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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ----------------
                                    FORM 10-Q
(Mark One)
    (X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 1998

                                       OR

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

              For the transition period from _________ to _________
                           Commission File No. 0-20111

                          ARONEX PHARMACEUTICALS, INC.
             (Exact name of Registrant as specified in its charter)

        Delaware                                         76-0196535
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

          8707 Technology Forest Place, The Woodlands, Texas 77381-1191
               (Address of principal executive office) (Zip Code)

       Registrant's telephone number, including area code: (281) 367-1666

         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  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock as of the latest practicable date.

          Class                                Outstanding at September 30, 1998
 Common Stock, $.001 par value                          15,503,745 shares

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<PAGE>



                          ARONEX PHARMACEUTICALS, INC.
                       Quarterly Period September 30, 1998

                                      INDEX
                                                                            Page

FACTORS AFFECTING FORWARD LOOKING STATEMENTS ..................................3

PART I.  Financial Information

Item 1   Financial Statements .................................................3

         Balance Sheets - December 31, 1997 and September 30, 1998 
          (unaudited).............................. .......................... 4

         Statements of Operations:
           Nine  months  Ended   September  30,  1997  and  
           September  30,  1998 (unaudited) and for the Period 
           from Inception (June 13, 1986) through September 30, 1998
           (unaudited) ....................................................... 5

         Statements of Cash Flows:
           Nine  months  Ended   September  30,  1997  and  
           September  30,  1998 (unaudited) and for the Period 
           from Inception (June 13, 1986) through September 30, 1998 
           (unaudited) ....................................................... 6

         Notes to Financial Statements - September 30, 1998................... 7

Item 2   Management's Discussion and Analysis of Financial
           Condition and Results of Operations................................ 9


PART II. Other Information

Item 6   Exhibits and Reports on Form 8-K.....................................12


SIGNATURES        ............................................................13






                                      - 2-

<PAGE>


                          ARONEX PHARMACEUTICALS, INC.
                          (A development stage company)

                  FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

         This   Quarterly   Report  on  Form  10-Q   includes   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words  "anticipate,"  "believe,"  "expect,"  "estimate,"  "project"  and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions.  Should one or more
of these risks or uncertainties  materialize,  or should underlying  assumptions
prove  incorrect,  actual results may vary  materially  from those  anticipated,
believed,  expected,  estimated or projected.  For additional discussion of such
risks, uncertainties and assumptions, see "Item 1. Business - Manufacturing," "-
Sales and Marketing," "Patents,  Proprietary Rights and Licenses," "- Government
Regulation," "- Competition"  and "- Additional  Business Risks" included in the
Company's  Annual Report on Form 10-K for the year ended  December 31, 1997, and
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations"  and "- Liquidity and Capital  Resources"  included  elsewhere in
this report.

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         The  following  unaudited  financial   statements  have  been  prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain  information and note disclosures  normally included in annual financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company  believes that the disclosures  made herein are adequate to make the
information presented not misleading.  These financial statements should be read
in  conjunction  with the financial  statements  for the year ended December 31,
1997  included in the  Company's  Annual  Report on Form 10-K for the year ended
December  31,  1997,  filed  pursuant  to Section 13 or 15(d) of the  Securities
Exchange Act of 1934.

         The information  presented in the accompanying  financial statements is
unaudited,  but in the opinion of management,  reflects all  adjustments  (which
include only normal  recurring  adjustments)  necessary  to present  fairly such
information.




                                      - 3-

<PAGE>


                          ARONEX PHARMACEUTICALS, INC.
                          (A development stage company)

                                 BALANCE SHEETS
                  (All amounts in thousands, except share data)


                                     ASSETS
<TABLE>
<CAPTION>

                                                                                                    September 30,
                                                                                 December 31,           1998
                                                                                     1997            (Unaudited)
Current Assets:
<S>                                                                              <C>                <C>          
  Cash and cash equivalents...............................................       $      2,029       $       3,791
  Short-term investments..................................................             17,783              10,936
  Accounts receivable.....................................................                100                  --
  Prepaid expenses and other assets.......................................                474                 384
                                                                                 ------------       -------------
       Total current assets...............................................             20,386              15,111

