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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 June 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 Drive, The Woodlands, Texas 77381-1191
              (Address of principal executive offices and 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 June 30, 1998
  Common Stock, $.001 par value                           15,497,443 shares

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<PAGE>





                          ARONEX PHARMACEUTICALS, INC.
                         Quarterly Period June 30, 1998
<TABLE>

<CAPTION>
                                      INDEX
                                                                            Page

<S>                                                                          <C>
FACTORS AFFECTING FORWARD LOOKING STATEMENTS................................   3

PART I.           Financial Information

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

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

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

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

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

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


PART II.           Other Information

Item 4   Submission of Matters to Vote of Security Holders..................  12

Item 6   Exhibits and Reports on Form 8-K...................................  13


SIGNATURES        ..........................................................  14

</TABLE>





                                      - 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)

<TABLE>
<CAPTION>

                                     ASSETS
                                                                                                         June 30,
                                                                                   December 31,            1998
                                                                                       1997             (Unaudited)
<S>                                                                            <C>                  <C>          

Current Assets:
   Cash and cash equivalents.............................................      $         2,029      $       6,265
   Short-term investments................................................               17,783             13,457
   Accounts receivable...................................................                  100                 --
   Prepaid expenses and other assets.....................................                  474                774
                                                                               ---------------      -------------
        Total current assets.............................................               20,386             20,496

Long-term investments....................................................               10,142              1,509
Furniture, equipment and leasehold improvements, net                                     1,107              2,161
Deposits.................................................................                  490                 --
                                                                               ---------------      -------------
        Total assets.....................................................      $        32,125      $      24,166
                                                                               ===============      =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses.................................      $         1,977      $       2,786
   Accrued payroll.......................................................                  554                822
   Advance from Genzyme..................................................                2,000              2,000
   Current portion of notes payable......................................                  191                218
   Current portion of obligations under capital leases...................                   18                 16
                                                                               ---------------      -------------
        Total current liabilities........................................                4,740              5,842

Long-term obligations:
   Notes payable, net of current portion.................................                   --              1,097
   Obligations under capital leases, net of current portion..............                    6                 --
                                                                               ---------------      -------------
        Total long-term obligations......................................                    6              1,097

Commitments and contingencies

Stockholders' 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,
        14,597,247 and 15,497,443 shares issued and outstanding,
        respectively.....................................................                   15                 15
   Additional paid-in capital............................................               96,606             97,635
   Common stock warrants.................................................                  967                 50
   Treasury stock........................................................                  (11)               (11)
   Deferred compensation.................................................                 (907)              (684)
   Unrealized loss on investments.......................................                   (87)               (87)
   Deficit accumulated during development stage..........................              (69,204)           (79,691)
                                                                               ---------------      -------------
        Total stockholders' equity......................................                27,379             17,227
                                                                               ---------------      -------------
   Total liabilities and stockholders' equity...........................       $        32,125      $      24,166
                                                                               ===============      =============
</TABLE>

                    The  accompanying  notes  are  an  integral  part  of  these
financial statements.

                                      - 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,
                                                    Six Months Ended             Three Months Ended         1986)
                                                        June 30,                      June 30,             through
                                                                                                           June 30,         
                                                  1997           1998           1997           1998         1998
                                             ---------      ----------      ---------      ---------     ---------- 
<S>                                          <C>            <C>             <C>            <C>           <C>       
 
Revenues:
    Interest income....................      $   1,123      $      748      $     531      $     331     $    6,329
     Research and development
         grants and contracts...........           316             193             30             90          5,243
                                             ---------      ----------      ---------      ---------     ----------
              Total revenues............         1,439             941            561            421         11,572

