proxy  Statement with respect to the         III
III 1999 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  is  a  biopharmaceutical   company  engaged  in  the  development,
commercialization  and marketing of products to improve  diagnosis and treatment
of cancer and other diseases.

     Historically,  we have emphasized research and development of a broad array
of potential  products,  based on monoclonal  antibodies and other technologies.
Having identified and commercialized  products which we believe have substantial
potential, we have:

     -  Conducted  or  sponsored  clinical  studies to evaluate  existing
        products in additional  indications;  
     -  Focused on  development  of technology  with  near  term  commercial  
        significance;  
     -  Reviewed current  research  and  development   programs  to  assess  
        their commercial  potential;  and  
     -  Recently  curtailed  basic  research expenditures in order to allocate  
        resources toward  implementing our business strategy.

     During 1998,  we reviewed  our assets and  business  prospects to determine
which projects  demonstrated  adequate  potential for a continued  investment of
corporate resources. As a result of this review, we:

     -  Terminated our ALT program.
                  Our subsidiary Cellcor,  Inc.  ("Cellcor") had been developing
              Autologous   Lymphocyte  Therapy  ("ALT")  for  the  treatment  of
              metastatic  renal  cell  carcinoma  ("mRCC"),  a life  threatening
              kidney  cancer for which there are no adequate  therapies.  We had
              planned to submit a Biologics License Application ("BLA") for ALT.
              Cellcor completed pivotal Phase III clinical trials of ALT in mRCC
              patients in January  1997.  Although we believe the results of the
              trials  are  favorable,  ALT was not  considered  a  priority  for
              allocation of available  resources.  We halted our preparation for
              submission of the BLA and closed our Cellcor facility in September
              1998.



                                       3

 

<PAGE>

     -  Sold our interest in Targon Corporation.
                  Our review  determined that the projects under  development by
              Targon  Corporation   ("Targon")  were  not  consistent  with  our
              corporate strategies.  During August 1998, we sold our interest in
              Targon  to  our  partner  in the  venture,  Elan  Corporation  plc
              ("Elan")  for $2 million in cash.  In  addition,  we  received  $2
              million from Elan in exchange for a convertible promissory note.
     -  Offered for sale and sold  our  manufacturing  and  laboratory 
        facilities.
                  We  determined  that  outsourcing  manufacturing  of the
              Company's  products is more  economical  and  consistent  with our
              strategies.  As a result,  we offered the facility  for sale and
              completed the sale in early January, 1999.  We also concurrently 
              entered  into an  agreement  for the  continued  manufacturing  of
              ProstaScint and OncoScint at the facility.


Our Products
     We introduced to the market during 1997 our two principal products, each of
which have been approved by the FDA:  ProstaScint(R) (kit for the preparation of
Indium In111 Capromab  Pendetide) and  Quadramet(R)  (Samarium Sm153  Lexidronam
Injection).  Our OncoScint(R)  CR/OV imaging agent is also approved and marketed
as a diagnostic imaging agent for colorectal and ovarian cancer.


CANCER DIAGNOSTIC IMAGING PRODUCTS

         Our  cancer  diagnostic  products,   ProstaScint  and  OncoScint,   are
monoclonal  antibody-based  imaging agents for prostate,  colorectal and ovarian
cancers.  These  products  utilize our  proprietary  targeted  delivery  system,
employing whole monoclonal  antibodies,  to deliver the diagnostic  radioisotope
Indium-111 to malignant tumor sites. A radioisotope is an element which, because
of nuclear instability, undergoes radioactive decay, thereby emitting radiation.
The imaging  products  are  supplied to  hospitals  and central  radiopharmacies
without the radioisotope.  Prior to patient administration,  the radioisotope is
added to the  product  by the  radiopharmacist  using a simple  liquid  transfer
procedure  we have  developed,  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 our behalf,  the  imaging  agents may provide new and
useful information not available from other diagnostic  modalities regarding the
existence,  location and extent of the disease  throughout  the body. We believe
that this  information  has the  potential to affect the way  physicians  manage
their patients' individual treatments.

         PROSTASCINT.  ProstaScint  is a diagnostic  imaging  agent  utilizing a
monoclonal antibody which targets prostate specific membrane antigen ("PSMA"), a
protein  expressed by prostate  cancer cells and, to a lesser extent,  by normal
prostate  epithelial  cells.  We are  the  exclusive  licensee  of the  antibody
utilized in ProstaScint. ProstaScint is prepared by combining this antibody with
the  radioisotope  Indium-111  prior to intravenous  administration.  Due to the
selective  expression of PSMA, the ProstaScint  imaging procedure can detect the
spread of prostate  cancer.  Since the patterns of spread of prostate cancer can
vary  substantially  from one  patient to  another,  by  identifying  the unique
pattern of metastases in a particular  patient, we believe that ProstaScint aids
physicians in the selection of appropriate  treatments to meet the special needs
of that patient.



                                      4

<PAGE>

         In 1996, we received FDA approval to market ProstaScint in two clinical
settings:

     -  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
     -  For use in post-prostatectomy patients in whom there is a high suspicion
        that the cancer has recurred and has spread.

     The risk of spread of prostate cancer in 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.

     We  believe  that  ProstaScint  has  clinical  utility  in newly  diagnosed
patients  with prostate  cancer who are thought to be  candidates  for therapies
such as:

     -  Radical prostatectomy; and
     -  External beam radiation therapy.

     Before a  physician  decides  upon a course of  therapy,  it is critical to
determine  whether  the  prostate  cancer has spread to other parts of the body,
thereby dramatically  reducing the likelihood of successful  treatment.  Studies
from The Johns Hopkins  University and Stanford  University  Medical Center have
shown that almost one-third of the prostate cancer patients treated at these two
institutions who have undergone  prostatectomy or radiation therapy  experienced
disease  recurrence  within  five  years  following  treatment,  and half of the
patients  had  recurrence  of  their  disease  within  ten  years.  Prior to the
availability of  ProstaScint,  determining  whether newly diagnosed  disease was
limited to the  prostate  or had  spread  distantly  was based upon  statistical
inference from the biopsy  appearance of the tumor and the patient's serum level
of PSA.  Conventional  imaging methods,  such as computed  tomography,  magnetic
resonance  imaging and transrectal  ultrasound,  are all relatively  insensitive
since they rely on anatomic  structure  (form) and  therefore  require  that the
normal  structures  (i.e.  lymph nodes)  become  enlarged or altered in shape to
indicate suspicion of malignancy. The ProstaScint scan images disease based upon
function (expression of the PSMA molecule) and, therefore,  can image low volume
disease  not  readily   detectable  with   conventional   procedures.   A  clear
understanding of the existence and location of any prostate cancer metastasis is
crucial in selecting the most  appropriate form of treatment to be administered.

     In  the  U.S.,  following  prostatectomy,   prostate  cancer  patients  are
monitored to ascertain  changes in the level of PSA. In this setting,  a rise in
PSA is strong and presumptive  evidence of recurrence of the patient's  prostate
cancer. Knowledge of the extent and location of disease recurrence is a critical
consideration in choosing the most appropriate form of treatment. Patients whose
disease is confined to the prostatic fossa may have the potential to be cured by
receiving "salvage" radiation therapy; patients with more widespread disease are
unlikely to benefit from such an approach and instead systemic treatment such as
hormonal  therapy  should  be  considered.  We  believe  that the  results  of a
ProstaScint  scan  performed  prior to radiation  therapy to the pelvis may help
predict  which  recurrent  disease  patients  are likely to benefit from salvage
radiation  therapy.  Approximately 70% of recurrent  disease patients  currently
treated with salvage  radiation  therapy  fail to achieve  long-term  control of
their disease,  since the cancer has already metastasized to other points in the
body. A prospective study is planned to evaluate ProstaScint in this setting.



                                       5


<PAGE>

     PROSTASCINT MARKETING, SALES AND DISTRIBUTION

     According to the American Cancer Society,  about 185,000  American men were
diagnosed  with prostate  cancer in 1998, of whom  approximately  20% will be at
high  risk for  metastatic  spread  of their  disease.  In  addition,  estimates
indicate that in 1998, 40,000 to 60,000 patients previously treated for prostate
cancer will develop symptoms of recurrent cancer which has not yet progressed to
the point of  skeletal  involvement.  We believe  that  there are  approximately
75,000 to 100,000 patients with prostate cancer in the U.S. that are candidates,
based on current indications, to receive a ProstaScint scan each year.

     In February 1997, we announced the commercial launch of ProstaScint,  which
is co-marketed with the urological division of BARD, a marketer of a broad range
of urology  products  exclusively  to the  urology  community.  Pursuant  to our
agreement with BARD:

     -  BARD  is  responsible  for  the  promotion  of  ProstaScint  to
        urologists,  the group of  physicians  most likely to order or generate
        referrals for ProstaScint scans
     -  Our  marketing  activities  are  focused on the  training of the
        nuclear  medicine  imaging  community,  including those physicians most
        likely to perform ProstaScint scans;
     -  We are  responsible for the  manufacture  and  distribution  of
        ProstaScint as well as instructing  physicians in its proper use;
     -  BARD will make  payments to the Company upon the  occurrence  of
        certain  milestones;  and 
     -  BARD  will  receive  performance-based compensation for its services.

     Our agreement  with BARD has an initial term of ten years and is subject to
renewal.

     In 1997, we entered into a distribution  agreement with Faulding  (Canada),
Inc. ("Faulding") related to distribution and sale of ProstaScint in Canada.

     ProstaScint 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. We believe that this information regarding the
existence,  location  and  extent  of  disease  has the  potential  to  assist a
physician  in  making  appropriate   patient  management   decisions.   We  have
established a network of accredited nuclear medicine imaging centers through our
PIE(TM)  ("Partners in  Excellence")  Program (each  accredited  center,  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.  We developed this program
in  preparation  for the launch of  ProstaScint  in February 1997. At the end of
1998, there were over 234 PIE Sites, including a majority of the National Cancer
Institute designated Comprehensive Cancer Centers. ProstaScint is available only
at PIE Sites.

     We plan to add PIE Sites on a  selective  basis in order to ensure that new
sites are  adequately  qualified and committed to a minimum  number of scans for
training  purposes At the present time, we bear partial expense of qualification
of each site.

     We currently employ 13 field  representatives,  each of whom is a certified
or registered nuclear medicine technologist with experience working in a nuclear
medicine  department.   These  field  representatives   assist  in  training  of
physicians  and  qualification  of nuclear  imaging  centers  as PIE Sites,  and
provide BARD  marketing  representatives  with sales  assistance  and  technical
support of ProstaScint and its usage.


                                       6


<PAGE>

     We believe that  approximately  80% of patients  with  prostate  cancer are
managed by urologists, with the remainder being managed primarily by medical and
radiation oncologists. Through a Joint Marketing Committee, the Company and BARD
coordinate our respective  educational and promotional activities to ensure that
PIE Sites receive  appropriate patient referrals from urologists and that future
PIE Sites are  located  in  medical  facilities  served  by  urologists  who are
ordering the ProstaScint  test. The product is not marketed  directly to managed
care organizations or other payor groups, however, we maintain points of contact
with reimbursement  specialists for physicians,  patients,  and payors to assist
with and ensure  reimbursement  and  insurance  coverage.  Medical and radiation
oncologists  also order  diagnostic  procedures such as ProstaScint for advanced
prostate  cancer  patients,  and our  promotional  efforts are  addressing  this
segment of the medical community directly.

     ONCOSCINT  CR/OV.  OncoScint  CR/OV was  approved by the FDA in the U.S. in
December 1992.  OncoScint CR/OV was initially approved for single use with other
appropriate,  commercially  available  diagnostic tests, 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 also approved for sale in
eleven  European  countries  and Canada.  To date,  OncoScint  has not  realized
substantial  sales. We believe this product is effective in imaging both primary
and metastatic colorectal and ovarian tumors.  However, this information has not
yet been widely used by physicians  for patients with these  conditions.  We are
currently  funding an  investigator-initiated  study designed to demonstrate the
benefits of  performing  an OncoScint  study as soon as an initial  diagnosis of
ovarian  cancer is made,  to determine  which  patients  would benefit by a more
aggressive  initial  treatment of their  disease.  We believe a more  aggressive
treatment at an earlier date could provide the potential for improved  prognoses
for the patients following diagnosis of their malignancy.

     Promotion  of  OncoScint  CR/OV  involves   several   different   physician
audiences,  including those who prescribe imaging  procedures for their patients
as well as those who acquire and interpret the images.  Referring physicians are
most likely to be surgeons and oncologists.  OncoScint CR/OV,  like ProstaScint,
is  technique  dependent,  requiring  training and  expertise  in reviewing  and
interpreting  images.  Acceptance  by the medical  community  of the benefits of
OncoScint CR/OV depends in part on the degree to which  physicians  acquire such
skills. Since May 1994, we have been the sole marketer of OncoScint CR/OV in the
U.S.

     In  1995,  we  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 received  regulatory  approvals to
market the product in Canada in January 1998.  The Faulding  Agreement  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.

     In 1996, we entered into a distribution  agreement (the "CISbio Agreement")
with CIS biointernational,  granting to CISbio the exclusive right to distribute
and sell  OncoScint in all the  countries of the world,  except for the U.S. and
Canada. CISbio markets OncoScint CR/OV in various European countries. The CISbio
Agreement  provides for minimum annual  purchases of the components of OncoScint
CR/OV by CISbio,  and for certain  royalties  based upon net sales 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.



                                       7


<PAGE>


CANCER THERAPEUTIC PRODUCT

     QUADRAMET.  Quadramet,  a proprietary cancer  therapeutic  agent,  received
marketing approval from the FDA in March 1997 for the relief of pain in patients
with metastatic  bone lesions that image on conventional  bone scan, a routinely
performed  nuclear  medicine  procedure.  Quadramet  consists  of a  radioactive
isotope,  Samarium-153,  which omits beta radiation, and chelating agent, EDTMP,
which targets the drug to sites of new bone formation.

     According  to  American  Cancer  Society  and  National  Cancer   Institute
statistics, approximately 600,000 new cases of cancer that typically metastasize
to bone occurred in the U.S. in 1997. We believe that over 200,000 patients each
year will  suffer  from bone pain that is severe  enough to  require  palliative
intervention.

     Once tumors have  metastasized  to the skeleton,  they continue to grow and
cause destruction of the adjacent bone. This erosion of bone stimulates new bone
formation,  which encircles the metastatic  tumor. The continued growth from the
expanding tumor causes pressure which the patient  perceives as pain at the site
of the  metastasis.  By  targeting  these  areas  of bone  formation,  Quadramet
delivers  site-specific   radiation,   which  may  result  in  significant  pain
reduction.  As such areas of tumor involvement  expand, they weaken the bone and
eventually  lead to fracture of the  affected  bone.  The medical  complications
associated  with bone  metastases may also include bone  fractures,  spinal cord
compression and paralysis.


Current competitive treatments for severe cancer bone pain include:

          -  Narcotic analgesics
                           These drugs work by masking  the  brain's  ability to
                           perceive  the  pain  induced  by the  tumors  as they
                           expand  and grow  within  the  bone.  While  narcotic
                           analgesics    can   be   effective   in    addressing
                           cancer-related   bone  pain,   their   prolonged  and
                           escalating  use  can  result  in   undesirable   side
                           effects,  including  nausea and  vomiting,  sedation,
                           confusion and severe constipation.
          -  External beam radiation therapy
                           External  beam  radiation   therapy,   while  usually
                           effective in relieving  pain,  is most  appropriately
                           used  to  treat   solitary   lesions.   In  addition,
                           retreatment  of painful  areas is often not  feasible
                           due to unacceptable  toxicities to neighboring organs
                           and tissues. Treatments are generally administered in
                           five to ten or more  sessions over two to three weeks
                           necessitating  frequent  visits  by the  patient  and
                           contributing to the high cost of this procedure.
          -  Metastron(R), a radiopharmaceutical product of Nycomed Amersham plc
                           Metastron    is   the    only    other    therapeutic
                           radiopharmaceutical  approved  by  the  FDA  for  the
                           treatment   of  cancer  bone  pain.   It  contains  a
                           non-imageable   radionuclide,    Strontium-89.   This
                           radionuclide  decays  with  a very  long  radioactive
                           half-life  (approximately  50 days),  resulting  in a
                           delayed onset of pain relief, generally several weeks
                           after  administration.  Further,  the long  half-life
                           causes a prolonged and variable degree of bone marrow
                           suppression.  Prolonged bone marrow  toxicity  limits
                           the  usage  of  other  potential  therapies  such  as
                           chemotherapy  and radiation  therapy,  as well as the
                           ability to administer  additional doses of this drug.
          -  Novantrone(R), a chemotherapeutic   product  of Immunex Corporation
                           ("Immunex") Novantrone, a chemotherapeutic drug 
                           frequently used in the management of acute 
                           non-lymphocytic leukemia, is also marketed  by  
                           Immunex  for  use in  combination  with steroids for 
                           pain related to hormone refractory prostate cancer.  