Long-term investments.....................................................             10,142               1,288
Furniture, equipment and leasehold improvements...........................              1,107               2,123
Deposits   ...............................................................                490                  --
                                                                                 ------------       -------------
       Total assets.......................................................       $     32,125       $      18,522
                                                                                 ============       =============

                                           LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses...................................       $      1,977       $       2,959
  Accrued payroll.........................................................                554                 933
  Advance from Genzyme....................................................              2,000               2,000
  Current portion of notes payable........................................                191                 217
  Current portion of obligations under capital leases.....................                 18                  13
                                                                                 ------------       -------------
       Total current liabilities..........................................              4,740               6,122

Long-term obligations:
  Notes payable, net of current portion...................................                 --               1,047
  Obligations under capital leases, net of current portion................                  6                  --
                                                                                 ------------       -------------
       Total long-term obligations........................................                  6               1,047


Commitments and contingencies

Stockholder's equity
  Preferred stock $.001 par value, 5,000,000 shares authorized,
       none issued and outstanding........................................                 --                  --
  Common stock $.001 par value, 30,000,000 shares
       authorized, 15,459,166 and 15,503,745 shares
       issued and outstanding, respectively...............................                 15                  15
  Additional paid-in capital..............................................             96,606              97,660
  Common stock warrants...................................................                967                  50
  Treasury stock..........................................................                (11)                (11)
  Deferred compensation...................................................               (907)               (545)
  Unrealized loss on investments..........................................                (87)                (66)
  Deficit accumulated during development stage ...........................            (69,204)            (85,750)
                                                                                 ------------       -------------
       Total stockholders' equity.........................................             27,379              11,353
                                                                                 ------------       -------------
Total liabilities and stockholders' equity................................       $     32,125       $      18,522
                                                                                 ============       =============


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

                                                      - 4-

<PAGE>


                          ARONEX PHARMACEUTICALS, INC.
                          (A development stage company)


                            STATEMENTS OF OPERATIONS
             (All amounts in thousands, except loss per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                              Period
                                                                                                               from
                                                                                                             Inception
                                                                                                             (June 13,
                                                                                                               1986)
                                                    Nine Months Ended            Three Months Ended           through
                                                      September 30,                 September 30,            Sept. 30,
                                                  1997            1998          1997            1998            1998
                                              ----------      ----------     ---------       ----------      ----------

Revenues:
<S>                                           <C>             <C>            <C>             <C>             <C>       
   Interest income.......................     $    1,632      $    1,013     $     510       $      265      $    6,594
   Research and development
        grants and contracts.............            591             329           275              136           5,379
                                              ----------      ----------     ---------       ----------      ----------
Total revenues...........................          2,223           1,342           785              401          11,973
                                              ----------      ----------     ---------       ----------      ----------

Expenses:
   Research and development..............          9,864          15,399         3,213            5,532          68,534
   Purchase of in-process
        research and development.........          3,000              --         3,000               --          11,625
   General and administrative............          1,477           2,448           546              901          16,252
   Interest expense and other............            160              41            10               27           1,312
                                              ----------      ----------     ---------       ----------      ----------
            Total expenses...............         14,501          17,888         6,769            6,460          97,723
                                              ----------      ----------     ---------       ----------      ----------
Net loss    .............................     $  (12,278)     $  (16,546)    $  (5,984)      $   (6,059)     $  (85,750)
                                              ==========      ==========     =========       ==========      ==========

Basic and diluted loss per share.........     $    (0.83)     $    (1.07)    $   (0.40)      $    (0.39)
Weighted average shares used in
   Computing basic and diluted loss per
        share............................         14,714          15,475        14,848           15,497

















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

                                                      - 5-

<PAGE>


                                                   ARONEX PHARMACEUTICALS, INC.
                                                  (A development stage company)

                                                    STATEMENTS OF CASH FLOWS
                                                   (All amounts in thousands)
                                                         (Unaudited)
<TABLE>
<CAPTION>