Expenses:
     Research and development...........         6,652           9,867          3,167          5,345         63,002
     Purchase of in-process
         research and development.......            --              --             --             --         11,625
     General and administrative.........           931           1,547            475            643         15,351
     Interest expense and other.........           150              14            120              9          1,285
                                             ---------      ----------      ---------      ---------     ----------
              Total expenses............         7,733          11,428          3,762          5,997         91,263
                                             ---------      ----------      ---------      ---------     ----------
Net loss................................     $  (6,294)     $  (10,487)     $  (3,201)     $  (5,576)    $  (79,691)
                                             ---------      ==========      ---------      =========     ==========

Basic and diluted loss per share........     $   (0.43)     $    (0.68)     $   (0.22)     $   (0.36)
                                                 =====           =====          =====          =====
Weighted average shares used in
     computing basic and diluted loss
     per share..........................        14,646          15,464         14,671         15,468

</TABLE>












                    The  accompanying  notes  are  an  integral  part  of  these
financial statements.

                                      - 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)
                                                                                       Six Months Ended              through
                                                                                           June 30,                  June 30,
                                                                                    1997              1998             1998
                                                                                ---------        ----------        -----------   
                                                                             
<S>                                                                           <C>               <C>               <C>           
 
Cash flows from operating activities:
  Net loss. . . . . . ................................................          $  (6,294)       $  (10,487)       $   (79,691)

   Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities--
        Depreciation and amortization..................................               475               360              4,386
        Loss (gain) on disposal of assets..............................               107               (2)                198
        Compensation expense related to stock and stock options........               315               268              3,504
        Charge for purchase of in-process research and development.....                --                --             11,547
        Unrealized loss on investment .................................               (31)               --                (87)
        Acquisition costs, net of cash received........................                --                --               (270)
        Loss in affiliate..............................................                --                --                500
        Changes in assets and liabilities:
           Increase in prepaid expenses and other assets...............              (178)             (300)              (589)
           Decrease in accounts receivable.............................                78               100                 --
           Increase (decrease) in accounts payable and accrued
                   expenses............................................               (63)            1,077              3,535
           Increase in deferred revenue................................                --                --               (353)
        Accrued interest payable converted to stock....................                --                --                 97
                                                                                ---------         ---------        ----------- 
                  Net cash used in operating activities................            (5,591)           (8,984)           (57,223)
                                                                                ---------         ---------        ----------- 
Cash flows from investing activities:
   Net sales (purchases) of investments................................              7,976           12,959             (9,231)
   Purchase of furniture, equipment and leasehold improvements.........               (206)          (1,421)            (5,542)
   Proceeds from sale of assets........................................                 34                9                 63
   Decrease (increase) in deposits.....................................               (147)             490                 --
   Investment in affiliate.............................................                 --               --               (500)
                                                                              
                  Net cash provided by (used in) investing activities..              7,657           12,037            (15,210)
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.................................................               (155)            (254)            (2,712)
   Purchase of treasury stock..........................................                 --               --                (11)
   Proceeds from issuance of stock.....................................                143               68             75,380
                                                                                ----------        ---------        ----------- 
                 Net cash provided by (used in) financing activities ..                (12)           1,183             78,698
                                                                                ----------        ---------        -----------    
                                                                              
Net increase in cash and cash equivalents..............................              2,054            4,236              6,265
Cash and cash equivalents at beginning of period.......................              4,179            2,029                 --
                                                                                ----------        ---------        ----------- 
                                                                              

Cash and cash equivalents at end of period.............................         $    6,233        $   6,265        $     6,265
                                                                                ==========        =========        ===========
                                                                              

Supplemental disclosures of cash flow information:
   Cash paid during the period for interest............................         $       43        $      14        $       799
Supplemental schedule of noncash financing activities:
   Conversion of notes payable and accrued interest to common stock             $       --        $      --        $     3,043
</TABLE> 

                    The  accompanying  notes  are  an  integral  part  of  these
financial statements.


                                      - 6-

<PAGE>


                          ARONEX PHARMACEUTICALS, INC.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                  June 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 mid-1999.  Accordingly,  there
can be no assurance of the Company's future success.

