##### Table of Contents



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, 2001 or

|       |                                                                                                                              
|------ | -----------------------------------------------------------------------------------------------------------------------------
|[    ] | Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the transition
period from 
to
.

Commission File Number 0-16614

NeoRx Corporation

(Exact Name of Registrant as Specified in its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|WASHINGTON                                                     |  | 91-1261311                       
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)

410 West Harrison Street, Seattle, Washington 98119

(Address of Principal Executive Offices) (Zip Code)


Registrants telephone number, including area code: (206) 281-7001

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 [    ]

Applicable only to corporate issuers:

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

As of July 31, 2001 there were outstanding 26,419,311 shares of the Companys
Common Stock, $.02 par value.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 2. Changes in Securities and Use of Proceeds                                            
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|EXHIBIT INDEX                
|SIGNATURE                    



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##### Table of Contents



TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001

|        |  |                                                                                                           |  |     
|------- |  | --------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                           |  | Page
|        |  |                                                                                                           |  |     
|PART I  |  | FINANCIAL INFORMATION                                                                                     |  |     
|       
|       
|       
|       
|Item 1. |  | Financial Statements:                                                                                     |  |     
|       
|       
|       
|       
|        |  | Condensed Consolidated Balance
Sheets as of June 30,
2001 and December 31, 2000                           |  | 3   
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements
of Operations for the three and six
months ended June 30, 2001 and 2000 |  | 4   
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 2001 and 2000           |  | 5   
|       
|       
|       
|       
|        |  | Notes to Condensed Consolidated
Financial Statements                                                      |  | 6   
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis
of Results of Operations and
Financial Condition                     |  | 10  
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative
Disclosures About Market Risk                                                |  | 28  
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                                                                         |  |     
|       
|       
|       
|       
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                 |  | 29  
|       
|       
|       
|       
|Item 4. |  | Submission of Matters to a Vote of
Security Holders                                                       |  | 30  
|       
|       
|       
|       
|Item 5. |  | Other Information                                                                                         |  | 30  
|       
|       
|       
|       
|Item 6. |  | Exhibits                                                                                                  |  | 31  
|       
|       
|       
|       
|        |  | Signature                                                                                                 |  | 35  

2



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##### Table of Contents









PART I. FINANCIAL INFORMATION







Item 1. Financial Statements

NEORX CORPORATION AND SUBSIDIARY







CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |          |        |        | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | -------- | ------ | ------------ | -------- | ------ | ------ | 
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          | June 30, |        | December 31,
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          | 2001     |        | 2000        
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |             
|ASSETS                              
|                                    
|                                    
|                                    
|                                    
|CURRENT ASSETS:                      |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                                                 |                                                                                                                                                                                                                           | $                                          | 2,583    |          |        | $            | 8,389    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Investment securities                                                                                                                                                     |                                                                                                                                                                                                                           |                                            | 40,540   |          |        |              | 49,189   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Notes receivable                                                                                                                                                          |                                                                                                                                                                                                                           |                                            | 2,612    |          |        |              | 2,617    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other current assets                                                                                                                                 |                                                                                                                                                                                                                           |                                            | 1,104    |          |        |              | 1,333    |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total current assets                       |          |          | 46,839 |              |          |        | 61,528 | 
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|PROPERTY AND EQUIPMENT, at cost:     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                    
|                                    
|                                    
|                                    
|                                     | Land                                                                                                                                                                      |                                                                                                                                                                                                                           |                                            | 460      |          |        |              |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Building                                                                                                                                                                  |                                                                                                                                                                                                                           |                                            | 9,000    |          |        |              |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Leasehold improvements                                                                                                                                                    |                                                                                                                                                                                                                           |                                            | 3,283    |          |        |              | 3,283    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Equipment and furniture                                                                                                                                                   |                                                                                                                                                                                                                           |                                            | 11,012   |          |        |              | 6,152    |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | 23,755                                     |          |          |        | 9,435        |         
|                                    
|                                    
|                                    
|                                    
|                                     | Less: accumulated depreciation and amortization                                                                                                                           |                                                                                                                                                                                                                           |                                            | (8,239   | )        |        |              | (7,791   | )     
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Facilities and equipment, net              |          |          | 15,516 |              |          |        | 1,644  | 
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|OTHER ASSETS, net                    |                                                                                                                                                                           |                                                                                                                                                                                                                           | 1,233                                      |          |          |        | 1,286        |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total Assets                               |          | $        | 63,588 |              |          | $      | 64,458 | 
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|CURRENT LIABILITIES:                 |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                                                          |                                                                                                                                                                                                                           | $                                          | 1,048    |          |        | $            | 1,702    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued liabilities                                                                                                                                                       |                                                                                                                                                                                                                           |                                            | 951      |          |        |              | 511      |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total current liabilities                  |          |          | 1,999  |              |          |        | 2,213  | 
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|LONG-TERM LIABILITIES:               |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                    
|                                    
|                                    
|                                    
|                                     | Note payable                                                                                                                                                              |                                                                                                                                                                                                                           |                                            | 6,000    |          |        |              |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                                                                                                                                     |                                                                                                                                                                                                                           |                                            | 75       |          |        |              |         |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total long-term liabilities                |          |          | 6,075  |              |          |        |       | 
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|SHAREHOLDERS EQUITY                 |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                    
|                                    
|                                    
|                                    
|                                     | Preferred stock, $.02 par value, 3,000,000 shares authorized:                                                                                                             |                                                                                                                                                                                                                           |                                            |          |          |        |              |          |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                                                           | Convertible exchangeable preferred stock, Series 1,
205,340 shares issued and outstanding at June 30, 2001
and December 31, 2000 (entitled in liquidation to $5,175
at June 30, 2001 and December 31, 2000, respectively) |                                            |          | 4        |        |              |          | 4      |       
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, $.02 par value, 60,000,000 shares authorized,
26,406,811 and 26,197,699 shares issued and outstanding,
at June 30, 2001 and December 31, 2000, respectively |                                                                                                                                                                                                                           |                                            | 528      |          |        |              | 524      |       
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                                                                |                                                                                                                                                                                                                           |                                            | 223,036  |          |        |              | 220,702  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated deficit                                                                                                                                                       |                                                                                                                                                                                                                           |                                            | (168,402 | )        |        |              | (159,001 | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income  unrealized
gain on investment securities                                                                                         |                                                                                                                                                                                                                           |                                            | 348      |          |        |              | 16       |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           | Total shareholders equity                                                                                                                                                                                                |                                            |          | 55,514   |        |              |          | 62,245 |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total liabilities and shareholders equity |          | $        | 63,588 |              |          | $      | 64,458 | 
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |          |          |        |              |         

See accompanying notes to the condensed consolidated financial statements.