                                                                                                      Period from
                                                                                                       Inception
                                                                                                    (June 13, 1986)
                                                                        Nine Months Ended               through
                                                                           September 30,             September 30,
                                                                     1997               1998             1998
                                                               ----------------- ------------------ ----------------
Cash flows from operating activities:
<S>                                                            <C>               <C>                <C>          
  Net loss................................................     $    (12,278)     $    (16,546)      $    (85,750)
  Adjustments to reconcile net loss to net cash provided by
      (used in) operating activities-
         Depreciation and amortization....................              652               521              4,547
         Loss (gain) on disposal of assets................              107                (2)               198
         Compensation expense related to stock and
            stock options.................................              400               432              3,668
         Charge for purchase of in-process research
             and development..............................            3,000                --             11,547
         Unrealized gain (loss) on investment.............              (31)               21                (66)
         Acquisition costs, net of cash received..........               --                --               (270)
         Loss in affiliate................................               --                --                500
         Accrued interest payable converted to stock......               --                --                 97
         Changes  in assets  and  liabilities:  
         Decrease (increase) in prepaid expenses and 
             other assets.................................              (45)               90               (199)
         Decrease (increase) in accounts receivable.......              (88)              100                 --
         Increase (decrease) in accounts payable
            and accrued expenses..........................              211             1,361              3,819
         Increase (decrease) in deferred revenue..........               --                --               (353)
                                                               ------------      ------------       ------------
      Net cash used in operating activities...............           (8,072)          (14,023)           (62,262)

Cash flows from investing activities:
  Net sales (purchases) of investments....................            6,392            15,701             (6,489)
  Purchase of furniture, equipment and leasehold
      improvements........................................             (280)           (1,545)            (5,666)
  Proceeds from sale of assets............................               34                 9                 63
  Decrease (increase) in other assets.....................             (336)              490                 --
  Investment in affiliate.................................               --                --               (500)
                                                               ------------      ------------       ------------
      Net cash provided by (used in) financing activities.            5,810            14,655            (12,592)

Cash flows from financing activities:
  Proceeds from notes payable and capital leases..........               --             1,369              6,041
  Repayment of notes payable and principal payments
      under capital lease obligations.....................             (237)             (307)            (2,765)
  Purchase of treasury stock..............................               --                --                (11)
  Proceeds from issuance of stock.........................              241                68             75,380
                                                               ------------      ------------       ------------
      Net cash provided by (used in) financing activities.                4             1,130             78,645
                                                               ------------      ------------       ------------
  Net increase (decrease) in cash and cash equivalents....           (2,258)            1,762              3,791
  Cash and cash equivalents at beginning of period........            4,179             2,029                 --
                                                               ------------      ------------       ------------

  Cash and cash equivalents at end of period..............     $      1,921      $      3,791       $      3,791
                                                               ============      ============       ============

  Supplemental disclosures of cash flow information:
      Cash paid during the period for interest............     $         52      $         41       $        826

  Supplemental schedule of noncash financing activities:
      Conversion of notes payable and accrued interest to
         common stock.....................................     $         --      $         --       $      3,043

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

                                                    - 6-

<PAGE>


                          ARONEX PHARMACEUTICALS, INC.
                          (A development stage company)


                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998
                                   (Unaudited)

1.       Organization and Basis of Presentation

         Aronex   Pharmaceuticals,   Inc.  ("Aronex   Pharmaceuticals"   or  the
"Company") was incorporated in Delaware on June 13, 1986 and merged with Triplex
Pharmaceutical   Corporation  ("Triplex")  and  Oncologix,   Inc.  ("Oncologix")
effective September 11, 1995 ("Merger"). Aronex Pharmaceuticals is a development
stage company which has devoted substantially all of its efforts to research and
product development and has not yet generated any significant  revenues,  nor is
there any assurance of significant  future  revenues.  In addition,  the Company
expects to continue to incur losses for the foreseeable  future and there can be
no assurance  that the Company will complete the  transition  from a development
stage company to successful operations.  The research and development activities
engaged in by the  Company  involve a high degree of risk and  uncertainty.  The
ability  of the  Company to  successfully  develop,  manufacture  and market its
proprietary products is dependent upon many factors.  These factors include, but
are not limited to, the need for additional financing,  attracting and retaining
key personnel and consultants, and successfully developing manufacturing,  sales
and marketing operations.  The Company's ability to develop these operations may
be impacted by  uncertainties  related to patents and proprietary  technologies,
technological  change  and  obsolescence,   product  development,   competition,
government   regulations  and  approvals,   health  care  reform,   third  party
reimbursement  and  product  liability  exposure.  Additionally,  the Company is
reliant upon  collaborative  arrangements for research,  contractual  agreements
with corporate partners, and its exclusive license agreements with M.D. Anderson
Cancer Center ("MD  Anderson").  Further,  during the period required to develop
its  products,  the  Company  will  require  additional  funds  which may not be
available to it. The Company  expects that its existing cash  resources  will be
sufficient to fund its cash requirements through early 1999. Accordingly,  there
can be no assurance of the Company's future success.