                                       8


<PAGE>


                           The Company believes that Quadramet offers 
                           significant   advantages  over   Novantrone,
                           including  lower  toxicity,  fewer side effects,  and
                           more rapid onset of pain relief. However,  Novantrone
                           is well  known to  oncologists  because  of its other
                           applications  and this  may  provide  some  marketing
                           advantages to Immunex.

     Quadramet has numerous  characteristics  which we believe are  advantageous
for the  treatment  of cancer bone pain,  including  early onset of pain relief;
predictability  of recovery from bone marrow toxicity;  ease of  administration;
and length of pain relief.  Quadramet is  administered  as a single  intravenous
injection  on an  outpatient  basis  and  directly  targets  sites  of new  bone
formation  which  include  those areas in the skeleton that have been invaded by
metastatic  tumors.  Quadramet  exhibits high and very selective  uptake in bone
with little or no detectable  accumulation  in soft tissue.  The fraction of the
injected  dose that is not taken up in the skeleton is excreted in an unmodified
form in the  urine  over a period  of four to six  hours.  Further  studies  are
planned to evaluate the safety and efficacy of repeat dosing.

     We intend to expand  the use of  Quadramet  within the  currently  approved
indication  and  extend  its use to new  indications  by  performing  additional
clinical trials and seeking regulatory  approvals,  primarily by and through our
marketing  partner,  Berlex.  Clinical  trials are either  planned or  currently
underway to evaluate  the use of  Quadramet  in  combination  with other  cancer
therapies (such as external beam radiation therapy),  as a potential therapeutic
agent for  treatment of cancer and as a therapy for children  with  malignancies
which have either arisen in bone or have spread to bone.  Future trials are also
planned to evaluate the extension of the use of Quadramet to patients whose bone
metastases  can be visualized  on  conventional  bone scan,  but who are not yet
experiencing pain from these  metastases.  Our continuation of these trials will
depend upon their  progress,  success and on the ability to obtain  funding from
our existing or potential marketing partners.

     The first non-cancer use of Quadramet under  investigation is the treatment
of  patients  with  refractory  rheumatoid   arthritis.   These  patients  often
demonstrate  enhanced  uptake of  radionuclide  in affected joints on diagnostic
bone scans. In such cases,  we believe  Quadramet can target the diseased joints
and  provide a high but  localized  dose of  radiation  to the  area.  Published
studies by foreign  investigators  have suggested benefits from Quadramet in the
relatively  small  number  of  rheumatoid  arthritis  patients  studied.  We are
currently  conducting a Phase I dose  escalation  study of Quadramet to evaluate
the safety and  preliminary  efficacy  of  Quadramet  in  refractory  rheumatoid
arthritis patients.


     QUADRAMET MARKETING, SALES, MANUFACTURING AND DISTRIBUTION

     We have licensed the rights to Quadramet from Dow. Quadramet was previously
marketed by DuPont,  which  arrangement  was  terminated  during  June 1998.  In
October  1998,  we  entered  into an  exclusive  agreement  with  Berlex for the
marketing of  Quadramet.  We  anticipate  that Berlex will  re-launch  Quadramet
during the first  quarter of 1999.  Berlex  maintains  a sales force which calls
upon the oncological  community.  Pursuant to our agreement with Berlex,  we are
entitled to royalty  payments  based on net sales of the  Quadramet  product and
milestone payments based upon sales levels achieved.

     Quadramet was  originally  launched in June 1997.  During the first year of
launch,  Quadramet was marketed  principally to the nuclear medicine  community,
which  administers  the  treatment to patients.  However,  the treatment is more
typically prescribed by caregiving physicians, including medical oncologists and
urologists.  We believe that  successful  commercialization  of  Quadramet  will
depend upon marketing to these referring physicians.



                                       9
<PAGE>

     DuPont,  a leading  supplier of  radiopharmaceutical  products in the U.S.,
will  continue to  manufacture  the  product for an initial  term of five years.
Berlex has agreed to bear all costs of manufacture of Quadramet.


SALES, MARKETING AND DISTRIBUTION

     We have  limited  sales,  marketing  and  distribution  capabilities.  With
respect  to  the  sales,   marketing  and  distribution  of  Quadramet  and  the
co-promotion of ProstaScint,  we are  substantially  dependent on the efforts of
Berlex  and  BARD.  See  "ProstaScint   Marketing,   Sales,   Manufacturing  and
Distribution" and "Quadramet Marketing,  Sales, Manufacturing and Distribution."
If we are unable to  successfully  establish  and  maintain  significant  sales,
marketing and distribution  efforts,  either internally or through  arrangements
with third  parties,  there would be a material  adverse effect on our business,
financial condition and results of operations.

     There  can be no  assurance  that  we be  able  to  maintain  our  existing
collaborative  arrangements or enter into collaborative and license arrangements
in the future on acceptable  terms,  if at all, that such  arrangements  will be
successful,  that the  parties  with  which  the  Company  has or may  establish
arrangements  will perform their obligations  under such  arrangements,  or that
potential collaborators will not compete with the Company by seeking alternative
means of developing products for the indications targeted by the Company.


PRODUCT CONTRIBUTION FOREIGN REVENUES/RISKS

     The  Company's  currently  marketed  products  and other  sources of income
constitute a single business segment.  No significant history of revenues exists
with respect to any of the Company's  products.  ProstaScint  and Quadramet were
introduced  to the  market  during  the  first  half of 1997 and  account  for a
significant  percentage of the Company's  product and royalty revenues and total
revenues  and are  expected to do so for the  foreseeable  future.  For the year
ended December 31, 1998, revenues related to ProstaScint and Quadramet accounted
for approximately 91% of the Company's product and royalty revenues. ProstaScint
sales have experienced continued growth since product launch. However, there can
be no assurance  that such growth will continue  indefinitely.  Quadramet  sales
during the period from its launch have not grown significantly.  From the period
beginning  in the second half of 1997,  in which the product was launched in the
commercial  marketplace,   through  June  1998,  reported  revenues  related  to
Quadramet  sales were based on minimum  royalty  payments  due from its original
commercial  partner,  DuPont.  Actual  sales  were  substantially  less than the
minimum royalty payments received. Growth of Quadramet sales were initially slow
because of the need for hospitals to obtain license amendments under federal and
state law to receive  and handle  this new  radioactive  product.  In  addition,
marketing  efforts  by  DuPont  were  directed  primarily  to  nuclear  medicine
physicians  who directly  administer  the product to patients.  While this sales
effort was necessary to generate  product  understanding,  the Company  believes
that  marketing to  oncologists  and  urologists,  the primary  care-givers  for
patients who may benefit from Quadramet,  is necessary for adequate  penetration
into the market.

     The marketing agreement with DuPont has been terminated and the Company the
Company has since entered into an exclusive license and marketing  agreement for
the marketing of Quadramet with Berlex,  which  maintains an  experienced  sales
force  calling on the  oncology  community.  The Company and Berlex have entered
into an agreement with DuPont for the manufacture of Quadramet. Pursuant to this
agreement,  Berlex bears the  manufacturing  costs for  Quadramet.  Marketing by
Berlex is planned to commence during the first quarter of 1999.  There can be no


                                       10

<PAGE>

assurance that  ProstaScint  and Quadramet  will achieve market  acceptance on a
timely  basis,  or at all. The  Company's  success  will be  dependent  upon the
acceptance  of  ProstaScint  and Quadramet by the medical  community,  including
health care providers, such as hospitals and physicians,  and third-party payors
(such as employers,  insurers, and health maintenance  organizations),  as safe,
effective  and cost  efficient  alternatives  to other  available  treatment and
diagnostic protocols.  

PRODUCT DEVELOPMENT

     AXCELL  BIOSCIENCES.  AxCell,  a wholly  owned  subsidiary  of the  Company
created in August 1996,  utilizes an  application of Genetic  Diversity  Library
("GDL")   (described   below)  and  other  technology  to  support  advances  in
combinatorial  chemistry,  genomics and drug discovery.  AxCell has developed an
integrated  set of tools to map selective  protein-protein  interactions  and is
using   these   tools  to  develop  an   Inter-Functional   Proteomic   Database
("IFP-dBase").   The  IFP-dBase   includes  data  relating  to   protein-protein
interaction linked to a variety of other relevant bioinformatic data. We believe
this informational  database has potential value in the use by scientists in the
pharmaceutical  industry as a means to help identify and validate  important new
biological targets.  Without the ability to sort and understand the interactions
between proteins,  it will be difficult to identify the relatively few important
new  targets  among the more than  100,000  expected  to be  identified  through
genomic  analysis in the next few years. We believe such  information will be of
value  to  pharmaceutical   companies  in  conducting  research  on  new  drugs.
Discussions are currently underway with potential  pharmaceutical  customers who
might  take  immediate   advantage  of  AxCell's  ability  to  identify  protein
interactions for targets which they are currently studying.

     AxCell  has  developed  a  prototype   bioinformatics   interface  for  the
IFP-dBase.  We expect  that  additional  effort  will be  required to refine the
prototype.  We will also pursue  further  research  to identify  protein-protein
interactions  which would be useful in and  necessary to a  commercially  viable
bioinformatics  database.  Funding is being  sought from  collaborators  for the
AxCell program,  from venture  capital funds,  or from other sources,  including
corporate  resources if adequate to provide such  funding.  No assurance  can be
provided that the program will be developed, will be successful, or that we will
retain substantially all ownership or even a majority interest of AxCell.

     GENETIC DIVERSITY LIBRARY TECHNOLOGY.  Long-term research, much of which is
preliminary,  had been  conducted  over a period of time by the  Company  on GDL
technology.  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.  We believe 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.  Certain  peptides  believed to have  commercial  potential have been
identified  from the GDL  program  and may be  subject  to  further  development
efforts, although we would at present pursue such development only in connection
with a commercial  partner.  Otherwise,  the basic research component of the GDL
program has been  cancelled as part of our ongoing  review of long term research
projects  and focus on  programs  with nearer term  economic  potential.  We are
actively  pursuing  corporate  alliances  and  basic  research  and  development
agreements to support and advance the GDL technology toward commercialization.



                                       11

<PAGE>

     The Company has entered into a license  agreement  granting Elan  worldwide
rights  to a  group  of  peptides  and  associated  GDL  technology  for  orally
administered drugs that are transported across the gastrointestinal  epithelium,
as well as rights to other  orally  delivered  drugs  derived  from the research
program.  Elan is responsible for the further development and  commercialization
of this  technology.  CYTOGEN is entitled to royalties from sales of any product
developed and commercialized based on this technology.

     PSMA. In 1993, CYTOGEN and Memorial Sloan-Kettering Cancer Center ("MSKCC")
began a  development  program  involving  PSMA  and  CYTOGEN's  prostate  cancer
monoclonal  antibody,  CYT-351.  PSMA is an unique antigen expressed in prostate
cancer cells and by the normal prostate epithelial cells. 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,  we
exercised our 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.  ("Prostagen"),  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.  Products  are  currently  under
development  by third  parties  in  collaboration  with and under  license  from
Prostagen.  Currently,  a dendritic  cell  therapy  using PSMA for  treatment of
prostate cancer is in Phase II clinical studies.

     In January 1997, we granted 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.  We have  issued
licenses to various third parties for different  uses of the PSMA  technology in
diagnostic and therapeutic  applications.  These agreements  provide the Company
with royalties payable if and when products come to market.

     In 1996, Targon was granted exclusive rights to certain other fields of use
for the PSMA technology,  including recent  developments in the area of prodrugs
for prostate  cancer.  These rights were  relinquished  to Cytogen in connection
with the sale of our interest in Targon to Elan.

     OTHER  APPLICATIONS.  While we have retained all rights for therapeutic and
in vivo diagnostic uses of the antibody  utilized in ProstaScint for the Company
and its affiliates, we have 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. We will receive  royalties on product
sales by Hybritech, if any.

     We believe  that certain of our  technologies  under  development  may have
medical applications in various other areas,  including autoimmune disorders and
infectious  diseases.  We intend to expand the research and development of these
technologies  primarily  through  strategic  alliances with other  entities.  We
cannot predict the establishment or the timing of such alliances.  To the extent
funding is  available,  we expect to devote  resources to these other areas.  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.



                                       12


<PAGE>


RESEARCH AND DEVELOPMENT

     Our research and development expenditures include projects conducted by the
Company and payments made to customer sponsored research programs.  Our expenses
for research and development  activities (including customer sponsored programs)
were:


                      -  1998 -- $10.0 million
                      -  1997 -- $17.9 million
                      -  1996 -- $20.5 million

         Research and development  expenditures for customer  sponsored programs
were:

                      -  1998-- $2.0 million
                      -  1997-- $1.5 million
                      -  1996 -- $1.1 million

     We intend to pursue research and development  activities  having commercial
potential and to review all of our programs to determine whether possible market
opportunities,  near and longer term,  provide an adequate return to justify the
commitment of human and economic  resources to their initiation or continuation.
Anticipated  research and  development  spending for 1999 has been  dramatically
curtailed.


HEALTH CARE REIMBURSEMENT

     Our business,  financial  condition and results of operations will continue
to be affected by the efforts of governments and  third-party  payors to contain
or reduce the costs of healthcare through various means. There have been, and we
expect that there will continue to be, federal and state  proposals to implement
government  control of pricing and  profitability  of therapeutic and diagnostic
imaging agents. In addition, an increasing emphasis on managed care has and will
continue to increase the pressure on pricing of these products.  While we cannot
predict whether such legislative or regulatory  proposals will be adopted or the
effects such  proposals or managed  care efforts may have on our  business,  the
announcement  of such  proposals  and the adoption of such  proposals or efforts
could have a material  adverse effect on our business,  financial  condition and
results of operations.  Further,  to the extent such proposals or efforts have a
material  adverse  effect  on other  companies  that are  prospective  corporate
partners of the Company,  our ability to establish  strategic  alliances  may be
materially and adversely affected.

     Sales of our products depend in part on the  availability of  reimbursement
to the consumer from  third-party  payors,  including  Medicare,  Medicaid,  and
private health insurance plans.  Third-party payors are increasingly challenging
the prices charged for medical  products and services.  To the extent we succeed
in bringing  products to market,  there can be no assurance  that these products
will be considered  cost-effective  and that  reimbursement to consumers will be
available  or  will  be  sufficient  to  allow  us to  sell  our  products  on a
competitive  basis.  Reimbursement by a third-party payor may depend on a number
of factors, including the payor's determination that our products are clinically
useful  and   cost-effective,   medically  necessary  and  not  experimental  or
investigational.  Since  reimbursement  approval  is  required  from each  payor
individually,  seeking such approvals can be a time consuming and costly process
which  could  require  us  to  provide  supporting   scientific,   clinical  and
cost-effectiveness data for the use of our products to each payor separately. If
we are unable to secure  adequate  third party  reimbursement  for our products,
there would be material adverse effect on its business,  financial condition and
results of operations. 



                                       13

<PAGE>

COMPETITION

     The  biotechnology  and  pharmaceutical  industries  are subject to intense
competition,   including   competition  from  large  pharmaceutical   companies,
biotechnology   companies  and  other   companies,   universities  and  research
institutions.  Competition with the Company's existing  therapeutic  products is
posed by a wide variety of other firms,  including firms which provide  products
used in  more  traditional  treatments  or  therapies,  such  as  external  beam
radiation,  chemotherapy  agents  and  narcotic  analgesics.  In  addition,  the
Company's existing and potential competitors may be able to develop technologies
that are as effective as, or more  effective  than those offered by the Company,
which would render the Company's products noncompetitive or obsolete.  Moreover,
many of the Company's  existing and  potential  competitors  have  substantially
greater   financial,   marketing,   sales,   manufacturing,   distribution   and
technological   resources   than  the  Company.   Such  existing  and  potential
competitors may be in the process of seeking FDA or foreign regulatory  approval
for their respective products or may also enjoy substantial  advantages over the
Company in terms of research and development expertise, experience in conducting
clinical trials,  experience in regulatory  matters,  manufacturing  efficiency,
name recognition,  sales and marketing expertise and distribution  channels.  In
addition,  many of these  companies  may have more  experience  in  establishing
third-party  reimbursement  for  their  products.  Accordingly,  there can be no
assurance  that the Company  will be able to compete  effectively  against  such
existing or potential  competitors or that  competition will not have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  See "Cancer Diagnostic Imaging Products -- ProstaScint" and "Cancer
Therapeutic Products -- Quadramet".