     The balance sheet at June 30, 1998 and the related statements of operations
and cash flows for the six month  periods  ending June 30, 1998 and 1997 and the
period from inception (June 13, 1986) through June 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
$(6,325,000) and  $(10,487,000) for the six months ended June 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 June 30,  1998,  all
short-term  investments are held to maturity securities consisting of high-grade
commercial paper and United States  Government backed securities with a carrying
value of $13,457,000,  which approximates fair market value and cost.  Long-term
investments at June 30, 1998 are available for sale securities  which are United
States  mortgage  backed  securities  with various  maturity dates over the next
several years that have an amortized cost of $1,596,000,  a fair market value of
$1,509,000 and a gross  unrealized loss of $87,000 at June 30, 1998. The Company
currently has no trading securities.


                                      - 7-

<PAGE>


                          ARONEX PHARMACEUTICALS, INC.
                          (A development stage company)


                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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  $79.7  million  through June 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.

     Three and Six Month Periods Ended June 30, 1997 and 1998

     Interest  income was  $331,000 and $531,000 for the three months ended June
30, 1998 and 1997,  respectively,  a decrease of $200,000.  Interest  income was
$748,000  and  $1,123,000  for the six  months  ended  June 30,  1998 and  1997,
respectively,  a decrease of $375,000.  These  decreases were primarily due to a
decrease of funds available for investment.

     Revenues from research and  development  grants and contracts  were $90,000
and $30,000 for the three months ended June 30, 1998 and 1997, respectively,  an
increase of $60,000. Research and development grants and contracts were $193,000
and $316,000 for the six months  ended June 30, 1998 and 1997,  respectively,  a
decrease of  $123,000.  For the six months  ended June 30,  1997,  research  and
development  revenue was composed of (i) $150,000 in revenue from the initiation
of a license  agreement  with  Boehringer  Mannheim  GmbH and (ii)  $166,000  in
development  revenue from  Targeted  Genetics,  Incorporated  ("Targeted").  The
three-year agreement with Targeted ended in the second quarter of 1997. Research
and development  revenue for the six months ended June 30, 1998 represents Small
Business   Innovative   Grant  Research   ("SBIR")  grant  revenue  relating  to
ZintevirTM.

     Research and  development  expenses were  $5,345,000 and $3,167,000 for the
three  months  ended  June 30,  1998 and  1997,  respectively,  an  increase  of
$2,178,000. Research and development expenses were $9,867,000 and $6,652,000 for
the six months  ended  June 30,  1998 and 1997,  respectively,  an  increase  of
$3,215,000.  These  increases  were primarily due to increases of $1,675,000 and
$2,810,000  in clinical  investigation  costs for the three and six months ended
June 30,  1998,  respectively.  The  majority of these costs  relate to clinical
trials of the Company's lead products,  NYOTRANTM and ATRAGEN(R).  The increases
in research and  development  expenses  also  reflect  increases of $456,000 and
$626,000 in medical  affairs and  regulatory  salaries and payroll costs for the
three  and six  months  ended  June 30,  1998,  respectively,  as the  number of
personnel in these departments increased  significantly from the same periods in
1997.  These  increases  were  partially  offset by  decreases  of $324,000  and
$648,000 in internal  research  expenses for the three and six months ended June
30,  1998 as a  result  of the  elimination  of the  majority  of the  Company's
internal research efforts in the second quarter of 1997.