         The balance sheet at September  30, 1998 and the related  statements of
operations and cash flows for the nine month periods  ending  September 30, 1998
and 1997 and the period from  inception  (June 13, 1986)  through  September 30,
1998  are  unaudited.  These  interim  financial  statements  should  be read in
conjunction  with the December 31, 1997 financial  statements and related notes.
The unaudited interim financial statements reflect all adjustments which are, in
the opinion of  management,  necessary  for a fair  statement of results for the
interim periods  presented and all such  adjustments  are of a normal  recurring
nature.  Interim  results are not  necessarily  indicative of results for a full
year.

2.       Accounting Policies

         The Company has adopted Statement of Financial Accounting Standards No.
130  ("SFAS  130"),  Reporting  Comprehensive  Income.  SFAS  130  requires  the
reporting  of  comprehensive  income in addition to net income from  operations.
Comprehensive  income is a more inclusive financial  reporting  methodology that
includes  disclosure of certain financial  information that historically has not
been  recognized in the calculation of net income.  Comprehensive  income (loss)
was $(12,278,000) and $(16,525,000) for the nine months ended September 30, 1997
and 1998, respectively.

3.       Cash, Cash Equivalents and Investments

         Cash and cash equivalents include money market accounts and investments
with an original  maturity of less than three months. At September 30, 1998, all
short-term  investments are held to maturity securities consisting of high-grade
commercial paper and U. S. Government backed securities with a carrying value of
$10,936,000,  which  approximates  fair market value and cost.  At September 30,
1998 all long-term  investments are available for sale securities which are U.S.
mortgage  backed  securities  with various  maturity dates over the next several
years that have

                                      - 7-

<PAGE>


                          ARONEX PHARMACEUTICALS, INC.
                          (A development stage company)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

an amortized cost of  $1,354,000,  a fair market value of $1,288,000 and a gross
unrealized  loss of $66,000 at September 30, 1998. The Company  currently has no
trading securities.

4.       Federal Income Taxes

         At  December  31,  1997,  the Company had net  operating  loss  ("NOL")
carryforwards  for federal income tax purposes of  approximately  $79.0 million.
The Tax  Reform  Act of 1986  provided  a  limitation  on the use of NOL and tax
credit  carryforwards  following  certain ownership changes that could limit the
Company's  ability  to  utilize  these NOLs and tax  credits.  Accordingly,  the
Company's  ability to utilize  its NOLs and tax credit  carryforwards  to reduce
future taxable  income and tax  liabilities  may be limited.  As a result of the
Merger  with  Triplex and  Oncologix,  a change in control as defined by federal
income tax law occurred,  causing the use of these  carryforwards  to be limited
and possibly  eliminated.  Additionally because United States tax laws limit the
time during which NOLs and the tax credit  carryforwards  may be applied against
future taxable income and tax  liabilities,  the Company may not be able to take
full advantage of its NOLs and tax credit  carryforwards  for federal income tax
purposes.  The carryforwards will begin to expire in 2001 if not otherwise used.
Due to the possibility of not reaching a level of profitability  that will allow
for the utilization of the Company's deferred tax assets, a valuation  allowance
has been  established  to offset these tax assets.  The Company has not made any
income tax payments since inception.