3



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##### Table of Contents



NEORX CORPORATION AND SUBSIDIARY







CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share data)
(unaudited)

|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |       |        |  | 
|-------------------------------------------------------------- | ------------------------------------------ | ---------------------------- | ------ | ----- | -------------- | - | -------------- | ----- | ----- | - | ------- | ----- | ------ | - | ------- | ----- | ------ |  | 
|                                                               |                                            |                              |        |       | Three months   |   | Six months    
|                                                               |                                            |                              |        |       | ended June 30, |   | ended June 30,
|                                                               |                                            |                              |        |       |                |   |               
|                                                               |                                            |                              |        |       | 2001           |   | 2000           |       | 2001  |   | 2000   
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |        
|REVENUE                                                        |                                            | $                            | 37     |       |                | $ | 727            |       |       | $ | 1,076   |       |        | $ | 904     |      
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|OPERATING EXPENSES:                                            |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Research and development                   |                              |        | 4,751 |                |   |                | 3,496 |       |   |         | 8,671 |        |   |         | 8,050 |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | General and administrative                 |                              |        | 1,693 |                |   |                | 1,566 |       |   |         | 3,259 |        |   |         | 3,103 |       
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|                                                               |                                            | Total operating expenses     |        |       | 6,444          |   |                |       | 5,062 |   |         |       | 11,930 |   |         |       | 11,153 | 
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|Loss from operations                                           |                                            |                              | (6,407 | )     |                |   | (4,335         | )     |       |   | (10,854 | )     |        |   | (10,249 | )    
|                                                              
|                                                              
|                                                              
|                                                              
|OTHER INCOME (EXPENSE):                                        |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                            |                              |        | 845   |                |   |                | 505   |       |   |         | 1,658 |        |   |         | 772   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                      |                              |        | 98    |                |   |                |      |       |   |         | 98    |        |   |         |      |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Realized gain (loss) on sale of
securities |                              |        | 14    |                |   |                | (8    | )     |   |         | 99    |        |   |         | 3,302 |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest expense                           |                              |        | (120  | )              |   |                | (17   | )     |   |         | (152  | )      |   |         | (46   | )     
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|                                                               |                                            | Total other income (expense) |        |       | 837            |   |                |       | 480   |   |         |       | 1,703  |   |         |       | 4,028  | 
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|Net loss                                                       |                                            | $                            | (5,570 | )     |                | $ | (3,855         | )     |       | $ | (9,151  | )     |        | $ | (6,221  | )    
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|Preferred stock dividends                                      |                                            |                              | (125   | )     |                |   | (127           | )     |       |   | (250    | )     |        |   | (254    | )    
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|Net loss applicable to common shares                           |                                            | $                            | (5,695 | )     |                | $ | (3,982         | )     |       | $ | (9,401  | )     |        | $ | (6,475  | )    
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|Net loss per common share  basic and
diluted                  |                                            | $                            | (.22   | )     |                | $ | (.17           | )     |       | $ | (.36    | )     |        | $ | (.29    | )    
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      
|Weighted average common shares
outstanding  basic and diluted |                                            |                              | 26,394 |       |                |   | 23,287         |       |       |   | 26,320  |       |        |   | 22,325  |      
|                                                               |                                            |                              |        |       |                |   |                |       |       |   |         |       |        |   |         |      

See accompanying notes to the condensed consolidated financial statements.

4



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##### Table of Contents



NEORX CORPORATION AND SUBSIDIARY







CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                                            |                                                |   |                |      |      |   |         |        |  
|--------------------------------------------------------------------------- | ---------------------------------------------- | - | -------------- | ---- | ---- | - | ------- | ------ | -
|                                                                            |                                                |   | Six months    
|                                                                            |                                                |   | ended June 30,
|                                                                            |                                                |   |               
|                                                                            |                                                |   | 2001           |      | 2000
|                                                                            |                                                |   |                |      |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                                                |   |                |      |      |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net loss                                                                    |                                                | $ | (9,151         | )    |      | $ | (6,221  | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Adjustments to reconcile net loss to net
cash used in operating activities: |                                                |   |                |      |      |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Depreciation and amortization                  |   |                | 516  |      |   |         | 171    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Gain on sale of securities                     |   |                | (99  | )    |   |         | (3,302 | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Common stock issued for services               |   |                |     |      |   |         | 81     |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Stock options and warrants issued for services |   |                | 741  |      |   |         | 206    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Decrease in notes receivable                   |   |                | 5    |      |   |         |       |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Decrease in prepaid expenses and other assets  |   |                | 390  |      |   |         | 26     |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Increase (decrease) in accounts payable        |   |                | (654 | )    |   |         | 117    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Increase (decrease) in accrued liabilities     |   |                | 340  |      |   |         | (260   | )
|                                                                            |                                                |   |                |      |      |   |         |       
|Net cash used in operating activities                                       |                                                |   | (7,912         | )    |      |   | (9,182  | )     
|                                                                            |                                                |   |                |      |      |   |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                                                |   |                |      |      |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from sales of investment securities                                |                                                |   | 26,327         |      |      |   | 15,276  |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Purchases of investment securities                                          |                                                |   | (17,247        | )    |      |   | (24,269 | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Property and equipment purchases                                            |                                                |   | (7,033         | )    |      |   | (158    | )     
|                                                                            |                                                |   |                |      |      |   |         |       
|Net cash provided by (used in) investing activities                         |                                                |   | 2,047          |      |      |   | (9,151  | )     
|                                                                            |                                                |   |                |      |      |   |         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |                                                |   |                |      |      |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from common stock issued                                           |                                                |   |               |      |      |   | 17,979  |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from stock options and warrants exercised                          |                                                |   | 309            |      |      |   | 1,826   |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Retirement of convertible subordinated debentures                           |                                                |   |               |      |      |   | (1,172  | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Preferred stock dividends                                                   |                                                |   | (250           | )    |      |   | (254    | )     
|                                                                            |                                                |   |                |      |      |   |         |       
|Net cash provided by financing activities                                   |                                                |   | 59             |      |      |   | 18,379  |       
|                                                                            |                                                |   |                |      |      |   |         |       
|Net increase (decrease) in cash and cash equivalents                        |                                                |   | (5,806         | )    |      |   | 46      |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash and cash equivalents:                                                  |                                                |   |                |      |      |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Beginning of period                                                         |                                                |   | 8,389          |      |      |   | 3,752   |       
|                                                                            |                                                |   |                |      |      |   |         |       
|End of period                                                               |                                                | $ | 2,583          |      |      | $ | 3,798   |       
|                                                                            |                                                |   |                |      |      |   |         |       
|SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND
INVESTING ACTIVITIES:      |                                                |   |                |      |      |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Assets acquired through assumption of liabilities                           |                                                | $ | 6,175          |      |      | $ |        |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Issuance of stock warrants                                                  |                                                |   | 1,288          |      |      |   |        |       

See accompanying notes to the condensed consolidated financial statements.

5



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NEORX CORPORATION AND SUBSIDIARY







NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial
statements include the accounts of NeoRx Corporation and
subsidiary (the Company). All significant intercompany balances
and transactions have been eliminated in consolidation.