CELLCOR

     In 1995 we acquired  Cellcor for the  continued  development  of autologous
lymphocyte  therapy in the treatment of metastatic renal cell cancer. As part of
our  restructuring  activities  during 1998, we  determined  that Cellcor was no
longer in line with our strategic and financial  objectives.  In September 1998,
we terminated our Cellcor program and closed our facility.


MANUFACTURING

     Our ProstaScint and OncoScint products are manufactured at a cGMP-compliant
manufacturing  facility in Princeton which is now held by Bard BioPharma L.P., a
subsidiary  of  Purdue  BioPharma  ("Bard  BioPharma").  We have  access  to the
facility  for  continued  manufacture  of  these  products  under a  three  year
agreement.  An  Establishment  License  Application  for  the  facility  for the
manufacture  of our  products  was  approved by the FDA for the  manufacture  of
ProstaScint  in October 1996 and for  manufacture of OncoScint in December 1992.
It is expected that this facility will allow us to meet our projected production
requirements for ProstaScint and OncoScint for the foreseeable future,  although
no assurances can be given to that effect.

     In November  1997, the FD&C Act was amended to make the approval and review
process for biologics more similar to that for drugs.  The new law requires only
one license to market a  biological  product,  a BLA,  eliminating  the need for
separate license for the facility. Therefore, while we will continue to maintain
compliance with cGMPs, under the new law, we are not required to obtain separate
licenses of its commercial  manufacturing facilities in the future. Moreover, we
will  retain  the  status  of  having  met  the  FDA's  establishment  licensing
requirements  which  we  believes  is  an  important  competitive  advantage  in
attracting contract manufacturing business (discussed below).



                                       14
<PAGE>

     Our  products  must  be   manufactured   in  compliance   with   regulatory
requirements  and at commercially  acceptable  costs.  While we believe that our
manufacturing  arrangements  currently  address  our  needs,  there  can  be  no
assurance  that  we will be able to  continue  to  arrange  manufacture  of such
products on a  commercially  reasonable  basis,  that we will be able to arrange
manufacture  of  additional  products  and product  candidates  or  successfully
outsource such manufacturing needs. If we are unable to successfully manufacture
or arrange for the  manufacture  of our  products and product  candidates  there
could be a material  adverse  effect on our  business,  financial  condition and
results of operations.

     The Company and its third party manufacturers are required to adhere to FDA
regulations setting forth requirements for cGMP and similar regulations in other
countries,   which  include   extensive   testing,   control  and  documentation
requirements.  Ongoing  compliance  with  cGMP,  labeling  and other  applicable
regulatory  requirements is monitored  through  periodic  inspections and market
surveillance by state and federal agencies, including the FDA, and by comparable
agencies  in  other  countries.  Failure  of the  Company  and  its  third-party
manufacturers  to comply with applicable  regulations  could result in sanctions
being imposed on the Company,  including  fines,  injunctions,  civil penalties,
failure of the government to grant premarket  clearance or premarket approval of
drugs,  delays,  suspension or  withdrawal of approvals,  seizures or recalls of
products, operating restrictions and criminal prosecutions.

     The annual production capacity of the Princeton facility,  now held by Bard
BioPharma, was approximately 100,000 OncoScint or ProstaScint kits. The facility
was  utilized  approximately  15% in  1998,  15% in  1997,  and 20% in 1996  for
manufacture of our products.


RAW MATERIALS AND SUPPLIERS

     The active raw materials used for the  manufacture of our products  include
different   antibodies.   We  have  both  exclusive  and  non-exclusive  license
agreements  which  permit  the  use of  specific  monoclonal  antibodies  in our
products. Our 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. We anticipate that Lonza Biologics will be able to meet
our needs for commercial quantities of monoclonal antibody.

     We  currently  have  arrangements  necessary  for  production  of projected
commercial  quantities of monoclonal  antibody for  manufacture  of  ProstaScint
through  an  agreement  with  Bard  BioPharma,   which  acquired  the  Company's
manufacturing  facilities  in  January,  1999.  CYTOGEN is  responsible  for the
production of both OncoScint and ProstaScint at the facility.

     Quadramet is  manufactured  by DuPont  pursuant to an agreement with Berlex
and CYTOGEN.  Certain  components of Quadramet,  particularly  Samarium-153  and
EDTMP, are provided to DuPont by sole source suppliers. Due to its radiochemical
properties,  Samarium-153  must be produced on a weekly basis by its supplier in
order to meet DuPont's manufacturing  requirements.  On one occasion, DuPont was
unable to manufacture Quadramet on a timely basis due to the failure of the sole
source supplier to provide an adequate supply of Samarium-153. In the event that
DuPont  is  unable  to  obtain  sufficient  quantities  of  such  components  on
commercially  reasonable terms, or in a timely manner, DuPont would be unable to
manufacture  Quadramet  on a timely and  cost-competitive  basis.  In  addition,
sources for certain of these components may not be readily available.  Thus, the
loss  by  DuPont  of  its  sources  for  such  components  could  result  in  an
interruption of supply and could have a material adverse effect on the Company's
business, financial condition and results of operations.



                                       15

<PAGE>

PATENTS AND PROPRIETARY RIGHTS

     Consistent  with  industry  practice,  we have a policy of using patent and
trade  secret  protection  to  preserve  our right to exploit the results of our
research and  development  activities  and, to the extent it may be necessary or
advisable, to exclude others from appropriating our proprietary technology.

     Our  policy  is to  protect  aggressively  our  proprietary  technology  by
selectively seeking patent protection in a worldwide program. In addition to the
U.S., we file 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.  We believe that the countries in
which we have  obtained  and are seeking  patent  coverage  for our  proprietary
technology represent the major focus of the pharmaceutical industry in which the
Company and certain of our licensees will market our respective products.

     We hold 31 current U.S.  patents and 66 current  foreign  patents.  We have
filed and currently have pending a number of additional  U.S. and foreign patent
applications,  covering  certain  aspects of our  technology  for diagnostic and
therapeutic  products,  and the methods for their production and use. We intends
to  file  patent  applications  with  respect  to  subsequent  developments  and
improvements when we believe such protection is in our the best interest.

     We are the exclusive  licensee of certain  patents and patent  applications
held by the University of North Carolina at Chapel Hill covering GDL technology.
We hold an exclusive  license under certain patent and patent  applications held
by the Memorial Sloan  Kettering  Institute  covering PSMA. We are the exclusive
licensee  of  certain  U.S.  patents  and  applications  held  by  Dow  covering
Quadramet.

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

     We also rely upon,  and intend to  continue  to rely upon,  trade  secrets,
unpatented  proprietary  know-how and  continuing  technological  innovation  to
develop  and  maintain  our  competitive   position.  We  typically  enter  into
confidentiality  agreements  with our licensees and any scientific  consultants,
and each of our  employees  have entered  into  agreements  requiring  that they
forbear from disclosing confidential information, and assign to us all rights in
any  inventions  made  while  in  our  employ.  We  believe  that  our  valuable
proprietary information is protected to the fullest extent practicable; however,
there can be no assurance that:

     -  Any additional patents will be issued to the Company in any or all 
        appropriate jurisdictions;
     -  Litigation  will  not be  commenced  seeking  to  challenge  the  patent
        protection or such  challenges  will not be successful;  
     -  Our processes or products do not or will not infringe upon the patents 
        of third parties;  or
     -  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  our  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 that are  competitive  with ours. In addition,  others may
have filed patent  applications and may have been issued patents to products and
to  technologies  potentially  useful to us or  necessary to  commercialize  our



                                       16

<PAGE>

products or achieve our business  goals.  There can be no assurance that we will
be  able  to  obtain  licenses  of  such  patents  on  acceptable   terms.   See
"Competition."


GOVERNMENT REGULATION AND PRODUCT TESTING

     The  development,  manufacture and sale of medical  products  utilizing our
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.

     The FD&C Act requires that our products be  manufactured  in FDA registered
facilities  subject to inspection.  The manufacturer  must be in compliance with
cGMP which imposes certain procedural and documentation requirements upon us and
our  manufacturing  partners with respect to  manufacturing  and quality control
activities.  Noncompliance  with cGMP can result in, among other things,  fines,
injunctions,  civil penalties, recalls or seizures of products, total or partial
suspension of production, failure of the government to grant premarket clearance
or premarket approval for drugs,  withdrawal of marketing approvals and criminal
prosecution.  Any failure by us or our manufacturing partners to comply with the
requirements  of cGMP  could  have a material  adverse  effect on the  Company's
business, financial condition and results of operations.

     FDA APPROVAL. The major regulatory impact on the diagnostic and therapeutic
products in the U.S.  derives  from 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  which  we  apply  our  technology  is  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 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 studies. The studies 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 us or our  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 we 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.  We intend to seek to
maximize the useful life of our 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 our  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


                                       17
<PAGE>

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.

     The  Prescription  Drug  User Fee Act and  subsequently,  the Food and Drug
Administration  Modernization  Act of 1997 have 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,  we are 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 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.

     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. Clinical testing requirements for orphan drugs are the
same as those for  products  that have not  received  orphan  drug  designation.
OncoScint  CR/OV has received an orphan drug  designation  for the  detection of
ovarian  carcinoma.  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 state and local  authorities  and other
federal agencies including Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource  Conservation and
Recovery Act and Nuclear Regulatory Commission.



                                       18

<PAGE>

     FOREIGN REGULATORY APPROVAL.  The regulatory approval process in Europe has
changed over the past few years. There are two regulatory  approval processes in
Europe for products developed by the Company. Beginning in 1995, the centralized
procedure became mandatory for all biotechnology products. Under this regulatory
scheme,  the application is reviewed by two scientific  project leaders referred
to as the rapporteur and co-rapporteur respectively.  Their roles are to prepare
assessment reports of safety/efficacy and for recommending the approval for full
European Union marketing.

     The  second  regulatory  scheme,  referred  to as  the  Mutual  Recognition
Procedure is a process whereby a product's  national  registration in one member
state within the European  Union may be  "mutually  recognized"  by other member
states within the European Union.

     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.


CUSTOMERS

     In 1998, the Company received 54% of its total product related, license and
contract revenues from three customers: Berlex, DuPont and Medi-Physics, a chain
of  radiopharmacies  (see  Note  7  of  Notes  to  the  Consolidated   Financial
Statements).


EMPLOYEES

     As of January 22, 1999,  we employed 95 persons  full-time,  of whom 7 were
engaged  in  research  and   development   activities,   32  in  operations  and
manufacturing,  21 in clinical and regulatory  activities,  17 in administration
and management,  and 18 in marketing. We believe that we have been successful in
attracting  skilled and  experienced  employees;  however,  competition for such
personnel is intense.

     None of the  Company's  employees  is  covered by a  collective  bargaining
agreement.   All  of  the  Company's  employees  have  executed  confidentiality
agreements. We considers relation with our employees to be excellent.


IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS

                            ========================
                              CAUTIONARY STATEMENT


     Certain   discussions   set  forth  above  regarding  the  development  and
commercialization   of  our  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. Certain statements in
this prospectus are forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended.  The  Company's  actual  results  could  differ  materially  from those
anticipated in such  forward-looking  statements as a result of certain factors,
listed  below or discussed  elsewhere in this Form 10-K report,  and in other of
the  Company's  filings with the  Securities  and Exchange  Commission:  (i) the




                                       19

<PAGE>

Company's  ability  to access  the  capital  markets in the near term and in the
future for  continued  funding of existing  projects  and for the pursuit of new
projects;  (ii) the ability to attract and retain  personnel needed for business
operations  and  strategic  plans;  (iii) the  timing and  results  of  clinical
studies,  and  regulatory  approvals;  (iv) market  acceptance  of the Company's
products, including programs designed to facilitate use of the products, such as
the PIE Program;  (v) demonstration  over time of the efficacy and safety of the
Company's  products;  (vi)  the  degree  of  competition  from  existing  or new
products;  (vii) the  decision by the  majority of public and private  insurance
carriers on whether to reimburse patients for the Company's products; (viii) the
profitability  of its  products;  (ix) the ability to attract,  and the ultimate
success of, strategic partnering arrangements,  collaborations,  and acquisition
candidates;  (x) 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;  (xi) the success of the
Company's  marketing partners in obtaining  marketing approvals in Canada and in
European  countries,  in achieving  milestones  and achieving  sales of products
resulting  in  royalties;  and (xii) the  ability to protect  and  practice  the
Company's intellectual property, including patents and know-how.


ITEM 2.  PROPERTIES

     We currently lease  approximately  28,000 square feet of administrative and
manufacturing  related  space  in  two  locations  in  Princeton,   New  Jersey,
including:

     -  20,000 square feet of office space.  The lease on this facility expires 
        in 2002; and
     -  8,000 square feet of warehousing and additional manufacturing space.  
        The lease on this space  expires in 1999.

     In  addition,  we have the right to access  space  located in a facility in
Princeton  (previously  held by the Company) for manufacture of Company products
and for laboratory functions.  We intend to remain in Princeton,  New Jersey for
the foreseeable  future.  We own  substantially all of the equipment used in the
laboratories and offices.


ITEM 3.  LEGAL PROCEEDINGS

None


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

None




                                       20
  



<PAGE>


                      EXECUTIVE OFFICERS OF THE REGISTRANT

     The  executive  officers  of the  Company  and  their  respective  ages and
positions with the Company as of February 1, 1999 are as follows:


           Name                Age       Title

     James A. Grigsby           56       Director; Chairman of the Board

     H. Joseph Reiser, Ph.D.    52       Director; President and Chief Executive
                                         Officer

     Donald F. Crane            48       Vice President, General Counsel and 
                                         Corporate Secretary

     Jane M. Maida              43       Chief Accounting Officer, and Principal
                                         Financial Officer

     Graham S. May, M.D.        50       Vice President, Medical Affairs and 
                                         Business Development

     John D. Rodwell, Ph.D.     52       Senior Vice President, Chief Scientific
                                         Officer and President, AxCell 
                                         Biosciences

     Michael A. Trapani         44       Vice President, Regulatory Affairs and 
                                         Quality Assurance


     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

     James A.  Grigsby  has been a director  of the  Company  since May 1996 and
Chairman  of the Board  since  June  1998.  Since  1994,  Mr.  Grigsby  has been
president of Cancer Care Management LLC, a consulting firm providing  consulting
services  regarding  cancer disease  management  issues.  From 1989 to 1994, Mr.
Grigsby was  President of CIGNA  Corporation's  International  Life and Employee
Benefits Division,  which operated in over 20 countries worldwide,  and prior to
that period also served as the head of CIGNA's national health care sales force.
Prior to that time,  since 1978,  he held a number of executive  positions  with
CIGNA Corporation. Mr. Grigsby received a B.A. degree in Mathematics from Baylor
University and is a Fellow of the Society of Actuaries.

     H. Joseph  Reiser,  Ph.D.  joined  CYTOGEN in August 1998 as President  and
Chief  Executive  Officer  and as a  member  of the  Board  of  Directors.  Most
recently,   Dr.  Reiser  was  Corporate  Vice  President  and  General  Manager,
Pharmaceuticals,  for Berlex  Laboratories Inc., the U.S. subsidiary of Schering
AG. During his 17 year tenure at Berlex, Dr. Reiser held positions of increasing




                                       21

<PAGE>

responsibility,  serving as the first  President  of Schering  Berlin's  Venture
Corporation,  Vice  President,  Technology  and  Industry  Relations,  and  Vice
President,  Drug  Development and  Technology.  Dr. Reiser received his Ph.D. in
Physiology from Indiana University School of Medicine,  where he also earned his
Master and Bachelor of Science degrees.

     Donald F.  Crane  joined  CYTOGEN in June 1997 as Vice  President,  General
Counsel and Corporate Secretary. Most recently, Mr. Crane was Senior SEC Counsel
for U.S. Surgical  Corporation since 1993.  Previously,  Mr. Crane was Assistant
Secretary and Corporate  Counsel at BellSouth  Corporation in Atlanta,  Georgia.
Mr. Crane holds a Bachelors  degree in  Communications  from the  University  of
Georgia and a J.D. degree from the University of Georgia School of Law.

     Jane M. Maida  joined  CYTOGEN in March 1997 as Chief  Accounting  Officer,
Corporate  Controller and Assistant  Secretary and currently serves as Principal
Financial Officer.  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  company  focused on cellular  immunology.
From 1986 to 1994, Ms. Maida was Corporate  Controller  and Assistant  Secretary
for The Liposome Company,  Inc., 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,  M.D.  joined  CYTOGEN  in January  1997 as Vice  President,
Medical Affairs.  In February 1998, he assumed additional  responsibilities  for
business  development.  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 has also worked
with AKZO and Ciba-Geigy in Europe, as well as  Hoechst-Roussel  Pharmaceuticals
in the U.S.  Dr. May holds  undergraduate  and medical  degrees  from  Cambridge
University, England, and is a member of the Faculty of Pharmaceutical Medicine.