                                      - 8-

<PAGE>



Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Overview

         Since its  inception in 1986,  Aronex  Pharmaceuticals,  Inc.  ("Aronex
Pharmaceuticals"  or the "Company") has primarily  devoted its resources to fund
research,  drug discovery and development.  The Company has been unprofitable to
date and  expects to incur  substantial  operating  losses for the next  several
years  as it  expends  its  resources  for  product  research  and  development,
preclinical  and clinical  testing and  regulatory  compliance.  The Company has
sustained losses of approximately  $85.8 million through September 30, 1998. The
Company has  financed its research and  development  activities  and  operations
primarily  through  public and private  offerings of  securities.  The Company's
operating  results have fluctuated  significantly  during each quarter,  and the
Company  anticipates  that such  fluctuations,  largely  attributable to varying
commitments and  expenditures  for clinical trials and research and development,
will continue for the next several years.

Results of Operations

         Three and Nine Month Periods Ended September 30, 1998 and 1997

         Revenues from research and development  grants and contracts  decreased
51% to $136,000 for the three months ended  September 30, 1998 from $275,000 for
the three months ended September 30, 1997.  Research and development  grants and
contracts decreased 44% to $329,000 for the nine months ended September 30, 1998
from $591,000 for the same period in 1997.  For the nine months ended  September
30,  1997,  research  and  development  revenue was  composed of (i) $150,000 in
revenue from the initiation of a license agreement with F. Hoffman-La Roche Ltd.
("Roche",  formerly  Boehringer  Mannheim  GmbH);  (ii) $166,000 in  development
revenue from Targeted Genetics,  Incorporated ("Targeted") and (iii) $250,000 in
the  third  quarter  of  1997  from  a  new  licensing  agreement  with  Genzyme
Corporation  ("Genzyme") relating to gene therapy. The three-year agreement with
Targeted  ended in the  second  quarter  of 1997.  The  majority  ($304,000)  of
research and  development  revenue for the nine months ended  September 30, 1998
resulted from a Small Business Innovative Grant Research ("SBIR") grant relating
to Zintevir(R).

         Interest  income  decreased  48% to $265,000 for the three months ended
September 30, 1998 from $510,000 for the three months ended  September 30, 1997.
Interest income  decreased 38% to $1,013,000 for the nine months ended September
30, 1998 from  $1,632,000 for the same period in 1997. This decrease in interest
income  resulted  from a decrease  in funds  available  for  investment  in 1998
compared to the same period in 1997.

         Research and development  expenses  increased 72% to $5,532,000 for the
three months ended September 30, 1998 from $3,213,000 for the three months ended
September   30,1997.   Research  and  development   expenses  increased  56%  to
$15,399,000 for the nine months ended September 30, 1998 from $9,864,000 for the
same period in 1997. The increases in research and development expenses resulted
primarily   from  (i)  increases  of  $1,628,000   and  $4,438,000  in  clinical
investigation  costs for the three and nine months  ended  September  30,  1998,
respectively.  The majority of which related to clinical trials of the Company's
NYOTRAN(TM)  and  ATRAGEN(R)   products  and  (ii)  increases  of  $626,000  and
$1,252,000 in medical affairs and regulatory  salaries and payroll costs for the
three and nine months ended September 30, 1998,  respectively,  as the number of
personnel in these departments increased  significantly from the same periods in
1997.

         In-process  research and development  costs of $3.0 million incurred in
the third quarter of 1997 related to a non-cash research and development  charge
incurred in  connection  with the issuance of Common Stock under the  contingent
rights issued in the Triplex merger.  The Company issued an aggregate of 686,472
shares of Common Stock with an aggregate value of $3.0 million.  The issuance of
such shares under the contingent  rights was required  because equity  milestone
payments of $5.0 million were not received  from Genzyme  relating to ATRAGEN on
or before September 11, 1997.