The interim financial statements contained herein 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 are
adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the
Companys annual report on Form 10-K for the year ended December
31, 2000.

In the opinion of management, the interim financial
statements reflect all adjustments, consisting only of normal
recurring accruals necessary to present fairly the Companys
financial position as of June 30, 2001 and the results of its
operations and cash flows for the periods ended June 30, 2001 and
2000.

The results of operations for the period ended June 30, 2001
are not necessarily indicative of the expected operating results
for the full year.

Note 2. Shareholders Equity

Changes in shareholders equity from December 31, 2000 to
June 30, 2001 are as follows (in thousands):

|                           |                                                                                   |   |        |        |  
|-------------------------- | --------------------------------------------------------------------------------- | - | ------ | ------ | -
|Balance, December 31, 2000 |                                                                                   | $ | 62,245 |       
|                          
|                          
|                          
|                          
|                           | Proceeds from stock options and warrants exercised                                |   |        | 309    |  
|                          
|                          
|                          
|                          
|                           | Stock options and warrants issued for services                                    |   |        | 741    |  
|                          
|                          
|                          
|                          
|                           | Stock warrants issued for asset purchases                                         |   |        | 1,288  |  
|                          
|                          
|                          
|                          
|                           | Preferred stock dividends                                                         |   |        | (250   | )
|                          
|                          
|                          
|                          
|                           | Net loss                                                                          |   |        | (9,151 | )
|                          
|                          
|                          
|                          
|                           | Accumulated other comprehensive income  unrealized gain on
investment securities |   |        | 332    |  
|                           |                                                                                   |   |        |       
|Balance, June 30, 2001     |                                                                                   | $ | 55,514 |       
|                           |                                                                                   |   |        |       

6



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NEORX CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Loss per share

The following is a reconciliation of the numerator and denominator of the
basic and diluted loss per share computations for the three and six months
ended June 30, 2001 and 2000 (in thousands, except per share data):

|                                                               |  |                |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------- |  | -------------- | ------ | -------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                               |  | Three months   |        | Six Months    
|                                                               |  | ended June 30, |        | ended June 30,
|                                                               |  |                |        |               
|                                                               |  | 2001           |        | 2000           |  | 2001 |        | 2000
|                                                               |  |                |        |                |  |      |        |     
|Net loss                                                       |  | $              | (5,570 | )              |  | $    | (3,855 | )    |  | $ | (9,151 | ) |  | $ | (6,221 | )
|                                                              
|                                                              
|                                                              
|                                                              
|Less: Preferred stock dividends                                |  |                | (125   | )              |  |      | (127   | )    |  |   | (250   | ) |  |   | (254   | )
|                                                               |  |                |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Net loss applicable
to common shares                           |  | $              | (5,695 | )              |  | $    | (3,982 | )    |  | $ | (9,401 | ) |  | $ | (6,475 | )
|                                                               |  |                |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares
outstanding  basic and diluted |  |                | 26,394 |                |  |      | 23,287 |      |  |   | 26,320 |   |  |   | 22,325 |  
|                                                               |  |                |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Net loss per common share 
basic and diluted                  |  | $              | (.22   | )              |  | $    | (.17   | )    |  | $ | (.36   | ) |  | $ | (.29   | )
|                                                               |  |                |        |                |  |      |        |      |  |   |        |   |  |   |        |  

The denominator for diluted net loss per share calculations for the three
and six months ended June 30, 2001 and 2000 excludes the effect of options to
purchase additional shares of common stock because the share increments would
be antidilutive. Excluded for the three and six months ended June 30, 2001 and
2000 were 4,142,450 and 3,404,103 shares of common stock issuable under stock
options, respectively.

In addition, 234,088 and 235,114 shares of common stock
issuable upon conversion of Series 1 Preferred Stock were not
included in the calculation of diluted loss per share for the
three and six months ended June 30, 2001 and 2000, respectively,
because the effect of including such shares would have been
antidilutive. For the same reason, outstanding warrants to
purchase 1,055,000 and 305,000 shares of common stock at June 30,
2001 and 2000, respectively, were excluded from the calculation.

7



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NEORX CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 4. Comprehensive Loss

The Companys comprehensive loss for the quarters ended June
30, 2001 and 2000 was $5,522,000 and $3,871,000, respectively.
The comprehensive loss for the quarters ended June 30, 2001 and
2000 consisted of net loss of $5,570,000 and $3,855,000,
respectively, and an unrealized gain (loss) on investment
securities of $48,000 and $(16,000), respectively. The Companys
comprehensive loss for the six months ended June 30, 2001 and 2000
was $8,819,000 and $6,631,000, respectively. The comprehensive
loss for the six months ended June 30, 2001 and 2000 consisted of
net loss of $9,151,000 and $6,221,000, respectively, and a net
unrealized gain (loss) on investment securities of $332,000 and
$(410,000), respectively.

Note 5. New Accounting Pronouncement

In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, also known as
SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes a new model for accounting for
derivatives and hedging activities and supersedes and amends
existing accounting standards and was required to be adopted on
January 1, 2001. SFAS 133 requires that all derivatives be
recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in
the statement of operations or as a component of other
comprehensive income depending on the type of hedge relationship
that exists with respect to such derivative. The adoption of SFAS
133 on January 1, 2001 did not have an impact on the Companys
financial statements.

Note 6. Asset Acquisition

On April 19, 2001, the Company completed its purchase from
International Isotopes Inc. of a radiopharmaceutical manufacturing
facility and certain other related assets in Denton, Texas. The
facility acquired has achieved cGMP status, or current Good
Manufacturing Practices, and has qualified for issuance of
appropriate radiation permits from the State of Texas. The Company
has hired certain former employees of International Isotopes to
serve on the Companys radiopharmaceutical manufacturing team at
the facility. The Company intends to use the facility primarily
to produce its STR and other products in development.
Additionally, the Company intends to explore certain select
opportunities to provide manufacturing contract services to third
parties. To acquire the facility and related assets, the Company
paid $6,000,000 in cash and assumed $6,000,000 of restructured
debt of International Isotopes. The assets acquired secure the
note payable of $6,000,000. Commissions of $611,680 relating to
this purchase were paid to a related party, Bay City Capital BD,
LLC.

8



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NEORX CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In addition, the Company issued to International Isotopes a three-year warrant to
purchase up to 800,000 shares of NeoRx common stock at a purchase
price of $10 per share. The warrant is exercisable at any time during
the term of the warrant. If at any time during the term of the
warrant the closing price of the Companys common stock equals or
exceeds $20 per share, the Company at any time  thereafter will have
the right to acquire all or any portion of the shares issuable under
the warrant at a nominal amount. The Company must give at least
15 dayss written notice of its election to purchase the shares issuable
under the warrant and the purchase date on or after which it may
consummate such purchase. The holder of the warrant may exercise
the warrant through the payment of the exercise price prior to the
purchase date set forth in the notice. The warrant was valued at $1.61
per share. In July 2001, International Isotopes transferred the
warrant to certain of its preferred shareholders. On July 25, 2001,
the Company filed with Securities and Exchange Commission a
registration statement to register the shares underlying the warrant.
As of the date of this report, the registration statement has not
been declared effective by the SEC.