     John D.  Rodwell,  Ph.D.  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 President
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 and Research  Associate,  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.  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.

      Michael A. Trapani joined CYTOGEN in January 1996 as Director,  Regulatory
Affairs & Quality  Assurance and held that position until his promotion in March
1998 to Vice President,  Regulatory Affairs & Quality Assurance.  In his current
position,  he is responsible for regulatory and quality  activities  world-wide.
Mr. Trapani has approximately 20 years experience in the pharmaceutical industry
with the majority of his experience in the drug approval area. Most recently, he
was Senior  Director,  Regulatory  Affairs for Pharmacia Adria in Columbus,  OH.
Prior to that position,  he held the position of Executive Director,  Regulatory
Affairs at Kabi  Pharmacia in Piscataway,  N.J. Mr.  Trapani  started his career
with the FDA. Mr. Trapani holds a B.S.  degree in Biology from Brooklyn  College
and an MBA degree from Seton Hall Graduate School of Business.




                                       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.

                                                                        
1997                                                      High        Low
----                                                      ----        ---
First Quarter..........................................   6 1/2       4 3/4
Second Quarter.........................................   6 5/16      4 11/16
Third Quarter..........................................   5 1/16      3 5/8
Fourth Quarter.........................................   4 3/4       1 7/16

1998
----
First Quarter..........................................   2 7/16      1 1/4
Second Quarter.........................................   2           5/8
Third Quarter..........................................   2 9/16      3/4
Fourth Quarter.........................................   1 7/8       11/16


         As of February 1, 1999 there were approximately 5,077 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 and Series B Convertible  Preferred  Stock issued under Section 4(2) of
the  Securities  Act,  see  Note  11 of  Notes  to  the  Consolidated  Financial
Statements.





                                       23

<PAGE>


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The  following  selected  financial  information  has been derived from the
consolidated  financial  statements of the Company for each of the five years in
the period ended December 31, 1998,  which have been audited by Arthur  Andersen
LLP, the Company's  independent public accountants.  The consolidated  financial
summaries set forth below should be read in  conjunction  with the  consolidated
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>

                                                                      YEAR ENDED DECEMBER 31,
                                                  --------------------------------------------------------
                                                      1998        1997        1996        1995       1994
                                                  --------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:                        (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>         <C>         <C>         <C>         <C>      
Revenues:
   Product sales ..............................   $  8,976    $  5,252    $  1,507    $  1,377    $  1,411
   Royalties ..................................      1,664       3,282        --          --          --
   License and contract .......................      9,239       5,886       4,223       3,608       1,047
                                                  ---------   ---------   ---------   ---------   --------- 
     Total revenues ...........................     19,879      14,420       5,730       4,985       2,458
                                                  ---------   ---------   ---------   ---------   ---------  
Operating Expenses:
  Cost of product and contract
     manufacturing revenues (1) ...............     12,284       5,939        --          --          --
  Research and development ....................      9,967      17,913      20,539      22,594      20,321
  Acquisition of in-process technology ........       --          --          --        45,878       4,647
  Equity loss in Targon subsidiary (2) ........      1,020       9,232         288        --          --
  Selling and marketing .......................      5,103       5,492       4,143       4,493       5,536
  General and administrative ..................      7,420       6,871       5,494       4,804       3,962
                                                  ---------   ---------   ---------   ---------   --------- 
     Total operating expenses .................     35,794      45,447      30,464      77,769      34,466
                                                  ---------   ---------   ---------   ---------   --------- 

     Operating loss ...........................    (15,915)    (31,027)    (24,734)    (72,784)    (32,008)

Gain on sale of Targon subsidiary .............      2,833        --          --          --          --
Other income (expense) ........................        (70)        315         968         264        (798)
                                                  ---------   ---------   ---------   ---------   --------- 
Net loss ......................................    (13,152)    (30,712)    (23,766)    (72,520)    (32,806)
Dividends, including deemed
   dividends on preferred stock ...............       (119)     (1,352)     (4,571)       --          --   
                                                  ---------   ---------   ---------   ---------   --------- 
Net loss to common stockholders ...............   $(13,271)   $(32,064)   $(28,337)   $(72,520)   $(32,806)
                                                  =========   =========   =========   =========   =========
          
Basic and diluted net loss per common share ...   $  (0.24)   $  (0.63)   $  (0.59)   $  (2.11)   $  (1.38)
                                                  =========   =========   =========   =========   =========

Basic and diluted weighted average
   common shares outstanding ..................     56,419      51,134      48,401      34,333      23,822
                                                  =========   =========   =========   =========   =========
</TABLE>

<TABLE>
<CAPTION>


                                                      1998 
                                              --------------------
CONSOLIDATED BALANCE SHEET DATA:              PRO FORMA(3)  ACTUAL       1997        1996        1995       1994 
--------------------------------              ------------  ------    -------------------------------------------- 
<S>                                           <C>         <C>         <C>         <C>         <C>         <C> 
Cash, short term investments and
     restricted cash (2) ..................   $ 10,522    $  3,015    $  7,401    $ 24,765    $ 29,135    $  7,700
Total assets ..............................     15,620      10,900      27,555      41,543      37,149      19,690
Long-term liabilities .....................      2,223       2,223      10,171       1,855       3,275       4,310
Redeemable common stock ...................         --          --          --          --          --       2,000
Stockholders' equity ......................      5,740         443       9,983      32,927      25,276       4,368

</TABLE>

(1) Prior to 1997,  product sales were minimal and no revenues were derived from
    contract manufacturing,  therefore, cost of product sales was immaterial and
    was included in research and development expenses.  
(2) Restated in 1997 and 1996 to give retroactive  effect to the  change in  
    accounting for its investment in Targon. See Note 1 of Notes to the 
    Consolidated Financial Statements.  
(3) Reflects  the receipt of cash on the sale of common  stock and sale of the 
    Company's  laboratory and  manufacturing  facilities,  both of which
    occurred  in January  1999.  See Note 2 of Notes to the  Consolidated  
    Financial Statements.


                                       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  subsidiaries  AxCell  Biosciences  Corporation
("AxCell"), Cellcor Inc. ("Cellcor") and Targon Corporation ("Targon"), taken as
a whole, where appropriate. In 1998, the Company sold its interest in Targon and
closed the Cellcor subsidiary (see "Business of the Company").

RESULTS OF OPERATIONS

      BACKGROUND.  To date, the Company's  revenues have resulted primarily from
(i) sales and royalties from  ProstaScint,  Quadramet and OncoScint CR/OV,  (ii)
payments received from contract  manufacturing and research services pursuant to
agreements,  (iii) fees  generated  from the  licensing  of its  technology  and
marketing rights to its products,  (iv) milestone  payments received when events
stipulated in the collaborative agreements with third parties have been achieved
and (v) through  September  1998, the cost recovery  related to the treatment of
patients  receiving  autolymphocyte  therapy  ("ALT") for metastatic  renal cell
carcinoma  ("mRCC")  under a  Treatment  Investigational  New Drug  program  and
compassionate  protocol  which  permits  patients who do not qualify for or have
completed  treatment  under an  ongoing  study  approved  by the FDA to  receive
treatment.

      In October 1998,  CYTOGEN entered into an exclusive  license and marketing
agreement  ("Berlex  Agreement") with Berlex for the manufacture and sale of its
third FDA approved  product,  Quadramet,  a treatment for bone pain arising from
cancers which have spread to the skeleton and that can be visualized on standard
bone scans.  CYTOGEN and Berlex, in November 1998, jointly finalized a long-term
supply agreement with DuPont,  the current  contract  manufacturer of Quadramet.
Under the terms of the Berlex Agreement, CYTOGEN received an $8 million up-front
payment of which $7.1 million was recorded as revenue with the balance  recorded
as proceeds  from the common stock warrant  issued to Berlex.  At the same time,
CYTOGEN  charged to its cost of product and contract  manufacturing  revenues $4
million of expense  payable to DuPont  for  securing a  long-term  manufacturing
commitment. Berlex will pay CYTOGEN royalties on net sales of Quadramet, as well
as milestone payments based on achievement of certain sales levels. Quadramet is
expected to be relaunched  by Berlex in the first  quarter of 1999.  See Notes 4
and 5 of Notes to the Consolidated Financial Statements.

      From June 1997  through  June 1998,  Quadramet  was marketed in the United
States by DuPont.  Under this  arrangement,  CYTOGEN  recorded  royalty revenues
based on contractual  minimum royalty  payments,  which were greater than actual
sales. On June 3, 1998,  pursuant to an agreement (the "Termination  Agreement")
between CYTOGEN and DuPont,  CYTOGEN reclaimed marketing rights to Quadramet and
the minimum royalty  arrangement  was  terminated.  All terms of the Termination
Agreement have been met. As a result,  near-term royalty revenues were adversely
affected and Quadramet  revenues were based on actual sales for the remainder of
1998.

      In 1998, CYTOGEN implemented a restructuring plan which included operating
expense reductions through the closure of the Cellcor subsidiary and a corporate
downsizing.  As a result,  significant aspects of the Company's  operations were
scaled back or eliminated  to increase the  Company's  focus on marketing of its
products:  Quadramet,  ProstaScint and OncoScint CR/OV. In conjunction with this
restructuring  plan,  CYTOGEN recorded a charge of approximately $1.9 million in
1998 to its general and  administrative  expenses for severances,  other closure
related expenses and costs to implement a corporate turnaround plan.



                                       25

<PAGE>

      Also in 1998, CYTOGEN completed the sale of its remaining 49.875% interest
in Targon  to Elan for $2.0  million  As a  result,  the  Company  recognized  a
non-operating  gain of approximately  $2.8 million in the third quarter of 1998.
All previous notes among CYTOGEN, Targon and Elan were canceled. In August 1998,
CYTOGEN received $2.0 million from Elan in exchange for a convertible promissory
note. See Notes 3 and 9 of Notes to the Consolidated Financial Statements.

      In December 1998 and January 1999, the Company sold $4.5 million of common
stock to its two largest  stockholders,  a subsidiary of The Hillman Company and
The State of Wisconsin  Investment Board. In January 1999, the Company exercised
a put right granted to the Company by an institutional  investor to sell CYTOGEN
common stock for $500,000.  See Note 10 of Notes to the  Consolidated  Financial
Statements.

      Also,  in  January  1999,  CYTOGEN  sold  certain  of its  laboratory  and
manufacturing  facilities to Bard BioPharma  L.P., a subsidiary of Purdue Pharma
L.P.  ("Bard  BioPharma")  for $3.9  million.  CYTOGEN  also signed a three-year
agreement under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV
would  continue  to be  manufactured  at its  former  research  and  development
facility. Employees involved in manufacturing will remain CYTOGEN employees, but
Bard  BioPharma  will  absorb  their  labor  costs  except  for  time  spent  on
manufacturing  CYTOGEN products.  The Company believes that the cost of products
will decrease under this new arrangement. As a result of the sale of facilities,
the  Company  will  record a gain of  approximately  $3.3  million  in the first
quarter of 1999.

      REVENUES. Total revenues were $19.9 million in 1998, $14.4 million in 1997
and $5.7 million in 1996. Product related revenues,  including product sales and
royalty  revenues,  accounted for 54%, 59% and 26% of revenues in 1998, 1997 and
1996,  respectively.  The  growth  in 1998 and 1997  was due to the  launch  and
revenues generated from ProstaScint and Quadramet. License and contract revenues
accounted for the remainder of revenues.

      Product related revenues were $10.6 million, $8.5 million and $1.5 million
in 1998, 1997 and 1996, respectively.  ProstaScint accounted for 60%, 48% and 4%
of the revenues in 1998, 1997 and 1996, respectively,  while Quadramet royalties
and sales accounted for 31% and 38% of revenues in 1998 and 1997,  respectively.
Sales from ProstaScint were $6.4 million, $4.1 million and $55,000 in 1998, 1997
and 1996,  respectively  while  royalties  and sales  from  Quadramet  were $3.3
million for each year, 1998 and 1997.  From the time of product  launch in the
second quarter of 1997 through June 3, 1998,  CYTOGEN  recorded royalty revenues
for Quadramet  based on minimum  contractual  payments,  which were in excess of
actual sales.  Subsequent to June 3, 1998, the minimum  royalty  arrangement was
discontinued  and CYTOGEN  recorded  product  revenues from  Quadramet  based on
actual  sales.  During the interim  period  until the  re-launch of Quadramet by
Berlex in the first quarter of 1999, the Company does not expect Quadramet sales
to be  significant.  Although  CYTOGEN  believes that Berlex is an  advantageous
marketing partner,  there can be no assurance that Quadramet will, following the
re-launch  of the  product,  achieve  market  acceptance  on a  timely  basis or
sufficiently  to result in  significant  revenues for  CYTOGEN.  With respect to
ProstaScint,  no significant history of revenues exists, therefore the Company's
future product  revenues will be also dependent upon the market place acceptance
of that product.

      Other  revenues,  including sales from OncoScint CR/OV and ALT treatments,
were  $923,000,   $1.2  million  and  $1.5  million  in  1998,  1997  and  1996,
respectively.  Sales from  OncoScint  CR/OV  were  $872,000,  $950,000  and $1.3
million in 1998, 1997 and 1996,  respectively.  Revenues from ALT treatments for
mRCC were  $52,000 in 1998,  $245,000 in 1997 and  $178,000 in 1996.  Due to the
discontinuance  of the program in  September  1998,  the Company will receive no
additional revenues from ALT treatments.



                                       26

<PAGE>


      License and contract  revenues for 1998,  1997 and 1996 were $9.2 million,
$5.9 million and $4.2 million, respectively, and included up-front and milestone
payments,  contract  manufacturing and research  revenues.  License and contract
revenues have  fluctuated in the past and may fluctuate in the future.  Revenues
from  up-front  and  milestone  payments  were $7.2  million,  $2.1  million and
$845,000 in 1998, 1997 and 1996,  respectively.  In 1998, the payments consisted
primarily of $7.1 million  up-front  payment from Berlex for the  marketing  and
manufacturing  rights of  Quadramet.  In 1997,  CYTOGEN  received a $2.0 million
milestone  payment  from DuPont upon FDA  approval of  Quadramet.  In 1996,  the
payments were derived primarily from C.R. Bard ("BARD") and CIS biointernational
("CISbio"), the Company's marketing partners.

       Revenues  from  contract  manufacturing  and research  revenues were $2.0
million, $3.8 million and $3.4 million in 1998, 1997 and 1996, respectively. The
1998  revenues  included  $1.7  million in  contract  manufacturing  from eleven
customers.   The  Company  is  phasing  out  contract  manufacturing   services,
concurrent with the sale of the manufacturing  facility,  and expects to receive
no further  revenues  from this service after 1999.  The 1997 revenues  included
$1.5 million from DuPont for the  continued  clinical  development  of Quadramet
(see Note 5 of Notes to the Consolidated  Financial  Statements),  $924,000 from
Elan for a combined research program between CYTOGEN and Elan to collaboratively
develop orally  administered  products (see Note 7 of Notes to the  Consolidated
Financial   Statements),   and  $984,000  from  eleven  contract   manufacturing
customers.  The 1996 revenues  included  $1.5 million from DuPont,  $1.3 million
from  Elan,  and  $405,000  from  three  customers  for  contract  manufacturing
services.

      OPERATING  EXPENSES.  Total operating expenses were $35.8 million in 1998,
$45.4 million in 1997 and $30.5 million in 1996. The 1998 decrease from 1997 was
due to the Company's continued efforts to control spending including the closure
of Cellcor  subsidiary,  corporate  downsizing,  and the  termination of product
development  efforts through Targon.  The 1998 operating  expenses included $1.4
million of restructuring costs associated with the closure of Cellcor subsidiary
and corporate downsizing, $539,000 in costs related to the implementation of the
Company's turnaround plan, $4.0 million for a Quadramet manufacturing commitment
and $995,000 for manufacturing and distribution of Quadramet. The 1997 operating
expenses  included a one-time license fee of $7.5 million for the acquisition of
Morphelan  and a milestone  payment of $4.0 million to Dow upon FDA clearance of
Quadramet.  The operating expenses in 1998 and 1997 were higher than 1996 due to
the one-time charges, cost of sales attributable to increased revenues,  product
development  efforts by Targon and  AxCell,  two new  strategic  business  units
established  during the second  half of 1996,  higher  administrative  costs and
increased selling and marketing efforts to promote  ProstaScint and to establish
and maintain PIE Sites.