                                      - 9-

<PAGE>



         General and  administrative  expenses increased 65% to $901,000 for the
three months ended  September  30, 1998 from $546,000 for the three months ended
September  30,  1997.  General  and  administrative  expenses  increased  65% to
$2,448,000 for the nine months ended  September 30, 1998 from $1,477,000 for the
same  period in 1997.  The  increases  in general  and  administrative  expenses
resulted  primarily  from (i)  increases of $95,000 and $601,000 in salaries and
payroll  costs;  (ii)  increases  of $58,000 and  $119,000  in  business  travel
relating mainly to business development  activities;  (iii) increases of $31,000
and $64,000 in investor and public  relations  expenses and (iv) the addition of
$134,000 and $159,000 in marketing expenses, relating mainly to ATRAGEN, for the
three and nine month periods ended September 30, 1998, respectively. Several new
positions have been added since the first quarter of 1997 and a Chief  Executive
Officer was added in the fourth  quarter of 1997.  Additionally,  the  Company's
President,  who  resigned in January  1998,  is  entitled  to certain  severance
payments in accordance  with a  termination  and  severance  agreement  with the
Company.  These severance  payments,  which continue  through January 1999, were
recorded as compensation expense in the first quarter of 1998.

         Interest  expense  and other  increased  170% to $27,000  for the three
months  ended  September  30,  1998  from  $10,000  for the three  months  ended
September 30, 1997.  This increase in interest  expense and other  resulted from
the increase in  indebtedness  incurred to fund leasehold  improvements  and the
acquisition of laboratory equipment late in the second quarter of 1998. Interest
expense and other  decreased 74% to $41,000 for the nine months ended  September
30, 1998 from  $160,000 for the same period in 1997.  This  decrease in interest
expense  and other  resulted  primarily  from a loss of  $107,000 in the quarter
ended June 30, 1997 from the disposition of equipment and leasehold improvements
that  had been  used in  research  activities  eliminated  in  early  1997 and a
decrease  in  interest  expense  for the  first  half of 1998  resulting  from a
reduction in the amount of capital lease  obligations and  indebtedness  used to
fund the acquisition of laboratory equipment.

         Net  loss  increased  1% to  $6,059,000  for  the  three  months  ended
September  30, 1998 from  $5,984,000  for the three months ended  September  30,
1997. Net loss increased 35% to $16,546,000  for the nine months ended September
30, 1998 from $12,278,000 for the same period in 1997. The increases in net loss
resulted primarily from increases in research and development expenses.

Liquidity and Capital Resources

         Since its inception, the Company's primary source of cash has been from
financing  activities,  which  have  consisted  primarily  of  sales  of  equity
securities.  The Company has raised an  aggregate of  approximately  $75 million
from the sale of equity  securities  from its  inception  through  September 30,
1998.  In July 1992,  the Company  raised net  proceeds of  approximately  $10.7
million in the initial public  offering of its Common Stock.  In September 1993,
the Company entered into a collaborative  agreement with Genzyme relating to the
development and  commercialization  of ATRAGEN(R),  in connection with which the
Company  received  net proceeds of  approximately  $4.5 million from the sale of
Common Stock to Genzyme.  In November 1993 and May 1997,  the Company raised net
proceeds  of  approximately  $11.5 and $32.1  million,  respectively,  in public
offerings of Common Stock.  From October 1995 through  September  30, 1998,  the
Company received  aggregate net proceeds of approximately  $6.5 million from the
exercise of certain warrants issued in its 1995 merger with Oncologix, Inc. From
October 1995 through  September 30, 1998, the Company also received an aggregate
net  proceeds of  approximately  $6.5  million cash from the exercise of certain
warrants  issued in its 1995 merger with  Oncologix.  From its  inception  until
September 30, 1998,  the Company also received an aggregate of $5.4 million cash
from collaborative arrangements and SBIR grants.

         The  Company's  primary  use of  cash  to date  has  been in  operating
activities to fund research and development,  including  preclinical studies and
clinical trials, and general and administrative  expenses. Cash of $14.0 million
and $8.1 million was used in operating  activities  during the first nine months
of 1998 and 1997,  respectively.  The  Company  had cash,  cash-equivalents  and
short-term  and long-term  investments  of $16 million as of September 30, 1998,
consisting primarily of cash and money market accounts, United States government
securities and investment grade commercial paper.