Summary of the purchase price for the radiopharmaceutical
manufacturing plant is as follows:

|                         |  |   |            | 
|------------------------ |  | - | ---------- | 
|Cash                     |  | $ | 6,000,000  | 
|                        
|                        
|                        
|                        
|Stock warrant            |  |   | 1,288,000  | 
|                        
|                        
|                        
|                        
|Direct acquisition costs |  |   | 1,146,000  | 
|                        
|                        
|                        
|                        
|Note payable             |  |   | 6,000,000  | 
|                        
|                        
|                        
|                        
|Liabilities assumed      |  |   | 378,000    | 
|                         |  |   |            | 
|Total purchase price     |  | $ | 14,812,000 | 
|                         |  |   |            | 

The purchase price was allocated as follows:

|                        |  |   |            | 
|----------------------- |  | - | ---------- | 
|Land                    |  | $ | 460,000    | 
|                       
|                       
|                       
|                       
|Building                |  |   | 9,000,000  | 
|                       
|                       
|                       
|                       
|Machinery and equipment |  |   | 4,132,000  | 
|                       
|                       
|                       
|                       
|Furniture and fixtures  |  |   | 344,000    | 
|                       
|                       
|                       
|                       
|Licenses and processes  |  |   | 786,000    | 
|                       
|                       
|                       
|                       
|Workforce               |  |   | 90,000     | 
|                        |  |   |            | 
|Total                   |  | $ | 14,812,000 | 
|                        |  |   |            | 

9



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NEORX CORPORATION AND SUBSIDIARY







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

This Form 10-Q contains forward-looking statements. These statements
relate to future events or future financial performance. In some cases, you can
identify forward-looking statements by terminology such as may, will,
should, expect, plan, intend, anticipate, believe, estimate,
predict, potential, propose or continue, the negative of these terms or
other terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors described below in the section entitled
Additional factors that may affect results. These factors may cause our
actual results to differ materially from any forward-looking statement.

Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
our forward-looking statements, which apply only as of the date of this report.

Quarter and six months ended June 30, 2001 compared to quarter and six months
ended June 30, 2000.

Revenue for the quarter ended June 30, 2001 was $37,000 compared to
$727,000 for the quarter ended June 30, 2000. Revenue for the six months ended
June 30, 2001 was $1,076,000 compared to $904,000 for the six months ended June
30, 2000. Revenue for the three and six months ended June 30, 2001 was
primarily from government grants. The Company recognizes revenue from
government grants as the services are provided and the grant revenue earned.
Revenue for the six months ended June 30, 2000 consisted primarily of a
$500,000 milestone payment for the filing of regulatory documents to initiate
studies of a paclitaxel-coated stent, $197,000 from federal government grants
and licensing revenue from Theseus, Ltd., under an agreement licensing certain
technology unrelated to NeoRxs primary product development programs.

Total operating expenses for the quarter ended June 30, 2001 increased 27%
to $6,444,000 from $5,062,000 in the quarter ended June 30, 2000, and for the
six-month period ended June 30, 2001 increased 7% to $11,930,000 from
$11,153,000 in the same period in the prior year. Research and development
expenses for the quarter ended June 30, 2001 increased 36% to $4,751,000 from
$3,496,000 for the same time period in 2000, and for the six-month period ended
June 30, 2001 increased 8% to $8,671,000 from $8,050,000 in the same period in
the prior year. The increase in research and development costs for the second
quarter of 2001 and the first half of 2001 is primarily the result of increased
operating costs for the new radiopharmaceutical facility in Denton, Texas.
Second quarter research and development costs also increased as the result

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NEORX CORPORATION AND SUBSIDIARY

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

of higher costs for supplies related to the PRETARGET® technology.

General and administrative expenses for the quarter ended June 30, 2001
increased 8% to $1,693,000 from $1,566,000 for the quarter ended June 30, 2000.
General and administrative expenses for the six months ended June 30, 2001
increased 5% to $3,259,000 from $3,103,000. General and administrative
expenses for the quarter and six months ended June 30, 2001 increased primarily
due to expenses for outside consulting services.

Other income for the second quarter of 2001 was $837,000 compared to
$480,000 for the second quarter of 2000. Other income for the second quarter
of 2001 consisted primarily of interest and rental income. Other income for
the second quarter of 2000 consisted primarily of interest income. The
increase in interest income is due to a higher balance of investment
securities. Other income for the six months ended June 30, 2001 was $1,703,000
compared to $4,028,000 for the six months ended June 30, 2000. Other income
for the six months ended June 30, 2000 included a $3,310,000 realized gain on
the sale of the Companys shares of Angiotech Pharmaceuticals, Inc.

Liquidity and capital resources.

Cash and investment securities as of June 30, 2001 were $43,123,000
compared to $57,578,000 at December 31, 2000. Investing activities provided
approximately $2,047,000 of cash during the six months ended June 30, 2001,
which included $9,080,000 of cash provided through sales of
investment securities and $7,033,000 of cash used for the acquisition of the radiopharmaceutical facility
located in Denton, Texas and other capital assets. Operating activities used
approximately $7,912,000 of cash during the six months ended June 30, 2001.

The Company expects that its existing cash, investment securities and
related earnings will be sufficient to finance currently anticipated working
capital and capital asset requirements through at least the third quarter of
2002. The Companys actual cash requirements will depend on numerous factors,
including results of research and development activities and clinical trials,
the levels of resources that the Company devotes to establishing and expanding
manufacturing capabilities, competitive and technological developments and the
timing of revenues and expense reimbursements resulting from relationships with
third parties or collaborative agreements. The Companys cash requirements are
also increased due to the acquisition of the radiopharmaceutical facility in
Denton, Texas. The Company intends to seek additional funding through
arrangements with corporate partners, public or private equity financing, or
other sources.

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NEORX CORPORATION AND SUBSIDIARY

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

There can be no assurance that the Company will be able to obtain such
additional capital or enter into relationships with corporate partners on a
timely basis, on favorable terms, or at all. If adequate funds are not
available, the Company may be required to delay, reduce or eliminate
expenditures for certain of its programs or product candidates or enter into
relationships with corporate partners to develop or commercialize products or
technologies that the Company would otherwise seek to develop or commercialize
itself.

New accounting pronouncements.

On July 20, 2001, the FASB issued Statement No. 141, Business
Combinations,and Statement No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that all business combinations be accounted for under a
single method  the purchase method. Use of the pooling-of-interests method is
no longer permitted. Statement 141 requires that the purchase method be used
for business combinations initiated after June 30, 2001. Statement 142
requires that goodwill no longer be amortized to earnings, but instead be
reviewed for impairment. The amortization of goodwill ceases upon adoption of
the Statement, which will be adopted by the company on January 1, 2002. The
adoption of this statement is not expected to have a material impact on our
financial statements.