     Costs of product and contract manufacturing revenues were $12.3 million and
$5.9 million in 1998 and 1997,  respectively.  The 1998  increase over the prior
year was due to a one-time charge of $4.0 million for a Quadramet  manufacturing
commitment  (see  Note 5 of Notes  to the  Consolidated  Financial  Statements),
$995,000 for the  manufacturing  and  distribution  of Quadramet  and  increased
manufacturing costs associated with increased  revenues.  Prior to 1997, product
sales were minimal and no revenues  were derived  from  contract  manufacturing;
therefore,  costs of products were immaterial and have been included in research
and development expenses.

      Research  and  development  expenses  were $10.0  million  in 1998,  $17.9
million in 1997 and $20.5 million in 1996.  These expenses  principally  reflect
product development efforts and support for various ongoing clinical trials. The
1998  decrease from 1997 was due to a $4.0 million  milestone  payment to Dow in
1997 for FDA  clearance of Quadramet.  The 1998  expenses were further  reduced,
compared  to  1997  and  1996,  due  to  reductions  in  the  Company's  product
development  efforts  including  the closure of Cellcor and  termination  of the
Genetic  Diversified Library program.  Pursuant to the Company's  restructuring,
research and development expenses have been curtailed significantly.



                                       27

<PAGE>


      Equity  loss in Targon  subsidiary  were $1.0  million,  $9.2  million and
$288,000 in 1998,  1997 and 1996,  respectively.  The Company did not  recognize
Targon's  losses after March 1998 based on the completion of the sale of Targon.
The 1997 expenses  included a $7.5 million one-time product  acquisition fee and
various product development and clinical support programs.

      Selling and marketing  expenses were $5.1 million in 1998, $5.5 million in
1997 and $4.1 million in 1996. The 1998 expenses reflected the marketing efforts
to increase  ProstaScint sales and expenses to establish and maintain PIE Sites.
The 1997  increase  over 1998 and 1996 is  primarily  attributable  to  expenses
associated with the launch of ProstaScint,  including  expenses to establish the
PIE Program.

      General  and  administrative  expenses  were $7.4  million  in 1998,  $6.9
million  in 1997 and $5.5  million in 1996.  The  increase  over prior  years is
attributable to $1.4 million of restructuring  costs associated with the closure
of  Cellcor  and work  force  reduction,  $539,000  of  expenses  related to the
implementation of a corporate  turnaround plan and $408,000 of financing related
expenses.

      GAIN ON SALE OF TARGON  SUBSIDIARY was $2.8 million in 1998 as a result of
the sale of CYTOGEN's  ownership interest in Targon to Elan (see Note 3 of Notes
to the Consolidated Financial Statements).

      INTEREST  INCOME/EXPENSE.  Interest  income  for  1998,  1997 and 1996 was
$582,000, $606,000 and $1.4 million,  respectively.  The decrease from the prior
years is due to lower cash and short term  investment  balances during the year.
The decrease is partially offset by interest income realized beginning July 1997
from the $10.0 million note due to CYTOGEN from Targon,  which was canceled as a
result of the sale of  Targon  to Elan (see Note 3 of Notes to the  Consolidated
Financial Statements).

      Interest  expense was  $652,000 in 1998,  $291,000 in 1997 and $451,000 in
1996.  In addition  to the  imputed  interest  on  liabilities  associated  with
CYTOGEN's termination  agreements with Knoll  Pharmaceuticals  Company ("Knoll")
and Chiron  B.V.  ("Chiron"),  beginning  in July  1997,  the  Company  recorded
interest  expense in  connection to the $10.0 million note due to Elan which was
canceled as a result of the sale of Targon to Elan in August 1998.

      NET LOSS. Net loss to common stockholders was $13.3 million, $32.1 million
and $28.3  million  in 1998,  1997 and 1996,  respectively.  Net loss per common
share was $0.24, $0.63 and $0.59 in 1998, 1997 and 1996, respectively,  based on
56.4 million, 51.1 million and 48.4 million average common shares outstanding in
each year,  respectively.  The 1997 net loss was  increased  by $1.4  million of
deemed and accrued  dividends on the Series B Preferred Stock. The 1996 net loss
was increased by $4.6 million of deemed dividend on the Series A Preferred Stock
(see Note 11 of Notes to the Consolidated Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash and cash  equivalents  were $3.0 million as of December
31, 1998,  compared to $7.4 million as of December 31, 1997 and $24.8 million as
of December 31, 1996. Subsequent to December 31, 1998, the Company received $4.5
million  from the sale of its common stock and $3.9 million from the sale of the
manufacturing  and laboratory  facilities.  As a result,  the pro forma cash and
cash equivalents were $10.5 million.  The cash used for operating  activities in
1998 was $8.2 million  compared to $22.4 million in the same period of 1997. The
decrease in cash used for  operating  activities  from 1997 was primarily due to
increased receipts from revenues generated by sales and royalties from Quadramet
and ProstaScint, lower research and development expenses associated with Cellcor
and Targon and the 1997 one-time payments including the $7.5 million license fee
for Morphelan by Targon and the $4.0 million milestone payment for Dow.



                                       28

<PAGE>


      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,  revenues from contract manufacturing and
research services, fees paid under its license agreements and interest earned on
its cash and short term investments.

      In August 1998, CYTOGEN received $4.0 million from Elan consisting of $2.0
million for the sale of CYTOGEN's  remaining interest in Targon and $2.0 million
in exchange for a convertible  promissory  note.  The note is  convertible  into
CYTOGEN common shares at $2.80 per share, subject to adjustments, and matures in
seven years.  The note bears annual  interest of 7%,  compounded  semi-annually;
however, such interest is not payable in cash but will be added to the principal
for the first 24 months; thereafter,  interest is payable in cash (see Note 9 of
Notes to the Consolidated Financial Statements).

      In October 1998,  the Company  entered into a $750,000 term loan agreement
with The CIT Group/Credit  Finance Inc., using the Company's  tangible assets as
collateral. The note was repaid in January 1999.

      In October 1998, the Company  entered into an agreement  with  Kingsbridge
Capital  Ltd.  ("Kingsbridge")  for a $12  million  common  stock  equity  line.
Pursuant to the Equity Line Agreement,  the Company, subject to the satisfaction
of certain  conditions  was granted the right to issue and sell to  Kingsbridge,
and  Kingsbridge  would be  obligated  to  purchase up to $12 million of CYTOGEN
common stock from time to time (collectively,  the "Put Rights") over a two year
period  at a  purchase  price per share  equal to 85% of the  average  of lowest
trading  prices of CYTOGEN common stock during five  designated  trading days as
determined  under the Equity Line  Agreement.  The Company can  exercise the Put
Rights every 20 trading days in the amounts ranging from $150,000 to $1 million,
subject to the  satisfaction  of minimum  trading  volumes  and market  price of
CYTOGEN  common stock and  registration  of the shares of common stock under the
Securities Act of 1933, as amended.  The Company is required to exercise the Put
Rights with  respect to a minimum of $3 million over the life of the Equity Line
Agreement. In addition, the Company granted to Kingsbridge a warrant to purchase
up to 200,000  shares of CYTOGEN common stock at an exercise price of $1.016 per
share through April 2002. In January 1999, the Company exercised a Put Right for
the sale of 475,342 shares of common stock at an aggregate  price of $500,000 or
$1.0519 per share.

      In December 1998 and January 1999,  CYTOGEN sold 6,000,000 shares directly
to the Company's two largest investors,  a subsidiary of The Hillman Company and
The State of Wisconsin  Investment  Board at $0.75 per share for a total of $4.5
million. The shares were sold under a registration statement.

      In  January  1999,  the  Company  sold its  manufacturing  and  laboratory
facilities  for $3.9  million.  A portion of the  proceeds  of sale were used to
repay the  outstanding  principal  balance of the $750,000  term loan  agreement
entered with the CIT Group/Credit Finance, Inc., in October 1998.

      Quadramet.   In  October  1998  CYTOGEN  announced  an  exclusive  license
agreement with Berlex for the manufacture and sale of Quadramet. Under the terms
of the Berlex  Agreement,  CYTOGEN  received  an $8  million  up front  payment.
CYTOGEN  recorded a $4 million  charge for  securing a  long-term  manufacturing
commitment with DuPont, of which $3 million was paid in 1998 and $1 million will
be paid in March of 1999.  Berlex  will pay  CYTOGEN  royalties  on net sales of
Quadramet,  as well as milestone  payments based on achievement of certain sales
levels  (see  Note 4 of  Notes to the  Consolidated  Financial  Statements).  In
connection  with the  Berlex  Agreement,  CYTOGEN  granted  Berlex a warrant  to
purchase 1,000,000 shares of CYTOGEN common stock at an exercise price of $1.002
per share through  October 2003,  which is exercisable  after the earlier of one
year or the achievement of defined sales levels.


                                       29
<PAGE>

      CYTOGEN  acquired an exclusive  license to Quadramet in the U.S.,  Canada,
Latin America,  Europe and Japan from Dow. The agreement requires the Company to
pay Dow royalties based on a percentage of net sales of Quadramet, or guaranteed
contractual  minimum  payments,  whichever is greater,  and future payments upon
achievement  of certain  milestones.  Minimum  royalties due Dow are $500,000 in
1999,  $750,000 in 2000 and 2001 and $1.0 million per year for the  following 11
years.  During  1998  and 1997  the  Company  recorded  $500,000  and  $375,000,
respectively, in royalty expenses for Quadramet.

       ProstaScint.  ProstaScint was launched in February 1997. Significant cash
will be required to support the  Company's  marketing  program and expansion and
maintenance of the PIE program.

      In 1996,  CYTOGEN  entered into an agreement with BARD (the  "Co-Promotion
Agreement") 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 1998 and 1997,  the Company  recorded $1 million and $586,000,
respectively, for BARD commissions.

      OncoScint CR/OV. To date, sales of OncoScint CR/OV have not been material.
In 1994,  the Company  reacquired  all U.S.  marketing  rights to OncoScint from
Knoll  Pharmaceuticals  Company  ("Knoll")  and in 1998 paid the  balance of its
obligation to Knoll of $1.8 million.

      The Company's capital and operating requirements may change depending upon
various  factors,  including:  (i) the success of the Company and its  strategic
partners  in  manufacturing,   marketing  and  commercialization  of  its  other
products;  (ii) the amount of  resources  which the Company  devotes to clinical
evaluations and the expansion of marketing and sales capabilities; (iii) results
of clinical trials and research and development activities; and (iv) competitive
and technological developments.

      The Company's  financial  objectives are to meet its capital and operating
requirements  through revenues from existing products,  contract  manufacturing,
license  and  research  contracts,  and  control of  spending.  To  achieve  its
strategic  objectives,  the  Company  may enter into  research  and  development
partnerships and acquire, in-license and develop other technologies, products or
services.  Certain of these  strategies  may require  payments by the Company in
either cash or stock in addition to the costs  associated  with  developing  and
marketing a product or technology.  The Company  currently has no commitments or
specific plans for  acquisitions or strategic  alliances.  However,  the Company
believes that, if successful,  such  strategies may increase long term revenues.
There can be no assurance as to the success of such strategies or that resulting
funds will be sufficient to meet cash  requirements  until product  revenues are
sufficient to cover  operating  expenses.  To fund these strategic and operating
activities, the Company may sell equity and debt securities as market conditions
permit or enter into credit facilities.

      The Company has incurred  negative  cash flows from  operations  since its
inception,  and has  expended,  and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
acquisition   of  products   and   complementary   technologies,   research  and
development,  clinical studies and regulatory activities,  and to further expand
its marketing and sales. The Company expects that its existing capital resources
as of December 31, 1998,  together  with  decreased  operating  costs,  the $4.5
million  received from the sale of common stock,  and the $3.9 million  received
from the sale of the  manufacturing  and laboratory  facilities but exclusive of
the Equity Line  Agreement,  will be adequate to fund the  Company's  operations
into  the year  2000.  Management  believes  the  addition  of the  Equity  Line
Agreement,  will  provide  the  Company  with  additional  cash flow to  sustain
operations  well into year 2000. No assurance can be given that the Company will


                                       30
<PAGE>

not consume a significant amount of its available resources before that time. In
addition, the Company expects that it will have additional requirements for debt
or equity capital,  irrespective  of whether and when it reaches  profitability,
for further development of products,  product and technology  acquisition costs,
and working capital.  The Company's future capital requirements and the adequacy
of available  funds will depend on numerous  factors,  including the  successful
commercialization of its products,  the costs associated with the acquisition of
complementary  products and  technologies,  progress in its product  development
efforts, the magnitude and scope of such efforts, progress with clinical trials,
progress with regulatory affairs  activities,  the cost of filing,  prosecuting,
defending and enforcing  patent claims and other  intellectual  property rights,
competing technological and market developments,  and the expansion of strategic
alliances  for the  sales,  marketing,  manufacturing  and  distribution  of its
products.  To the  extent  that  the  currently  available  funds  and  revenues
including the Equity Line Agreement,  the $4.5 million received from the sale of
common  stock and the $3.9  million  received  from the sale of  facilities  are
insufficient to meet current or planned operating requirements, the Company will
be  required  to obtain  additional  funds  through  equity  or debt  financing,
strategic  alliances  with  corporate  partners  and  others,  or through  other
sources.  Based on the Company's historical ability to raise capital and current
market  conditions,  the  Company  believes  other  financing  alternatives  are
available.  There can be no assurance that the financing  commitments  described
above or other financial  alternatives will be available when needed or at terms
commercially acceptable to the Company. If adequate funds are not available, the
Company  may be  required  to delay,  further  scale back or  eliminate  certain
aspects of its operations or attempt to obtain funds through  arrangements  with
collaborative  partners or others  that may  require  the Company to  relinquish
rights to certain of its technologies, product candidates, products or potential
markets. If adequate funds are not available, the Company's business,  financial
condition and results of operations will be materially and adversely affected.

YEAR 2000 COMPLIANCE

      The "Year 2000  problem"  describes  the  concern  that  certain  computer
applications,  which use two digits  rather than four to represent  dates,  will
interpret the year 2000 as 1900 and malfunction on January 1, 2000.

      CYTOGEN's  Internal  Systems.  The  efficient  operation of the  Company's
business is dependent in part on its computer  software  programs and  operating
systems  (collectively,  Programs and Systems).  These  Programs and Systems are
used in  several  key  areas  of the  Company's  business,  including  clinical,
purchasing,  inventory management,  sales, shipping, and financial reporting, as
well as in various  administrative  functions.  The  Company has  completed  its
evaluation  of the  Program  and Systems to  identify  any  potential  year 2000
compliance problem.  Based on present information,  the Company believes that it
will  be  able  to  achieve  year  2000  compliance  through  a  combination  of
modifications or replacement of existing  Programs and Systems.  The majority of
the Company's  internal systems have been replaced with fully compliant systems.
The  remaining  systems are expected to be compliant by April 30, 1999 at a cost
of $10,000.  However,  there can be no assurance that the required  expenditures
will not exceed that amount.

      Readiness  of  Third  Parties.  The  Company  is  also  working  with  its
processing banks,  network providers and manufacturing  partners to ensure their
systems  are  year  2000  compliant.  All  these  costs  will  be  borne  by the
processors,   network  and  software   companies  and  manufacturing   partners.
Currently,  the Company's processing banks and manufacturing partners are in the
process of completing their year 2000 compliance programs.  If the manufacturing



                                       31

<PAGE>


partners systems fail on January 1, 2000 the Company's revenues may be adversely
impacted. In the event that some or all of the processing banks are unable to be
year 2000 compliant, the Company will switch merchant accounts to those that are
compliant.

      Risks  Associated  with the Year 2000.  The Company is not aware,  at this
time, of any Year 2000  non-compliance  that will not be fixed by the Year 2000.
However,  some risks that the  Company  faces  include:  the failure of internal
information  systems,  defects  in its  work  environment,  a slow  down  in its
customers' ability to make payments, and the availability of products for sale.

     Contingency Plans. The Company is in the process of developing contingency
plans to  address a worst  case year 2000  scenario.  This  contingency  plan is
expected to be completed by August 31, 1999.

Recently Enacted Accounting Pronouncements

     There have been no recently enacted accounting pronouncements which the
Company  believes  would have an effect on the Company's  financial  position or
results of operations.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company does not have operations  subject to risks of foreign  currency
fluctuations, nor does it use derivative financial instruments in its operations
or  investment  portfolio.  The Company  does not have  exposure to market risks
associated  with changes in interest  rates as it has no variable  interest rate
debt  outstanding.  The  Company  does not  believe  it has any  other  material
exposure to market risks associated with interest rates.

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





                                       32

<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

     None.