                                      -10-

<PAGE>



         The Company has experienced  negative cash flows from operations  since
its  inception  and has funded its  activities  to date  primarily  from  equity
financings. The Company has expended, and will continue to require,  substantial
funds to continue research and development,  including  preclinical  studies and
clinical trials of its products,  and to commence sales and marketing efforts if
FDA and other  regulatory  approvals are obtained.  The Company expects that its
existing capital  resources will be sufficient to fund its capital  requirements
through  early  1999.  Thereafter,  the Company  will need to raise  substantial
additional  capital to fund its operations.  The Company's capital  requirements
will depend on many  factors,  including  the  problems,  delays,  expenses  and
complications   frequently  encountered  by  development  stage  companies;  the
progress of the Company's research, development and clinical trial programs; the
extent and terms of any future collaborative research, manufacturing,  marketing
or other  funding  arrangements;  the costs and  timing  of  seeking  regulatory
approvals of the Company's products;  the Company's ability to obtain regulatory
approvals;  the success of the Company's sales and marketing programs;  costs of
filing,  prosecuting  and  defending  and  enforcing any patent claims and other
intellectual property rights; and changes in economic, regulatory or competitive
conditions of the Company's  planned  business.  Estimates about the adequacy of
funding for the Company's activities are based on certain assumptions, including
the assumption that testing and regulatory  procedures relating to the Company's
products can be conducted at  projected  costs.  There can be no assurance  that
changes in the Company's research and development plans, acquisitions,  or other
events will not result in accelerated or unexpected expenditures. To satisfy its
capital  requirements,  the  Company may seek to raise  additional  funds in the
public or private capital  markets.  The Company's  ability to raise  additional
funds in the public or private markets will be adversely affected if the results
of its current or future clinical trials are not favorable. The Company may seek
additional   funding  through  corporate   collaborations  and  other  financing
vehicles.  There can be no assurance  that any such funding will be available to
the Company on favorable  terms or at all. If adequate  funds are not available,
the Company may be required to curtail significantly one or more of its research
or  development  programs,  or it  may  be  required  to  obtain  funds  through
arrangements with future  collaborative  partners or others that may require the
Company to relinquish rights to some or all of its technologies or products.  If
the Company is successful in obtaining additional  financing,  the terms of such
financing may have the effect of diluting or adversely affecting the holdings or
the rights of the holders of the Company's Common Stock.

         Year 2000

         Certain  computer  programs or  computerized  equipment do not have the
ability to accurately calculate,  store or use a date subsequent to December 31,
1999.  The  erroneous  date can be  interpreted  in a number of different  ways;
typically the year 2000 is represented as the year 1900.  This could result in a
system failure or miscalculations causing disruptions of operations,  including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business.

         The  Company  is  in  the  process  of  assessing   all  financial  and
operational  systems and equipment to ensure year 2000 compliance,  and plans to
complete  the  assessment  by December  31,  1998.  Based on reviews to date and
preliminary information,  the Company does not anticipate that it will incur any
significant  costs  relating  to the  assessment  and  remediation  of year 2000
issues.  The Company believes that the potential  impact, if any, of its systems
not being year 2000 compliant would not materially  affect the Company's ability
to continue its research and development  activities.  However,  there can be no
assurance  that the Company,  its business  partners,  vendors or customers will
successfully  be able to identify and remedy all potential year 2000 problems or
that a system  failure  resulting  from a failure to identify any such  problems
would not have a material adverse effect on the Company.


                                      - 11-

<PAGE>



PART II. OTHER INFORMATION

Item 6.     Exhibits and Reports on Form 8-K

     (a)    Exhibits
     
            11.1  Statement regarding computation of per share earnings.

            27.1  Financial data schedule.

     (b)    Reports on Form 8-K

            None


                                      - 12-

<PAGE>





                                   SIGNATURES

     Pursuant to the  requirements  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.



                          ARONEX PHARMACEUTICALS, INC.




Dated:     November 16, 1998                           By:/S/Geoffrey F. Cox
                                                       Geoffrey F. Cox, Ph.D.
                                                       Chief Executive Officer







Dated:     November 16, 1998                           By:/S/Terance A. Murnane
                                                       Terance A. Murnane
                                                       Controller


                                      - 13-