Recent developments.

On April 19, 2001, the Company completed its purchase from International
Isotopes Inc. of a radiopharmaceutical manufacturing plant and certain other
related assets in Denton, Texas. The facility acquired has achieved cGMP
status and has qualified for issuance of appropriate radiation permits from the
State of Texas. The Company has hired certain former employees of International
Isotopes to serve on the Companys radiopharmaceutical manufacturing team at
the facility. The Company intends to use the facility primarily to produce its
STR and other products in development. Additionally, the Company intends to
explore certain select opportunities to provide manufacturing contract services
to third parties. To acquire the facility and related assets, the Company paid
$6,000,000 in cash and assumed $6,000,000 of restructured debt of International
Isotopes. In addition, the Company issued to International Isotopes a three-year warrant to
purchase up to 800,000 shares of NeoRx common stock at a purchase
price of $10 per share. The warrant is exercisable at any time during
the term of the warrant. If at any time during the term of the
warrant the closing price of the Companys common stock equals or
exceeds $20 per share, the Company at any time  thereafter will have
the right to acquire all or any portion of the shares issuable under
the warrant at a nominal amount. The Company must give at least
15 dayss written notice of its election to purchase the shares issuable
under the warrant and the purchase date on or after which it may
consummate such purchase. The holder of the warrant may exercise
the warrant through the payment of the exercise price prior to the
purchase date set forth in the notice. In July 2001, International Isotopes transferred the
warrant to certain of its preferred shareholders. On July 25, 2001,
the Company filed with Securities and Exchange Commission a
registration statement to register the shares underlying the warrant.
As of the date of this report, the registration statement has not
been declared effective by the SEC.

12



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##### Table of Contents



NEORX CORPORATION AND SUBSIDIARY

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

Subsequent events.

Effective July 30, 2001, Paul G. Abrams, MD, JD, resigned as President and
Chief Executive Officer and as a Director of the Company, and Douglass B.
Given, MD, PhD, was appointed to those positions. See Form 8-K filed with the
Commission on July 31, 2001 for additional information.

Additional factors that may affect results.

In addition to the other information contained in this report, the
following factors could affect the Companys actual results and could cause our
actual results to differ materially from those achieved in the past or
expressed in our forward looking statements.

We have a history of operating losses, we expect to continue to incur losses,
and we may never become profitable.

We have not been profitable for any year since our formation in 1984. As
of June 30, 2001, we had an accumulated deficit of $168 million. These losses
have resulted principally from costs incurred in our research and development
programs and from our general and administrative costs. To date, we have been
engaged only in research and development activities and have not generated any
significant revenues from product sales. We do not anticipate that any of our
proposed products will be commercially available for several years. We expect
to incur additional operating losses in the future. We expect the recent
purchase of a radiopharmaceutical manufacturing facility and certain other
assets located in Denton, Texas to increase our operating losses. These losses
may increase significantly as we expand development and clinical trial efforts.
Our ability to achieve long-term profitability is dependent upon obtaining
regulatory approvals for our proposed products and successfully commercializing
our products alone or with third parties. However, our operations may not be
profitable even if we succeed in commercializing any of our products under
development.

We will need to raise additional capital, and our future access to capital is
uncertain.

It is expensive to develop cancer therapy products and conduct

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NEORX CORPORATION AND SUBSIDIARY

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

clinical trials for these products. We plan to continue to
simultaneously conduct clinical trials and preclinical research for a
number of different cancer therapy products, which is costly. Our future
revenues may not be sufficient to support the expense of our operations and the
conduct of our clinical trials and preclinical research. We will need to raise
additional capital:



| |  |  | To fund operations;                                                        
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | To continue the research and development of our therapeutic
products;      
|
| |  |  | To maintain and develop our radiopharmaceutical manufacturing
facility; and
|
| |  |  | To commercialize our proposed products.                                    

We believe that our existing funds will be sufficient to satisfy our
financing requirements through at least the third quarter of 2002. However, we
may need additional financing within this time frame depending on a number of
factors, including the following:



| |  |  | The rate of progress and costs of our research and development and
clinical trial activities;                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The costs of developing manufacturing operations;                                                                           
|
| |  |  | The costs of developing and expanding marketing operations, if we
undertake those activities;                               
|
| |  |  | The amount of milestone payments we might receive from potential
collaborators;                                             
|
| |  |  | Our degree of success in commercializing our cancer therapy
products;                                                       
|
| |  |  | The emergence of competing technologies and other adverse market
developments;                                              
|
| |  |  | Changes in or terminations of our existing collaborations and
licensing arrangements; and                                   
|
| |  |  | The costs of preparing, filing, prosecuting, maintaining and
enforcing patent claims and other intellectual property rights.

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NEORX CORPORATION AND SUBSIDIARY

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

We may not be able to obtain additional financing on favorable
terms or at all. If we are unable to raise additional funds when we need
them, we may be required to delay, reduce or eliminate some or all of our
development programs and some or all of our clinical trials. We also may be
forced to partner with third parties to develop or commercialize products or
technologies that we otherwise would have sought to develop independently. If
we raise additional funds by issuing equity securities, further dilution to
shareholders may result, and new investors could have rights superior to
current security holders.

Our potential products must undergo rigorous clinical testing and regulatory
approvals, which could be costly, time consuming, subject us to unanticipated
delays or prevent us from marketing any products.

The manufacture and marketing of our proposed products and our research
and development activities are subject to regulation for safety, efficacy and
quality by the U.S. Food and Drug Administration in the United States and
comparable authorities in other countries.

The process of obtaining FDA and other required regulatory approvals,
including foreign approvals, is expensive and often takes many years and can
vary substantially based upon the type, complexity and novelty of the products
involved. Our Skeletal Targeted Radiation, which we call STR, and PRETARGET®
products are novel; therefore, regulatory agencies lack experience with them.
This may lengthen the regulatory review process, increase our development costs
and delay or prevent commercialization of our STR and PRETARGET® products. Our
current STR studies were placed on clinical hold after some phase I/II patients
in our STR multiple myeloma trials developed a serious late toxicity. The FDA
has requested that we collect additional dosimetry data from patients to
demonstrate the accuracy of the method we propose to use to calculate dose in
our phase III trial. We expect our phase III STR trials to be delayed until
the dosimetry trial is completed. The FDA has also suggested that we analyze
our patient data to determine the relevant factors for selecting a radiation
dose likely to produce an appropriate safety profile. Our current STR phase
III protocol could be modified based on this analysis. Our phase III trials
cannot begin until we receive authorization from the FDA, and there is no
guarantee when, if, or under what conditions that will occur.