                                       33

<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 --

     Exhibit No.
     ----------- 
     1.1       -             Rights  Agreement,  dated as of June 19,
                             1998, between CYTOGEN  Corporation and Chase Mellon
                             Shareholder Services,  L.L.C., as Rights Agent. The
                             Rights  Agreement  included the Form of Certificate
                             of Designations of Series C Junior  Preferred Stock
                             as  Exhibit  A, the form of Rights  Certificate  as
                             Exhibit B and the  Summary  of Rights as Exhibit C.
                             Filed as an exhibit to Form 8-K dated June 17, 1998
                             (Commission  File No.  333-020015) and incorporated
                             herein by reference.

     1.2       -              Amended and  Restated  Rights  Agreement,
                             dated  as  of  October  19,  1998  between  CYTOGEN
                             Corporation and Chase Mellon Shareholder  Services,
                             L.L.C.,  as Rights Agent.  The Amended and Restated
                             Rights  Agreement  includes the Form of Certificate
                             of Designations of Series C Junior  Preferred Stock
                             as  Exhibit  A, the form of Rights  Certificate  as
                             Exhibit B and the  Summary  of Rights as Exhibit C.
                             Filed as an exhibit to Form 10-Q  Quarterly  Report
                             for  the   quarter   ended   September   30,   1998
                             (Commission  File No.  333-02015) and  incorporated
                             herein by reference.

     3.1       -             Restated  Certificate of Incorporation of
                             CYTOGEN  Corporation,   as  amended.  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.

     4.1       -             Specimen  of Common  Stock  Certificate.  Filed
                             as an exhibit to Amendment No. 1 to Form S-1 
                             Registration  Statement (No. 33-5533) and 
                             incorporated herein by reference.

     10.1      -             Form of  Registration  Rights  Agreement for
                             Common  Stock  between   CYTOGEN   Corporation  and
                             certain persons listed on Schedule A thereto. Filed
                             as an  exhibit to Form S-4  Registration  Statement
                             (No.   33-62617)   and   incorporated   herein   by
                             reference.

     10.2.1    -             Lease  Agreement,  dated  as of March  16,
                             1987, by and between Peregrine  Investment Partners
                             I, as lessor, and CYTOGEN  Corporation,  as lessee.
                             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.


                                       34

<PAGE>


     10.2.2    -             Amendment, dated as of October 16, 1987, to Lease
                             Agreement between Peregrine  Investment  Partners I
                             and  CYTOGEN  Corporation.  Filed as an  exhibit to
                             Form S-8 Registration  Statement (No. 33-30595) and
                             incorporated herein by reference.

     10.3      -             1989   Employee   Stock  Option  Plan.
                             Filed as an  exhibit  to Form S-8  Registration  
                             Statement  (No.  33-30595)  and  incorporated  
                             herein  by reference.#

     10.4.1    -             1988 Stock Option Plan for Non-Employee  Directors.
                             Filed as an  exhibit  to Form S-8  Registration  
                             Statement (No. 33-30595) and incorporated herein by
                             reference.#

     10.4.2    -             Amendment to the CYTOGEN  Corporation 1988
                             Stock Option Plan for Non-Employee  Directors dated
                             May 22,  1996.  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.#

     10.5      -             Standard Form of Indemnification Agreement  entered
                             into between CYTOGEN  Corporation and its officers,
                             directors, and consultants.  Filed as an exhibit to
                             Amendment No. 1 to Form S-1 Registration Statement 
                             (No.33-31280)and incorporated herein by reference.#

     10.6      -             1989   Stock   Option    Policy   for   Outside
                             Consultants.  Filed as an exhibit to Amendment No. 
                             1 to Form S-1 Registration Statement (No. 33-31280)
                             and incorporated herein by reference.#

     10.7.1    -             License  Agreement dated as of March 31,
                             1993  between  CYTOGEN   Corporation  and  The  Dow
                             Chemical  Company.  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.*

     10.7.2    -             Amendment of the License Agreement between
                             CYTOGEN  Corporation  and The Dow Chemical  Company
                             dated  September  5,  1995.  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.*

     10.7.3    -             Second Amendment to the License  Agreement
                             between  CYTOGEN  Corporation  and The Dow Chemical
                             Company dated May 20, 1996.  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.*

     10.8      -             1992  CYTOGEN  Corporation  Employee  Stock
                             Option Plan II, as amended.  Filed as an exhibit to
                             Form S-4 Registration  Statement (No. 33-88612) and
                             incorporated herein by reference.#

     10.9      -             License  Agreement,  dated  March 10,  1993,
                             between  CYTOGEN  Corporation and The University of
                             North Carolina at Chapel Hill, as amended. 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.*


                                       35

<PAGE>

     10.10     -             Option and License Agreement, dated July 1,
                             1993,     between    CYTOGEN     Corporation    and
                             Sloan-Kettering   Institute  for  Cancer  Research.
                             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.*

     10.11.1   -             CYTOGEN  Corporation  1995  Stock  Option
                             Plan.  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.

     10.11.2   -             Amendment   No.  1  to  the   CYTOGEN
                             Corporation  1995 Stock  Option  Plan dated May 22,
                             1996.  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.#

     10.12     -             Horosziewicz  - CYTOGEN  Agreement,  dated
                             April 20, 1989,  between  CYTOGEN  Corporation  and
                             Julius S.  Horosziewicz,  M.D.,  DMSe.  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.*

     10.13     -             Marketing and Co-Promotion Agreement between 
                             CYTOGEN Corporation and C.R. Bard, Inc. effective  
                             August 1, 1996.  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.*

     10.14     -             Severance  Agreement  effective as of March
                             26, 1996 between  CYTOGEN  Corporation  and John D.
                             Rodwell,  Ph.D.  Files as an  exhibit  to Form 10-K
                             Annual Report for the year ended  December 31, 1996
                             (Commission  File  No.  0-14879)  and  incorporated
                             herein by reference.#

     10.15     -             CYTOGEN  Corporation Employee Stock Purchase Plan.
                             Filed as an exhibit to Form S-8 Registration 
                             Statement (No. 333-27673) and incorporated herein 
                             by reference.#

     10.16     -             License   Agreement   between  Targon
                             Corporation  and Elan  Corporation,  plc dated July
                             21, 1997. Filed as an exhibit to Form 10Q Quarterly
                             Report  for  the   quarter   ended  June  30,  1997
                             (Commission  File  No.  0-14879)  and  incorporated
                             herein by reference.*

     10.17     -             Employment  Agreement  effective as of
                             December 23, 1996 between  CYTOGEN  Corporation and
                             Dr.  Graham S.  May.  Filed as an  exhibit  to Form
                             10-K/A-1  Amendment  to Annual  Report for the Year
                             Ended  December  31,  1997   (Commission  File  No.
                             333-02015) and incorporated herein by reference.#

     10.18     -             Convertible Promissory Note dated as of
                             August 12, 1998  between  CYTOGEN  Corporation  and
                             Elan  International  Services,  Ltd.  Filed  as  an
                             exhibit  to  Form  10-Q  Quarterly  Report  for the
                             quarter  ended June 30, 1998  (Commission  File No.
                             333-02015) and incorporated herein by reference.



                                       36


<PAGE>

     10.19     -             Employment  agreement  effective as of August 20, 
                             1998 between CYTOGEN Corporation and H. Joseph 
                             Reiser.  Filed as an exhibit to Form 10-Q Quarterly
                             Report for the quarter ended September 30, 1998  
                             (Commission File No. 333-02015) and incorporated 
                             herein by reference.#

     10.20     -             Private  Equity Line  Agreement  by and
                             between  Kingsbridge  Capital  Limited  and CYTOGEN
                             Corporation  dated as of October 23, 1998. Filed as
                             an  exhibit to Form 10-Q  Quarterly  Report for the
                             quarter ended September 30, 1998  (Commission  File
                             No. 333-02015)and incorporated herein by reference.

     10.21     -             License Agreement by and between Berlex
                             Laboratories, Inc. and CYTOGEN Corporation dated as
                             of October  28,  1998.  Filed as an exhibit to Form
                             10-Q/A-1  Amendment  to  Quarterly  Report  for the
                             quarter ended September 30, 1998  (Commission  File
                             No. 333-02015)and incorporated herein by reference.

     10.22     -             Manufacturing Space Agreement between Bard  
                             BioPharma L.P. and CYTOGEN Corporation dated as of 
                             January 7, 1999.  Filed as an exhibit to Form 
                             S-1/A-1 Amendment to Registration Statement 
                             (Commission File No. 333-67947)and incorporated  
                             herein by reference.

     10.23     -             Employment  Agreement  effective as of
                             June 10, 1997 between CYTOGEN Corporation and 
                             Donald F. Crane, Jr. Filed herewith.#

     21        -             Subsidiaries of CYTOGEN Corporation.

     23        -             Consent of Arthur Andersen LLP.

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


    # Management contract or compensatory plan or arrangement.

    * 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.

     (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




                                       37


<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 19th day of
February 1999.

                                       CYTOGEN CORPORATION



                                       By: /s/ H. Joseph Reiser            
                                           ---------------------   
                                           H. Joseph Reiser
                                           President and Chief Executive Officer















                                       38



<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/ H. Joseph Reiser                    Chief Executive Officer and President      February 19, 1999
    -------------------------------         (Principal Executive Officer), and
        H. Joseph Reiser                    Director

    /s/ Jane M. Maida                       Chief Accounting Officer (Principal        February 19, 1999
    -------------------------------         Accounting Officer)
        Jane M. Maida                      

    /s/ John E. Bagalay, Jr.                Director                                   February 19, 1999
    ------------------------------
        John E. Bagalay, Jr.

    /s/ Ronald J. Brenner                   Director                                   February 19, 1999
    ------------------------------
        Ronald J. Brenner

        Stephen K. Carter                   Director                                   February 19, 1999
    -------------------------------
        Stephen K. Carter

    /s/ James A. Grigsby                    Director and Chairman of the Board         February 19, 1999
    ------------------------------
        James A. Grigsby

    /s/ Robert F. Hendrickson               Director                                   February 19, 1999
    ---------------------------
        Robert F. Hendrickson

</TABLE>





                                       39


<PAGE>




                           Annual Report on Form 10-K

                          Year Ended December 31, 1998

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

                               CYTOGEN CORPORATION

                              Princeton, New Jersey

                 








                                       40

<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......................................................    42

Consolidated Balance Sheets as of December 31, 1998 and 1997 .................................    43

Consolidated Statements of Operations--Years Ended December 31, 1998, 1997
     and 1996.................................................................................    44

Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1998,
     1997 and 1996............................................................................    45

Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997
     and 1996.................................................................................    46

Notes to Consolidated Financial Statements....................................................    47

</TABLE>





                                       41


<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, 1998
and 1997, and the related consolidated  statements of operations,  stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 1998.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

   In our opinion, the financial statements referred to above present fairly, in
all  material  respects,  the  financial  position  of CYTOGEN  Corporation  and
Subsidiaries  as of  December  31,  1998  and  1997  and the  results  of  their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.




                                                             ARTHUR ANDERSEN LLP

Philadelphia, PA
   January 29, 1999



                                       42


<PAGE>
                                       CYTOGEN CORPORATION AND SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEETS
                                   (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                  DECEMBER 31, 1998   
                                                                               -----------------------   
                                                                                            PRO FORMA    DECEMBER 31,
                                                                                 ACTUAL      (NOTE 2)        1997 
                                                                               ----------  -----------  ------------- 
ASSETS:                                                                                    (Unaudited)
Current Assets:
<S>                                                                            <C>          <C>           <C>      
     Cash and cash equivalents ..............................................  $   3,015    $  10,522     $   7,401
     Receivable on common stock sold ........................................      2,500         --             --
     Accounts receivable, net ...............................................      1,362        1,362         4,064
     Inventories ............................................................        250          250           443
     Other current assets ...................................................        330          330           258
                                                                               ----------   ----------    ----------

         Total current assets ...............................................      7,457       12,464        12,166

Property and Equipment, net .................................................      2,625        2,338         3,912
Investment in Targon Subsidiary .............................................        --          --          10,343
Other Assets ................................................................        818          818         1,134
                                                                               ----------   ----------    ----------


                                                                               $  10,900    $  15,620     $  27,555
                                                                               ==========   ==========    ==========
                                                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
     Current portion of long-term liabilities ...............................  $     848    $     121     $   1,739
     Accounts payable and accrued liabilities ...............................      7,386        7,536         5,662
                                                                               ----------   ----------    ----------

         Total current liabilities ..........................................      8,234        7,657         7,401
                                                                               ----------   ----------    ----------

Long-Term Liabilities .......................................................      2,223        2,223        10,171
                                                                               ----------   ----------    ----------

Commitments and Contingencies (Notes 6 and 16)

Stockholders' Equity:
     Preferred stock,  $.01 par value, 5,400,000 shares authorized-
         Series A Convertible and Exchangeable Preferred Stock, $.01 par
           value, 1,000 shares authorized, zero and 1,000 shares issued and
           outstanding in 1998 and 1997, respectively .......................        --          --            --
         Series B Convertible Preferred Stock, $.01 par value, 750 shares
           authorized, zero and 750 shares issued and outstanding in 1998
           and 1997, respectively ...........................................        --          --            --
         Series C Junior Participating  Preferred Stock, $.01 par value,
           200,000 shares authorized, none issued and outstanding ...........        --          --            --
     Common stock, $.01 par value, 89,600,000 shares authorized,
           61,950,000, 64,616,000 and 51,170,000 shares issued and
           outstanding in 1998, 1998 pro forma and 1997, respectively .......        619          646           512
     Additional paid-in capital .............................................    301,836      303,809       298,212
     Accumulated deficit ....................................................   (302,012)    (298,715)     (288,741)
                                                                               ----------   ----------    ---------- 
         Total stockholders' equity .........................................        443        5,740         9,983
                                                                               ----------   ----------    ---------- 
                                                                               $  10,900    $  15,620     $  27,555 
                                                                               ==========   ==========    ==========
                                                                                                                 
                                                     
                             The  accompanying  notes  are an  integral  part of these statements.

</TABLE>

                                       43

<PAGE>

                                       CYTOGEN CORPORATION AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                (ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>



                                                                            YEAR ENDED DECEMBER 31,
                                                                      ---------------------------------
     
                                                                         1998        1997        1996  
                                                                      ---------   ---------   ---------
<S>                                                                   <C>         <C>         <C>             
REVENUES:
   Product related:
         ProstaScint ..............................................   $  6,378    $  4,057    $     55   
         Quadramet ................................................      1,675        --          --
         Others ...................................................        923       1,195       1,452
                                                                      ---------   ---------   ---------
                  Total product sales .............................      8,976       5,252       1,507

         Quadramet royalties ......................................      1,664       3,282        --   
                                                                      ---------   ---------   ---------
                  Total product related ...........................     10,640       8,534       1,507

  License and contract ............................................      9,239       5,886       4,223
                                                                      ---------   ---------   ---------     

         Total revenues ...........................................     19,879      14,420       5,730
                                                                      ---------   ---------   ---------
OPERATING EXPENSES:
     Cost of product and contract manufacturing revenues ..........     12,284       5,939        --
     Research and development .....................................      9,967      17,913      20,539
     Equity loss in Targon subsidiary .............................      1,020       9,232         288
     Selling and marketing ........................................      5,103       5,492       4,143
     General and administrative ...................................      7,420       6,871       5,494
                                                                      ---------   ---------   ---------

         Total operating expenses .................................     35,794      45,447      30,464
                                                                      ---------   ---------   ---------

         Operating loss ...........................................    (15,915)    (31,027)    (24,734)

Gain on sale of Targon subsidiary .................................      2,833        --          --
Interest income ...................................................        582         606       1,419
Interest expense ..................................................       (652)       (291)       (451)
                                                                      ---------   ---------   ---------     

Net loss ..........................................................    (13,152)    (30,712)    (23,766)
Dividends, including deemed dividends on preferred stock ..........       (119)     (1,352)     (4,571)
                                                                      ---------   ---------   ---------

Net loss to common stockholders ...................................   $(13,271)   $(32,064)   $(28,337)
                                                                      =========   =========   =========

Basic and diluted net loss per common share .......................   $  (0.24)   $  (0.63)   $  (0.59)
                                                                      =========   =========   ========= 

Basic and diluted weighted average common shares outstanding ......     56,419      51,134      48,401
                                                                      =========   =========   =========


                    The  accompanying  notes are an integral  part of these statements.