                                      -9-
<PAGE>
     General and  administrative  expenses  were  $643,000  and $475,000 for the
three  months  ended  June 30,  1998 and  1997,  respectively,  an  increase  of
$168,000.  General and administrative  expenses were $1,547,000 and $931,000 for
the six months  ended  June 30,  1998 and 1997,  respectively,  an  increase  of
$616,000.  These  increases  were primarily due to (i) increases of $121,000 and
$506,000 in salaries and payroll costs; (ii) increases of $29,000 and $60,000 in
business  travel relating  mainly to business  development  activities and (iii)
increases of $53,000 and $25,000 in investor and public  relations  expenses for
the three and six month periods ended June 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 was $9,000 and  $120,000  for the three  months
ended June 30, 1998 and 1997,  respectively,  a decrease of  $111,000.  Interest
expense  and other was $14,000 and  $150,000  for the six months  ended June 30,
1998 and 1997, respectively, a decrease of $136,000. These decreases in interest
expense and other  resulted  primarily  from a loss on disposal of equipment and
leasehold  improvements of $107,000 in the quarter ended June 30, 1997 that were
formerly used in  now-discontinued  research  activities.  These  decreases were
partially  offset by a decrease in interest expense as a result of a decrease in
the average amount of outstanding debt relating to laboratory equipment obtained
through leases and loans.

     Net loss was  $5,576,000 and $3,201,000 for the three months ended June 30,
1998 and 1997,  respectively,  an increase of  $2,375,000.  Net loss for the six
months  ended  June  30,  1998  and  1997,  respectively,  was  $10,487,000  and
$6,294,000, an increase of $4,193,000. These increases were primarily due to the
increase 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 June 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  Corporation  ("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 1996, the Company
raised net proceeds of approximately $11.5 and $32.1 million,  respectively,  in
public  offerings of Common Stock.  From October 1995 through June 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.  From its
inception  until June 30, 1998,  the Company also  received an aggregate of $4.9
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 $8.9 million and $5.6
million was used in operating activities during the first six months of 1998 and
1997,  respectively.  The Company had cash,  cash-equivalents and short-term and
long-term investments of $21.2 million as of June 30, 1998, consisting primarily
of cash and money market accounts,  and United States government  securities and
investment grade commercial paper.

     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
Food and Drug  Administration and other regulatory  approvals are obtained.  The
Company expects that its existing  capital  resources will be sufficient to fund
its capital requirements through mid- 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

                                      - 10-
<PAGE>

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 200

     Year 2000 issues result from the inability of certain computer  programs or
computerized  equipment 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  should not impact 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 4.       Submission of Matters to a Vote of Security Holders

     The Annual Meeting of the Stockholders of Aronex Pharmaceuticals,  Inc. was
held on June 11, 1998 to consider and vote upon the following proposals:

(i)  Election of Class I Directors. The following individuals were nominated and
     elected as Class I directors,  with the  following  numbers of shares voted
     for and against and withheld for each director:
<TABLE>
<CAPTION>

                                                                       For                     Withheld
<S>                                                                <C>                               <C>    
                    Ronald J. Brenner, Ph.D.                       13,615,107                   168,212
                    Martin P. Sutter                               13,744,518                    38,801

                                                                      For          Against       Abstain
(ii) Approval and adoption of 1998 Stock Option Plan               11,376,223     2,291,320      49,623

(iii) Ratification and approval of Arthur Andersen LLP
     as independent public accountants                             13,711,914     51,431         19,974
</TABLE>




                                                      - 12-

<PAGE>



Item 6.    Exhibits and Reports on Form 8-K

   (a) Exhibits

          10.1 Aronex Pharmaceuticals, Inc. 1998 Stock Option Plan.

          10.2 Employment  Agreement dated June 12, 1998 between the Company and
               Praveen Tyle, Ph.D.

          10.3 Employment  Agreement  dated June 12,1998 between the Company and
               Paul A. Cossum, Ph.D.

          10.4 Employment  Agreement dated June 12, 1998 between the Company and
               Terance A. Murnane.

          11.1 Statement regarding computation of per share earnings.

          27.1 Financial data schedule.

   (b) Reports on Form 8-K

       None


                                      - 13-

<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:     August 12, 1998                          By:/S/GEOFFREY F. COX
                                                       ------------------
                                                    Geoffrey F. Cox, Ph.D.
                                                    Chief Executive Officer







Dated:     August 12, 1998                          By:/S/TERANCE A. MURNANE
                                                       ---------------------
                                                    Terance A. Murnane
                                                    Controller
 
                                     - 14-