No cancer products using our STR or PRETARGET® technologies have been
approved for marketing. Consequently, there is no precedent for the successful
commercialization of products based on our technologies. In addition, we have
had only limited experience

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##### Table of Contents



NEORX CORPORATION AND SUBSIDIARY

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

in filing and pursuing applications necessary to
gain regulatory approvals. This may impede our ability to obtain timely FDA approvals, if
at all. We will not be able to commercialize any of our potential products
until we obtain FDA approval, and consequently any delay in obtaining, or
inability to obtain, FDA approval could harm our business.

If we violate regulatory requirements at any stage, whether before or
after marketing approval is obtained, we may be fined, forced to remove a
product from the market and experience other adverse consequences, including
delay, which could materially harm our financial results. Additionally, we may
not be able to obtain the labeling claims necessary or desirable for the
promotion of our proposed products. We may also be required to undertake
post-marketing trials. In addition, if others or we identify side effects
after any of our products are on the market, or if manufacturing problems
occur, regulatory approval may be withdrawn and reformulation of our products,
additional clinical trials, changes in labeling of our products, and additional
marketing applications may be required.

The requirements governing the conduct of clinical trials, manufacturing
and marketing of our proposed products outside the United States vary widely
from country to country. Foreign approvals may take longer to obtain than FDA
approvals and can involve additional testing. Foreign regulatory approval
processes include all of the risks associated with the FDA approval processes.
Also, approval of a product by the FDA does not ensure approval of the same
product by the health authorities of other countries.

We may take longer to complete our clinical trials than we project, or we may
be unable to complete them at all.

Although for planning purposes we project the commencement, continuation
and completion of our clinical trials, a number of factors may cause
significant delays, including scheduling conflicts with participating
clinicians and clinical institutions and difficulties in identifying and
enrolling patients who meet trial eligibility criteria. We may not commence or
complete clinical trials involving any of our products as projected or may not
conduct them successfully.

We rely on academic institutions or clinical research organizations to
conduct, supervise or monitor some or all aspects of clinical trials involving
our proposed products. We will have less control over the timing and other
aspects of those clinical trials than if we conducted them entirely on our own.
If we fail to commence or complete, or experience delays in, any of our

16



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NEORX CORPORATION AND SUBSIDIARY

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

planned clinical trials, our stock price and our ability to conduct
our business as currently planned could be harmed.

If testing of a particular product does not yield successful results, we will
be unable to commercialize that product.

Our research and development programs are designed to test the safety and
efficacy of our proposed products in humans through extensive preclinical and
clinical testing. We may experience numerous unforeseen events during, or as a
result of, the testing process that could delay or prevent commercialization of
our proposed products, including the following:



| |  |  | Safety and efficacy results attained in early human clinical trials
may not be indicative of results that are obtained in later clinical
trials;                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The results of preclinical studies may be inconclusive, or they may
not be indicative of results that will be obtained in human clinical
trials;                                                                    
|
| |  |  | After reviewing test results, we or any potential collaborators may
abandon projects that we previously believed were promising;                                                                                    
|
| |  |  | Our potential collaborators or regulators may suspend or terminate
clinical trials if the participating subjects or patients are being
exposed to unacceptable health risks; and                                    
|
| |  |  | The effects our potential products have may not be the desired
effects or may include undesirable side effects or other
characteristics that preclude regulatory approval or limit their
commercial use if approved.

Clinical testing is very expensive, can take many years, and the outcome
is uncertain. We cannot at this time predict if, when or under what conditions
we will be permitted to restart our proposed STR phase III trial or our other
STR clinical trials. The data collected from our clinical trials may not be
sufficient to support approval by the FDA of our proposed STR multiple myeloma
product, or any of our other proposed products. The clinical trials of our
proposed STR multiple myeloma product and our other products under development
may not be completed on schedule, and the FDA may not ultimately approve any of
our product candidates for commercial sale. Our failure to adequately
demonstrate the safety and efficacy of a cancer therapy product under
development would delay or prevent regulatory approval of the product, which
could prevent us from achieving profitability.

17



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NEORX CORPORATION AND SUBSIDIARY

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

We are dependent on suppliers for the timely delivery of materials
and services and may experience interruptions in supply in the future.

To be successful, we need to develop and maintain reliable and affordable
third party suppliers of:



| |  |  | Commercial quantities of holmium-166, the form of radiation used in
our STR product, and yttrium-90, the form of radiation used in our
PRETARGET® program;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The chemical agent used in our STR product to deliver holmium-166
to the bone; and                                                                        
|
| |  |  | The antibodies and proteins used in our PRETARGET® program.                                                                                               

Sources of some of these materials are limited, and we may be unable to
obtain these materials in amounts and at prices necessary to successfully
commercialize our proposed products. Timely delivery of materials is critical
to our success. For example, holmium-166, the form of radiation used in our
STR product, loses its effectiveness for treating patients within a short
period of time. As a result, our suppliers must ship the STR product to the
patient within 24 hours after it is manufactured. Failures or delays in the
manufacturing and shipping processes could compromise the quality and
effectiveness of our products. We currently depend on a single source vendor
for the holmium-166 component of our STR product. We plan to establish an
additional supplier for this material, but this may take several years. There
are, in general, relatively few alternative sources of holmium-166. While the
current vendor generally has provided us these materials with acceptable
quality, quantity and cost in the past, it may be unable or unwilling to meet
out future demands. If we have to switch to a replacement vendor, the
manufacture and delivery of our products could be interrupted for an extended
period.

We have entered into an arrangement with the University of Missouri
research reactor facility group, also known as MURR, to produce holmium-166.
MURR currently is responsible for the manufacture of holmium-166, including
process qualification, quality control, packaging and shipping, from its
Columbia, Missouri reactor facility. Our business and operations could be
materially adversely affected if MURR does not perform satisfactorily under
this arrangement. If we are unable to negotiate a long-term contract in a
timely fashion upon favorable terms, or if MURR is unable or unwilling to
provide supplies of holmium-166 under such contract in a satisfactory manner,
we may suffer delays in, or be prevented from, initiating or completing

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NEORX CORPORATION AND SUBSIDIARY

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

clinical trials of our STR product.

If we fail to negotiate and maintain collaborative arrangements with third
parties, our manufacturing, clinical testing, sales and marketing activities
may be delayed or reduced.

We rely in part on collaborators and other third parties to perform for us
or assist us with a variety of important functions, including research and
development, manufacturing and clinical trials management. We also license
technology from others to enhance or supplement our technologies. We may not
be able to locate suppliers to manufacture our products at a cost or in
quantities necessary to make them commercially viable. We intend to rely on
third party contract manufacturers to produce large quantities of materials
needed for clinical trials and product commercialization. Third party
manufacturers may not be able to meet our needs with respect to timing,
quantity or quality. If we are unable to contract for a sufficient supply of
needed materials on acceptable terms, or if we should encounter delays or
difficulties in our relationships with manufacturers, our clinical testing may
be delayed, thereby delaying the submission of products for regulatory approval
or the market introduction and subsequent sales of our products. Any such
delay may lower our revenues and potential profitability.