</TABLE>


                                       44


<PAGE>


                                       CYTOGEN CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                             UNREALIZED 
                                                                                             GAIN (LOSS)
                                                                               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, DECEMBER 31, 1995                               $   --       $460      $253,122        $  34     $(228,340)     $ 25,276
                      
Issued 1,000 shares of Series A
   preferred stock ...................................       --        --          4,854           --           --          4,854
Series A preferred stock conversion
   discount deemed dividends .........................       --        --          4,571           --        (4,571)          --
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       289,098           (5)     (256,677)       32,927

Issued 750 shares of Series B
   preferred stock ...................................       --        --           7,45           --          --           7,455
Issued 100,282 shares of common
   stock .............................................       --          1           335           --          --            336
Series B preferred stock conversion
   discount deemed dividends .........................       --        --          1,324           --        (1,324)          --
Accrued dividends on Series B
   preferred stock ...................................       --        --            --            --           (28)          (28)
Unrealized gain on investments .......................       --        --            --             5          --               5
Net loss .............................................       --        --            --            --       (30,712)      (30,712)
                                                         -------      ----      --------        ------    ----------     ---------
      
BALANCE, DECEMBER 31, 1997                                   --        512       298,212           --      (288,741)        9,983

Issued 3,403,011 shares of
   common stock ......................................       --         34         2,583           --          --           2,617
Dividends on Series B preferred stock ................       --        --            --            --          (119)         (119)
Issued 7,377,054 shares of common stock
    upon conversion of Series B preferred stock
    and accumulated dividends ........................       --         73            55           --          --             128
Issued warrant to purchase 1,000,000
   shares of common stock ............................       --        --            855           --          --             855
Modification of existing warrants to purchase
    260,000 shares of common stock ...................       --        --            131           --          --             131
Net loss .............................................       --        --            --            --       (13,152)      (13,152)
                                                         -------      ----      --------        ------    ----------     ---------
  
BALANCE, DECEMBER 31, 1998 ...........................   $   --       $619      $301,836       $   --     $(302,012)     $    443
                                                         =======      ====      ========       ======     ==========     =========
                                                                                            
               
                         The  accompanying  notes are an integral  part of these statements.
</TABLE>


                                       45
<PAGE>

                                       CYTOGEN CORPORATION AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (ALL AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                   ---------------------------------------
                                                                                      1998           1997           1996   
                                                                                   ---------      ---------      ---------   
<S>                                                                                <C>            <C>            <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss  ....................................................................     $(13,152)      $(30,712)      $(23,766)
                                                                                   ---------      ---------      --------- 
Adjustments to reconcile net loss to cash used for operating activities:
     Depreciation and amortization ...........................................        1,196          1,513          1,532
     Write down of property and equipment ....................................          657            384            --   
     Imputed interest ........................................................           81            261            451
     Warrant, stock and stock option grants ..................................          163             45             70
     Equity loss in Targon subsidiary ........................................        1,020          9,232            288
     Gain on sale of Targon subsidiary .......................................       (2,833)           --             --
     Changes in assets and liabilities:
         Accounts receivable, net ............................................        2,702         (3,625)          (155)
         Inventories .........................................................          193           (185)            98
         Other assets ........................................................            4            (74)           205
         Accounts payable and accrued liabilities ............................        1,944            727         (1,517)
                                                                                   ---------      ---------      --------- 

                  Total adjustments ..........................................        5,127          8,278            972
                                                                                   ---------      ---------      ---------  

         Net cash used for operating activities ..............................       (8,025)       (22,434)       (22,794)
                                                                                   ---------      ---------      --------- 
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short-term investments ................................         --            4,474         (3,307)
Decrease in restricted cash ..................................................         --              --             383
Purchases of property and equipment ..........................................         (100)          (621)          (874)
Investment in Targon subsidiary ..............................................         --          (10,000)        (9,850)
Proceeds from sale of Targon subsidiary ......................................        2,000            --             --           
                                                                                   ---------      ---------      --------- 

Net cash provided by (used in) investing activities ..........................        1,900         (6,147)       (13,648)
                                                                                   ---------      ---------      --------- 

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable ......................................        2,750         10,000            --
Payments of long-term debt ...................................................       (1,898)        (2,030)        (2,243)
Proceeds from issuance of common stock .......................................           51            261         26,576
Proceeds from issuance of series A preferred stock ...........................         --              --           4,854
Proceeds from issuance of series B preferred stock ...........................         --            7,455            --
Dividends on series B preferred stock ........................................          (19)           --             --
Proceeds from issuance of warrants ...........................................          855            --             --   
                                                                                   ---------      ---------      --------- 
         Net cash provided by financing activities ...........................        1,739         15,686         29,187
                                                                                   ---------      ---------      --------- 

Net decrease in cash and cash equivalents ....................................       (4,386)       (12,895)        (7,255)
Cash and cash equivalents, beginning of year .................................        7,401         20,296         27,551
                                                                                   ---------      ---------      ---------    
Cash and cash equivalents, end of year .......................................     $  3,015       $  7,401       $ 20,296
                                                                                   =========      =========      =========
                                                                                                  

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


                                       46
<PAGE>


                      CYTOGEN CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS

     CYTOGEN  Corporation  ("CYTOGEN" or the  "Company") is a  biopharmaceutical
company engaged in the development,  commercialization and marketing of products
to improve  diagnosis and treatment of cancer and other disease.  In March 1997,
CYTOGEN received clearance from the U.S. Food and Drug Administration ("FDA") to
market  Quadramet(R),  CYTOGEN's  product  for the relief of pain due to cancers
that have spread to the skeleton and that can be  visualized  on a bone scan. In
October   1996,   CYTOGEN   received   marketing   approval  from  FDA  for  the
ProstaScint(R)  imaging agent,  CYTOGEN's  prostate  cancer  diagnostic  imaging
product.  In December  1992,  FDA approved  OncoScint  CR/OV(R)  imaging  agent,
CYTOGEN's colorectal and ovarian cancer specific diagnostic imaging product, for
single  administration  per patient.  In November 1995, FDA approved an expanded
indication  allowing for repeat  administration  of OncoScint  CR/OV.  All three
products are currently  available in the marketplace.  Operations of the Company
are subject to certain risks and  uncertainties  including,  but not limited to,
access to capital,  product  market  acceptance,  product  efficacy and clinical
trials,  technological  uncertainty,   uncertainties  of  future  profitability,
dependence on collaborative relationships and key personnel.


BASIS OF CONSOLIDATION

     The consolidated  financial  statements include the accounts of CYTOGEN and
its wholly-owned  subsidiaries,  AxCell Biosciences  Corporation  ("AxCell") and
Cellcor Inc.  ("Cellcor").  The financial statements also include the investment
results of Targon Corporation ("Targon"), which were accounted for on the equity
method  (see  Investment  in  Targon  Subsidiary).   Intercompany  balances  and
transactions  have been  eliminated  in  consolidation.  In the third quarter of
1998, the Company sold Targon and closed Cellcor.

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.


STATEMENT OF CASH FLOW

     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. Cash paid for interest expense was $500,000,  $524,000 and $307,000 in
1998, 1997 and 1996, respectively.




                                       47

<PAGE>


RECEIVABLES

     At December 31, 1998,  the Company had a $2.5 million  receivable  due from
The State of Wisconsin Investment Board relating to the sale of 3,333,334 shares
of CYTOGEN  common stock at $0.75 per share.  The Company  received the proceeds
from the stock sale in January 1999 (see Note 2).

     At December 31, 1998 and 1997, accounts receivable were net of an allowance
for doubtful accounts of $73,000 and $576,000, respectively. The Company charged
to expense $23,000 and $30,000 as a provision for doubtful  accounts in 1998 and
1997, respectively. At December 31, 1998, approximately $91,000 of the Company's
accounts  receivable  balance  was due from The  DuPont  Pharmaceutical  Company
formerly the  Radiopharmaceutical  Division of The DuPont  Merck  Pharmaceutical
Company ("DuPont") compared to $3 million at December 31, 1997.


INVENTORY

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

                                                         December 31,  
                                                  ------------------------  
                                                     1998           1997
                                                  ---------      --------- 
      Raw materials  . . . . . . . . . . . . .    $  57,000      $ 145,000
      Work-in-process  . . . . . . . . . . . .      143,000        158,000
      Finished goods   . . . . . . . . . . . .       50,000        140,000
                                                  ---------      ---------      
                                                  $ 250,000      $ 443,000
                                                  =========      =========


PROPERTY AND EQUIPMENT

    Equipment  and  furniture  are  stated at cost,  net of  depreciation  and a
$102,000 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 charged to
expense as incurred.  For 1998, 1997 and 1996, repairs and maintenance  expenses
were  $242,000,  $350,000 and  $394,000,  respectively.  Property and  equipment
consisted of the following:

<TABLE>
<CAPTION>
                                                                        December 31, 
                                                            -------------------------------
                                                                  1998            1997     
                                                            -------------    --------------  
      <S>                                                   <C>              <C>                
      Leashold improvements...............................  $  9,438,000     $  10,126,000      
      Equipment and furniture.............................     7,350,000         7,696,000 
                                                            -------------    --------------
                                                              16,788,000        17,822,000

      Less - accumulated depreciation and amortization.....  (14,163,000)      (13,910,000)
                                                            -------------    --------------
                                                            $  2,625,000     $   3,912,000 
                                                            =============    ==============
</TABLE>


                                       48

<PAGE>


INVESTMENT IN TARGON SUBSIDIARY AND RECLASSIFICATION

    As a result of the 1998 reduction of CYTOGEN's ownership interest in Targon,
the Company  began  accounting  for its  investment  in Targon  using the equity
method.  In addition,  the Company  retroactively  adopted  Emerging Issues Task
Force ("EITF") 96-16.  Under the equity method,  the Company  recognized 100% of
Targon's  losses  through  March  31,  1998  in its  consolidated  statement  of
operations as "Equity Loss in Targon Subsidiary," with a corresponding reduction
in the carrying amount of its investment. The Company did not recognize Targon's
losses after March 31, 1998 based on the  completion  of the sale of Targon (see
Note 3).

    As  a  result  of  the  adoption  of  EITF  96-16  and  the  equity  method,
approximately  $1.9 million and $376,000 of research  and  development  expenses
recorded in 1997 and 1996,  respectively,  and $7.5  million of  acquisition  of
product rights expense  recorded in 1997,  were  reclassified to "Equity Loss in
Targon  Subsidiary".  The primary  effect on the December 31, 1997 balance sheet
was  the   reclassification   of  Restricted   Cash  to  "Investment  in  Targon
Subsidiary". All other changes were immaterial.

    In August 1998 the Company sold its remaining  ownership  interest in Targon
to Elan  Corporation,  plc  ("Elan") for $2.0 million (see Note 3). As a result,
the  Company  recorded  a  gain  of  approximately  $2.8  million  in  its  1998
consolidated statement of operations.


OTHER ASSETS

    Other assets consist  primarily of undeveloped land with a net book value of
$660,000,  which is valued at the lower of cost or market. During 1998 and 1997,
the Company charged to expense $240,000 and $384,000, respectively to write down
the land to estimated market value.


REVENUE RECOGNITION

    Product related  revenues  include product sales by CYTOGEN to its customers
and  Quadramet  royalties.  Product  sales are  recognized  upon shipment of the
finished  goods.  From the time of  Quadramet's  launch in the second quarter of
1997 to June 1998, CYTOGEN recorded Quadramet royalty revenues from DuPont based
on minimum contractual payments, which were in excess of actual Quadramet sales.
Pursuant  to an  agreement  between  CYTOGEN and  DuPont,  the  minimum  royalty
arrangement  was  discontinued  and CYTOGEN  reclaimed the  marketing  rights to
Quadramet.  Subsequent  to June 1998,  CYTOGEN  recorded  product  revenues from
Quadramet based on actual sales.  Starting in 1999,  Quadramet royalties will be
based on sales of Quadramet by Berlex  Laboratories  ("Berlex"),  CYTOGEN's  new
marketing partner for Quadramet (see Note 4).

    License and  contract  revenues  include  milestone  payments and fees under
collaborative   agreements   with  third   parties,   revenues   from   contract
manufacturing  and  research  services,  and revenues  from other  miscellaneous
sources. The Company's contract manufacturing services include filling, testing,
validation,   and  process   development  of  monoclonal   antibodies;   process
development  and clinical  development of  biopharmaceutical  products;  and the
preclinical  manufacturing  of an antibody  product.  The Company is phasing out
contract manufacturing  services,  concurrent with the sale of the manufacturing
and  laboratory  facilities  (see Note 2) and  expects  to  receive  no  further
revenues from this service  after 1999.  Revenues  from  milestone  payments are



                                       49
<PAGE>

recognized  when all parties concur that the events  stipulated in the agreement
have been achieved.  Revenues from cost-plus  contracts are recognized  when the
costs are  incurred.  Revenues from up-front  payments are  recognized  when the
Company has no obligation to return the fee under any circumstances.


COST OF PRODUCT AND CONTRACT MANUFACTURING REVENUES

      Beginning in 1997,  the Company  began  providing  contract  manufacturing
services to third  parties,  and its second  product  ProstaScint  was  approved
resulting in  significantly  higher  product  sales.  In 1998,  the Company paid
DuPont  $995,000 for  manufacturing  and  distributing  Quadramet as a result of
CYTOGEN's  reacquiring  the  marketing  rights of  Quadramet  in June  1998.  In
addition,  the  Company  recorded a $4 million  charge for  securing a long-term
manufacturing commitment for Quadramet from DuPont (see Note 5). Pursuant to the
marketing  agreement with Berlex (see Note 4),  beginning in 1999, there will be
no  manufacturing  and distribution  costs related to Quadramet.  Prior to 1997,
product   sales  were  minimal  and  no  revenues  were  derived  from  contract
manufacturing,  therefore,  cost of product sales was immaterial and included in
research and development expenses.


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 charged to expense as incurred.  Research and
development expenditures for customer sponsored programs were $2.0 million, $1.5
million and $1.1 million in 1998, 1997 and 1996, respectively.


PATENT COSTS

    Patent costs are charged to expense as incurred.


NET LOSS PER SHARE

    Basic net loss per common  share is based upon the weighted  average  common
shares  outstanding  during each year.  Diluted net loss per common share is the
same as basic net loss per  common  share,  as the  inclusion  of  common  stock
equivalents would be antidilutive.


2.  UNAUDITED PRO FORMA BALANCE SHEET:

    In  January  1999,   the  Company  sold  certain  of  its   laboratory   and
manufacturing  facilities to Bard BioPharma  L.P., a subsidiary of Purdue Pharma
L.P., for $3.9 million.  CYTOGEN also signed a three-year  agreement under which
two of CYTOGEN's products, ProstaScint and OncoScint CR/OV, would continue to be
manufactured  by CYTOGEN at its former  facility.  The Company will  recognize a
gain of approximately  $3.3 million in its consolidated  statement of operations
in the first  quarter of 1999.  In  connection  with the sale,  the  Company was
required  to repay  the  remaining  outstanding  balance  of the note due to CIT
Group/Credit Finance Inc. (see Note 9).



                                       50

<PAGE>

    In addition,  in January 1999, the Company sold 2,666,667  shares of CYTOGEN
common  stock at $0.75 per share to a subsidiary  of The Hillman  Company for an
aggregate  of $2.0  million  and  received  $2.5  million in  proceeds  from the
December 1998 sale of CYTOGEN common stock to The State of Wisconsin  Investment
Board (see Note 1).

    The unaudited pro forma balance sheet reflects the above  transactions as if
they had occurred on December 31, 1998.


3.  SALE OF TARGON CORPORATION:

    Targon was  established  in September  1996 pursuant to  agreements  between
CYTOGEN and Elan, and was a majority-owned  (99.75%)  subsidiary of CYTOGEN.  In
March 1998, Elan exchanged its shares of the Company's  Series A Convertible and
Exchangeable  Preferred  Stock  ("Series  A") for 50% of  CYTOGEN's  interest in
Targon. In August 1998, CYTOGEN sold its remaining 49.875% interest in Targon to
Elan for $2.0  million  (see  Note 1). As a result  of the  sale,  a warrant  to
purchase up to 1,000,000  shares of CYTOGEN common stock  previously  granted to
Elan and all notes among CYTOGEN, Elan and Targon were canceled. In addition, in
August  1998,  CYTOGEN  received  $2.0  million  from  Elan  in  exchange  for a
convertible  promissory  note (see Note 9).  The  Company  recognized  a gain of
approximately $2.8 million on the Targon transaction.


4.  BERLEX LABORATORIES:

    In October  1998,  CYTOGEN  entered into an exclusive  license and marketing
agreement  ("Berlex  Agreement")  with  Berlex for the  manufacture  and sale of
Quadramet. Under the terms of the Berlex Agreement,  CYTOGEN received a one-time
license fee of $8 million in 1998 and Berlex will pay CYTOGEN  royalties  on net
sales of  Quadramet,  as well as  milestone  payments  based on  achievement  of
certain sales levels.  Quadramet is expected to be  re-launched by Berlex in the
first quarter of 1999.