Moreover, we and any of our third-party manufacturers must continually
adhere to cGMP regulations enforced by the FDA through its facilities
inspection program. If our facilities, or the facilities of these
manufacturers, cannot pass a pre-approval plant inspection, the FDA will not
grant pre-market approval of our cancer therapy products. In complying with
cGMP and foreign regulatory requirements, we and any of our third-party
manufacturers will be obligated to expend time, money and effort in production,
record-keeping and quality control to assure that our products meet applicable
specifications and other requirements. If we or any of our third-party
manufacturers fail to comply with these requirements, we may be subject to
regulatory action.

ABC Laboratories, Inc., which we call ABC Labs, currently is our sole
collaborator manufacturing STR for our pending multiple myeloma clinical
trials. As such, ABC Labs would be responsible for all aspects of the
manufacture of STR, including process qualification, quality control, packaging
and shipping. We believe that ABCs manufacturing facilities will be
sufficient to meet our initial needs for the planned STR multiple myeloma and
other STR clinical trials. In the past, we have experienced interruptions in
ABC Labs STR manufacturing processes, which if they occur in the future, could
result in material delays in, or prevent us from completing, our clinical
trials and otherwise commercializing our

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NEORX CORPORATION AND SUBSIDIARY

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

STR product. To help protect against such future interruptions or
delays in supply, on April 19, 2001, we purchased, from International
Isotopes Inc., a radiopharmaceutical manufacturing facility and certain other
assets, located in Denton, Texas. We have hired certain former employees of
International Isotopes to serve on our radiopharmaceutical manufacturing team
at the facility. We intend to use the facility primarily to produce our STR and
other products in development. Additionally, we intend to explore certain
select opportunities to provide manufacturing contract services to third
parties. We currently expect this manufacturing facility to be operational in
the fourth quarter of 2001. In this case, ABC Labs and NeoRx would share the
manufacture of STR for clinical trials.

If we lose or are unable to secure collaborators, or if we are not
successful in initiating manufacturing operations at the Denton, Texas
facility, or if our current collaborators, including ABC Labs, do not apply
adequate resources to their collaboration with us, our product development and
potential for profitability may suffer. We intend to enter into collaborations
for one or more of the research, development, manufacturing, marketing and
other commercialization activities relating to some of our products under
development. If any collaborator breaches or terminates its agreement with us,
or fails to conduct its collaborative activities in a timely manner, the
commercialization of our products under development could be slowed down or
blocked completely. Disputes may arise between us and ABC Labs or other
collaborators on a variety of matters, including financial or other obligations
under our agreements. These disputes may be both expensive and time consuming
and may result in delays in the development and commercialization of our
proposed products.

We face substantial competition in the development of cancer therapies and may
not be able to successfully compete, and our potential products may be rendered
obsolete by rapid technological change.

The competition for development of cancer therapies is intense. There are
numerous competitors developing products to treat the diseases for which we are
seeking to develop products. We are initially focusing our STR product on the
treatment of multiple myeloma. Celgene Corporations thalidomide product is
being sold for multiple myeloma, and Cell Therapeutics, Inc.s arsenic trioxide
also is being tested in that disease. Some competitors have adopted product
development strategies targeting cancer cells with antibodies. Many emerging
companies, including IDEC Pharmaceuticals, Cytogen Corporation and Corixa
Corporation, have corporate partnership arrangements with large, established

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NEORX CORPORATION AND SUBSIDIARY

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

companies to support the research, development and commercialization of
products that may be competitive with ours.
In addition, a number of established pharmaceutical companies, including
SmithKline Beecham, Nycomed Amersham, Mallinkrodt, Inc. and Bristol-Myers
Squibb, are developing proprietary technologies or have enhanced their
capabilities by entering into arrangements with, or acquiring, companies with
proprietary antibody-based technology or other technologies applicable to the
treatment of cancer. Many of our existing or potential competitors have, or
have access to, substantially greater financial, research and development,
marketing and production resources than we do and may be better equipped than
us to develop, manufacture and market competing products. Our competitors may
have, or may develop and introduce, new products that would render our
technology and products under development less competitive, uneconomical or
obsolete.

We also expect to face increasing competition from universities and other
non-profit research organizations. These institutions carry out a significant
amount of cancer research and development. These institutions are becoming
increasingly aware of the commercial value of their findings and more active in
seeking patent and other proprietary rights, as well as licensing revenues.

If we are unable to protect our proprietary rights, we may not be able to
compete effectively, or operate profitably.

Our success is dependent in part on obtaining, maintaining and enforcing
our patents and other proprietary rights and our ability to avoid infringing
the proprietary rights of others. Patent law relating to the scope of claims
in the biotechnology field in which we operate is still evolving and,
consequently, patent positions in our industry may not be as strong as in other
better-established fields. Accordingly, the United States Patent and Trademark
Office may not issue patents from the patent applications owned by or licensed
to us. If issued, the patents may not give us an advantage over competitors
with similar technology.

We own more than 100 issued United States patents and have licenses to
additional patents. However, the issuance of a patent is not conclusive as to
its validity or enforceability and it is uncertain how much protection, if any,
will be given to our patents if we attempt to enforce them and they are
challenged in court or in other proceedings, such as oppositions, which may be
brought in foreign jurisdictions to challenge the validity of a patent. A
third party may challenge the validity or enforceability of a patent after its
issuance by the Patent and Technology Office. It is possible that a competitor
may successfully challenge our patents or that a challenge will result in
limiting their coverage.

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NEORX CORPORATION AND SUBSIDIARY

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

Moreover, the cost of litigation to uphold the
validity of patents and to prevent infringement can be substantial. If the
outcome of
litigation is adverse to us, third parties may be able to use our patented
invention without payment to us. It also is possible that competitors may
infringe our patents or successfully avoid them through design innovation. To
stop these activities we may need to file a lawsuit. These lawsuits are
expensive and would consume time and other resources, even if we were
successful in stopping the violation of our patent rights. In addition, there
is a risk that a court would decide that our patents are not valid and that we
do not have the right to stop the other party from using the inventions. There
is also the risk that, even if the validity of our patents was upheld, a court
would refuse to stop the other party on the ground that its activities do not
infringe our patents.

In addition to the intellectual property rights described above, we rely
on unpatented technology, trade secrets and confidential information.
Therefore, others may independently develop substantially equivalent
information and techniques or otherwise gain access to or disclose our
technology. We may not be able to effectively protect our rights in unpatented
technology, trade secrets and confidential information. We require each of our
employees, consultants and advisors to execute a confidentiality agreement at
the commencement of an employment or consulting relationship with us. However,
these agreements may not provide effective protection of our information or, in
the event of unauthorized use or disclosure, they may not provide adequate
remedies.

The use of our technologies could potentially conflict with the rights of
others.