    In connection with the Berlex Agreement, CYTOGEN granted Berlex a warrant to
purchase 1,000,000 shares of CYTOGEN common stock at an exercise price of $1.002
per share  through  October  2003,  which is  exercisable  after the  earlier of
October 1999 or the achievement of defined sales levels. Using the Black Scholes
model,  the estimated  value of the warrant was calculated at $855,000,  and was
recorded  as  a  reduction  of  the  one-time   license  fee  revenue,   with  a
corresponding increase in stockholders' equity.


5.  THE DUPONT PHARMACEUTICAL COMPANY:

    Pursuant to the terms of an agreement  between  CYTOGEN and DuPont,  CYTOGEN
received  from DuPont (i) $1.5 million in each of 1997 and 1996 to fund clinical
programs  to expand the use and  marketing  of  Quadramet;  (ii) a $2.0  million
milestone  payment in 1997 upon the FDA clearance of Quadramet and (iii) royalty
revenues of $1.7 million and $3.3 million in 1998 and 1997, respectively,  based
on minimum  contractual  payments which were in excess of actual sales.  In June
1998,  the  agreement  was  amended  and the  minimum  royalty  arrangement  was
discontinued.  In 1998,  CYTOGEN  recorded  a charge  of $4  million  as Cost of
Product  and   Contract   Manufacturing   Revenues   for  securing  a  long-term
manufacturing  commitment for Quadramet from DuPont of which $3 million was paid
in 1998 and $1 million is payable in March 1999. 



                                       51
<PAGE>

6. THE DOW CHEMICAL COMPANY:

    In 1993, CYTOGEN acquired from The Dow Chemical Company ("DOW") an exclusive
license for the  treatment  of  osteoblastic  bone  metastases  in the U.S.  for
Quadramet.  This license was amended in 1995 and 1998 to expand the territory to
include Canada, Latin America,  Europe and Japan, in 1996 to expand the field to
include all osteoblastic  diseases and in 1998 to include rheumatoid  arthritis.
In 1997, the Company recorded a $4.0 million  milestone  payment to Dow upon FDA
clearance  of  Quadramet.  The  agreement  also  requires the Company to pay Dow
royalties  based on a  percentage  of net sales of  Quadramet,  or a  guaranteed
contractual  minimum  payments,  whichever is greater,  and future payments upon
achievement of certain  milestones.  During 1998 and 1997, the Company  recorded
$500,000 and $375,000, respectively in royalty expense.

        Future annual minimum royalties due to Dow are as follows:

                1999                         500,000
                2000                         750,000
                2001                         750,000
                2002 through 2012          1,000,000 per year


7.  REVENUES FROM MAJOR CUSTOMERS:

    Revenues from major customers as a percentage of total were as follows:

                                       Year Ended December 31,    
                                   -----------------------------
         Customer                  1998         1997        1996
         --------                  ----         ----        ----
   Berlex  (see Note 4)             36%           -%          -%
   DuPont (see Note 5)               8           47          27
   Medi-Physics                     10            9          10
   Elan                              -            6          23

    Medi-Physics is a chain of radiopharmacies which distributes ProstaScint and
OncoScint CR/OV kits.

    Pursuant to an agreement between CYTOGEN and Elan in 1995, CYTOGEN performed
research services which resulted in contract  revenues of $62,000,  $924,000 and
$1.3 million in 1998, 1997 and 1996, respectively.







                                       52


<PAGE>



8.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

<TABLE>
<CAPTION>

                                                               December 31,   
                                                     -----------------------------            
                                                         1998               1997
                                                     ----------         ----------
    <S>                                              <C>                <C>       
    Accounts payable                                 $2,465,000         $1,160,000
    Accrued payroll and related expenses              1,222,000          1,689,000
    Severances and restructuring accruals               856,000               --
    Accrued research contracts and materials            474,000            602,000
    Accrued commission and royalties                    828,000            647,000
    Accrued professional and legal                      655,000            835,000
    Other accruals                                      886,000            729,000
                                                     ----------         ----------  
                                                     $7,386,000         $5,662,000
                                                     ==========         ==========
</TABLE>


    In  connection  with the closure of the  Company's  Cellcor  subsidiary  and
corporate  downsizing  in 1998,  CYTOGEN  incurred  a  restructuring  charge  of
approximately  $1.9  million  relating  to  severances,  other  closure  related
expenses and costs to implement a corporate  turnaround  plan, of which $856,000
was still accrued at December 31, 1998.


9.  LONG TERM LIABILITIES:

<TABLE>
<CAPTION>
                                                               December 31,       
                                                     -----------------------------           
                                                         1998             1997
                                                     -----------      ------------
     <S>                                             <C>              <C>        
     Due to Knoll Pharmaceuticals                    $     --         $ 1,619,000
     Due to Elan                                      2,054,000        10,000,000
     Due to CIT Group/Credit Finance                    744,000              --
     Capital lease obligations                          273,000           291,000
                                                      3,071,000        11,910,000
     Less:  Current portion                            (848,000)       (1,739,000)
                                                     -----------      ------------
                                                     $2,223,000       $10,171,000
                                                     ===========      ============
</TABLE>

    In July 1997, the Company obtained a $10.0 million loan from Elan. The funds
were used by CYTOGEN to provide  funding to Targon,  including  funding  for the
$7.5  million  license  fee paid by Targon  to Elan.  As a result of the sale of
Targon to Elan in August  1998 (see Note 3), all notes among  CYTOGEN,  Elan and
Targon, were canceled.

    In August 1998,  CYTOGEN  received  $2.0 million from Elan in exchange for a
convertible  promissory  note.  The note is  convertible  into shares of CYTOGEN
common stock at $2.80 per share,  subject to  adjustments,  and matures in seven
years. The note bears annual interest of 7%, compounded semi-annually,  however,
such  interest is not payable in cash but will be added to the principal for the
first 24 months;  thereafter,  interest is payable in cash. In 1998, the Company
accrued $54,000 in interest expense on this note.

    In October 1998,  the Company  entered into a $750,000  term loan  agreement
with The CIT Group/Credit  Finance Inc., using the Company's  tangible assets as
collateral. The note bore interest at prime plus 3% and was payable monthly with
principal  payments of $12,500 plus interest.  In January 1999, the Company paid
the  remaining  balance  of the  loan  with  the  proceeds  from the sale of its
laboratory and manufacturing facilities (see Note 2).




                                     53

<PAGE>

    The Company leases certain  equipment under capital lease  obligations which
will expire on various dates through 2002.  Property and equipment  leased under
non-cancelable  capital leases have a net book value of $336,000 at December 31,
1998. Payments to be made under capital lease obligations (including interest of
$66,000) are as follows: $138,000 in 1999, $111,000 in 2000, $78,000 in 2001 and
$12,000 in 2002.


10.  COMMON STOCK:

    In October  1998,  the Company  entered into an agreement  (the "Equity Line
Agreement")  with an  institutional  investor (the "Investor") for a $12 million
common stock equity line.  Pursuant to the Equity Line  Agreement,  the Company,
subject to the  satisfaction  of certain  conditions,  was  granted the right to
issue and sell to the Investor,  and the Investor would be obligated to purchase
up to $12 million of CYTOGEN common stock from time to time  (collectively,  the
"Put Rights") over a two year period at a purchase  price per share equal to 85%
of the  average of lowest  trade  prices of CYTOGEN  common  stock  during  five
designated  trading  days as  determined  under the Equity Line  Agreement.  The
Company can exercise the Put Rights every 20 trading days in the amounts ranging
from  $150,000 to $1 million,  subject to the  satisfaction  of minimum  trading
volume,  market price of CYTOGEN common stock and  registration of the shares of
common  stock  under the  Securities  Act of 1933,  as  amended.  The Company is
required to exercise Put Rights with respect to a minimum of $3 million over the
life of the Equity Line  Agreement.  In  addition,  the  Company  granted to the
Investor a warrant to purchase up to 200,000  shares of CYTOGEN  common stock at
an exercise  price of $1.016 per share through April 2002. In January 1999,  the
Company  exercised a Put Right for the sale of 475,342 shares of common stock at
an aggregate price of $500,000 or $1.0519 per share.

    In December  1998,  the Company  sold to The State of  Wisconsin  Investment
Board  3,333,334  shares of CYTOGEN  common stock at an aggregate  price of $2.5
million or $0.75 per share.

    In January  1999,  the Company sold to a subsidiary  of The Hillman  Company
2,666,667  shares of CYTOGEN common stock at an aggregate  price of $2.0 million
or $0.75 per share.


11.  CONVERTIBLE PREFERRED STOCK:

    In September  1996,  CYTOGEN  issued 1,000 shares of Series A in  connection
with the  formation of Targon.  Since the Series A was  immediately  convertible
into  common  stock,  the  most  beneficial  conversion  discount  was  recorded
analogous  to a deemed  dividend of $4.6  million in 1996.  In March 1998,  Elan
exchanged  all of its  shares  of the  Company's  Series A for 50% of  CYTOGEN's
interest in Targon (see Note 3).

    In December  1997,  CYTOGEN  obtained a financing  commitment  from  private
investors for the purchase of up to $20.0 million of its  Convertible  Preferred
Stock subject to satisfaction of certain conditions. CYTOGEN completed the first
tranche of the  financing  in  December  1997 by issuing  750 shares of Series B
Preferred Stock ("Series B") for an aggregate price of $7.5 million.  The Series
B carried a dividend rate of 6% which was payable in cash or common stock at the
option of CYTOGEN.


                                       54


<PAGE>

    In  connection  with the  conversion  feature of the  Series B, the  Company
recorded a deemed  dividend  of $1.3  million  in 1997,  which  represented  the
maximum 15%  conversion  discount given to the holders of the Series B. In 1998,
all of the outstanding  Series B was converted into 7,377,054  shares of CYTOGEN
common stock including $128,000 of accrued dividends.


12.  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 6,233,357  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.  In January
1998, the Company cancelled  unexercised stock option grants to purchase 671,555
shares  ranging in price from $3.687 to $16.50 per share and issued stock option
grants to purchase  537,244  shares at $1.95 per share which equaled fair market
value at the date of  grant.  This  repricing  was not  available  to  officers,
directors, executives and consultants of the Company. Activity under these plans
was as follows:


                                       Number of                Price Range
                                         Shares                  Per Share
                                       ----------             -------------- 
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 - 17.00

   Granted                               822,400                2.06 -  6.13
   Excersised                            (60,350)               1.77 -  5.47
   Cancelled                            (459,530)               2.69 -  8.88
                                                              
Balance at December 31, 1997           3,825,460              $ 2.06 - 17.00
   Granted                             2,285,920                0.70 -  2.13
   Cancelled                          (2,319,085)               1.36 - 17.00
                                                              
Balance at December 31, 1998           3,792,295              $ 0.70 - 16.63
                                      ==========              

    At December 31, 1998,  options to purchase  1,497,586 shares of common stock
were  exercisable  and  1,242,024  shares of common  stock  were  available  for
issuance under  approved  plans of additional  options that may be granted under
the plans.  All options under the Cellcor stock option plan,  which was reserved
in connection with the Cellcor merger in 1995, were cancelled as a result of the
closure of Cellcor.


                                       55

<PAGE>

    In August 1998, the Company  granted to a key employee an option to purchase
2,250,000  shares of CYTOGEN  common  stock at an exercise  price of $1.0937 per
share, of which the vesting of 1,350,000 shares are subject to the completion of
certain  performance  based  milestones as determined by the Board of Directors.
This option was granted  outside of the approved plans. As of December 31, 1998,
300,000 shares under this option was exercisable.

    In 1997,  the Company  adopted an employee  stock  purchase plan under which
eligible  employees may elect to purchase shares of common stock at the lower of
85% of  fair  market  value  as of the  first  trading  day  of  each  quarterly
participation  period,  or  as  of  the  last  trading  day  of  each  quarterly
participation  period. In 1998 and 1997,  employees  purchased 54,023 shares and
16,017  shares,  respectively,  for  aggregate  proceeds of $41,000 and $32,000,
respectively.  The Company has reserved 429,960 shares for future issuance under
its employee stock purchase plan.

    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, 
                                                            -----------------------------------------------
                                                                 1998             1997             1996   
                                                            -------------    -------------    -------------
     <S>                                                    <C>              <C>              <C>          
     Net loss to common stockholders, as reported           $(13,271,000)    $(32,064,000)    $(28,337,000)
     Pro forma net loss to common stockholders              $(16,566,000)    $(34,946,000)    $(30,594,000)

     Net loss per common share, as reported                       $(0.24)          $(0.63)          $(0.59)         
     Pro forma net loss per common share                          $(0.29)          $(0.68)          $(0.63)

</TABLE>

     The average  fair value per option of the options  granted  under the stock
option plans during 1998, 1997 and 1996 is estimated as $0.92,  $2.10 and $3.35,
respectively,  on the date of grant using the Black-Scholes option pricing model
with the following  assumptions for 1998, 1997 and 1996: dividend yield of zero,
volatility of 78.42%, 69.87% and 70.72%,  respectively,  risk-free interest rate
of 5.37%,  6.07% and 5.90%,  respectively,  and an expected life of 5 years. The
average  fair value per option  ascribed to the  employee  stock  purchase  plan
during 1998 and 1997 is estimated at $0.65 and $2.17,  respectively  on the date
of grant  using  the  Black-Scholes  option  pricing  model  with the  following
assumptions for 1998 and 1997:  divided yield of zero,  volatility of 84.75% and
50.20%, respectively,  risk free interest rate of 4.88% and 5.13%, respectively,
and expected life of three months. 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.


13.  RELATED PARTY TRANSACTION:

     Consulting  services  have been  provided to the Company under an agreement
with the  Chairman  of the  Board of  Directors  related  to time  spent in that
function  on  Company  matters.  Fees and  expenses  under this  agreement  were
$172,000 in 1998.

                                       56
<PAGE>

14.   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 $310,000,  $405,000 and $328,000 for 1998,  1997 and
1996, respectively.


15.   INCOME TAXES:

      As  of  December  31,  1998,   CYTOGEN  had  federal  net  operating  loss
carryforwards  of approximately  $177 million.  The Company also had federal and
state research and development tax credit  carryforwards of  approximately  $5.4
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
loss history, a valuation allowance for deferred tax assets has been provided:

<TABLE>
<CAPTION>
                                                               1998            1997
                                                          -------------   -------------

<S>                                                       <C>             <C>         
Deferred tax assets:
  Net operating loss carryforwards                        $ 60,300,000    $ 52,700,000
  Capitalized research and development expenses             19,500,000      23,500,000
  Research and development credit                            5,400,000       5,000,000
  Acquisition of in-process technology                       1,200,000       3,800,000
  Other, net                                                   300,000         140,000
                                                          -------------   -------------
     Total deferred tax assets                              86,700,000      85,140,000
     Valuation allowance for deferred tax assets           (86,700,000)    (85,140,000)
                                                          -------------   -------------
        Net deferred tax assets                           $       --      $       --
                                                          =============   =============
</TABLE>

     In 1995,  CYTOGEN  acquired  CytoRad  and  Cellcor,  both of which  had net
operating loss carryforwards. Due to Section 382 limitations,  approximately $10
million of CytoRad and $12.0 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.

16. COMMITMENTS AND CONTINGENCIES:

     The   Company   leases  its   facilities   and  certain   equipment   under
non-cancelable  operating leases that expire at various times through 2002. Rent
expense incurred on these leases was $1.6 million, $1.8 million and $1.8 million
in 1998,  1997 and 1996,  respectively.  Minimum  future  obligations  under the
operating  leases are $3.6  million as of December  31, 1998 and will be paid as
follows:  $990,000 in 1999,  $1.1  million in 2000,  $1.2  million in 2001,  and
$288,000 in 2002.


                                       57

<PAGE>

     The Company is obligated to make minimum future payments under research and
development contracts that expire at various times. As of December 31, 1998, the
minimum  future  payments  under  contracts are $120,000 in 1999 and $130,000 in
2000  and   thereafter.   In   addition,   the  Company  is   obligated  to  pay
performance-based  compensation  to its marketing  partner for  ProstaScint  and
royalties on revenues from commercial product sales including certain guaranteed
minimum payments.







                                       58


<PAGE>



                                  EXHIBIT INDEX
                                  ------------- 
                                   

Exhibit                                                            Sequentially
Number                            Description                      Numbered Page


10.23     Employment Agreement effective as of June 10, 1997 between
          CYTOGEN Corporation and Donald F. Crane, Jr.                     60

21        Subsidiaries of CYTOGEN Corporation                              62

23        Consent of Arthur Andersen LLP                                   63 

27        Financial Data Schedule (Submitted to SEC 
          only in electronic format)






                                       59