Our competitors or others may have or acquire patent rights that they
could enforce against us. If they do so, we may be required to alter our
products, pay licensing fees or cease activities. If our products conflict
with patent rights of others, third parties could bring legal actions against
us claiming damages and seeking to enjoin manufacturing and marketing of the
affected products. If these legal actions are successful, in addition to any
potential liability for damages, we could be required to obtain a license in
order to continue to manufacture or market the affected products. We may not
prevail in any legal action and a required license under the patent may not be
available on acceptable terms or at all.

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NEORX CORPORATION AND SUBSIDIARY

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

We may incur substantial costs as a result of litigation or other proceedings
relating to patent and other intellectual property rights.

The cost to us of any litigation or other proceedings relating to
intellectual property rights, even if resolved in our favor, could be
substantial. Some of our competitors may be better able to sustain the costs
of complex patent litigation because they have substantially greater resources.
If there is litigation against us, we may not be able to continue our
operations. If third parties file patent applications, or are issued patents
claiming technology also claimed by us in pending applications, we may be
required to participate in interference proceedings in the Patent and Trademark
Office to determine priority of invention. We may be required to participate
in interference proceedings involving our issued patents and pending
applications. We may be required to cease using the technology or to license
rights from prevailing third parties as a result of an unfavorable outcome in
an interference proceeding. A prevailing party in that case may not offer us a
license on commercially acceptable terms.

Product liability claims in excess of the amount of our insurance would
adversely affect our financial condition.

The testing, manufacturing, marketing and sale of the cancer therapy
products that we have under development may subject us to product liability
claims. We are insured against such risks up to a $10 million annual aggregate
limit in connection with clinical trials of our products under development and
intend to obtain product liability coverage in the future. However, insurance
coverage may not be available to us at an acceptable cost, if at all. We may
not be able to obtain insurance coverage that will be adequate to satisfy any
liability that may arise. Regardless of merit or eventual outcome, product
liability claims may result in decreased demand for a product, injury to our
reputation, withdrawal of clinical trial volunteers and loss of revenues. As a
result, regardless of whether we are insured, a product liability claim or
product recall may result in losses that could be material.

Our use of radioactive and other hazardous materials exposes us to the risk of
material environmental liabilities, and we may incur significant additional
costs to comply with environmental laws in the future.

Our research and development and clinical manufacturing processes, as well
as the manufacturing processes used by our collaborators, involve the
controlled use of hazardous and

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NEORX CORPORATION AND SUBSIDIARY

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

radioactive materials. As a result, we are subject to foreign, federal,
state and local laws, rules, regulations and policies governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling
and disposal of certain materials and wastes in connection with our use of
these materials. Although we believe that our safety procedures and the safety
procedures utilized by our collaborative partners for handling and disposing of
such materials comply with the standards prescribed by such laws and
regulations, we may be required to incur significant costs to comply with
environmental and health and safety regulations in the future. In addition,
the risk of accidental contamination or injury from hazardous and radioactive
materials cannot be completely eliminated. In the event of such an accident,
we could be held liable for any resulting damages, and any such liability could
exceed our resources.

Even if we bring products to market, changes in healthcare reimbursement could
adversely affect our ability to effectively price our products or obtain
adequate reimbursement for sales of our products.

The levels of revenues and profitability of biotechnology companies may be
affected by the continuing efforts of government and third-party payors to
contain or reduce the costs of healthcare through various means. For example,
in certain foreign markets pricing or profitability of prescription
pharmaceuticals is subject to governmental control. In the United States,
there have been, and we expect that there will continue to be, a number of
federal and state proposals to implement similar governmental controls. It is
uncertain what legislative proposals will be adopted or what actions federal,
state or private payors for healthcare goods and services may take in response
to any healthcare reform proposals or legislation. Even in the absence of
statutory change, market forces are changing the healthcare sector. We cannot
predict the effect healthcare reforms may have on the development, testing,
commercialization and marketability of our cancer therapy products. Further,
our ability to commercialize our products under development may be adversely
affected to the extent that such proposals or reforms have a material adverse
effect on the business, financial condition and profitability of other
companies that are prospective collaborators for certain of our potential
products. In addition, both in the United States and elsewhere, sales of
prescription pharmaceuticals depend in part on the availability of
reimbursement to the consumer from third-party payors, such as governmental and
private insurance plans. Third-party payors are increasingly challenging the
prices charged for medical products and services. If we succeed in bringing
one or more products to market, we cannot be certain that these products

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NEORX CORPORATION AND SUBSIDIARY

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

will be considered cost-effective and that reimbursement to the
consumer will be available or will be sufficient to allow us to sell our
products on a competitive or profitable basis.

The loss of key employees could adversely affect our operations.

We are a small company with approximately 115 employees as of June 30,
2001. Our success depends, to a significant extent, on the continued
contributions of our principal management and scientific personnel. The loss of
the services of one or more of our executive officers, including Douglass B.
Given, President and Chief Executive Officer, and Wolfgang Oster, Chief
Operating Officer, or other principal members of our scientific and management
staff, could delay our product development programs and our research and
development efforts. We do not maintain key person life insurance on any of
our officers, employees or consultants.

Competition for qualified employees among companies in the biotechnology
and biopharmaceutical industry is intense. Our future success depends upon our
ability to attract, retain and motivate highly skilled employees. In order to
commercialize our proposed products successfully, we may be required to expand
substantially our workforce, particularly in the areas of manufacturing,
clinical trials management, regulatory affairs, business development and sales
and marketing. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel.

Our stock price is volatile and, as a result, you could lose some or all of
your investment.

There has been a history of significant volatility in the market prices of
securities of biotechnology companies, including our common stock, and it is
likely that the market price of our common stock will continue to be highly
volatile. Our business and the relative prices of our common stock may be
influenced by a large variety of industry factors, including:



| |  |  | Announcements by us or our competitors concerning acquisitions,
strategic alliances, technological innovations and new commercial
products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The availability of critical materials used in developing our
products;                                                                    
|
| |  |  | The results of clinical trials;                                                                                                            

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



| |  |  | Developments concerning patents, proprietary rights and potential
infringement; and                          
| | - |  | -------------------------------------------------------------------------------------------------------------
|
| |  |  | The expense and time associated with and the extent of our ultimate
success in securing government approvals.

In addition, public concern about the safety of the products we develop,
comments by securities analysts, and general market conditions may have a
significant effect on the market price of our common stock. The realization of
any of the risks described in this report, as well as other factors, could have
a material adverse impact on the market price of our common stock and may
result in a loss of some or all of your investment.

In the past, securities class action litigation has often been brought
against companies following periods of volatility in their stock prices. We
may in the future be the targets of similar litigation. Securities litigation
could result in substantial costs and divert our managements time and
resources, which could cause our business to suffer.

Certain provisions in our articles of incorporation and Washington state law
could discourage a change of control of NeoRx.

Our articles of incorporation authorize our board of directors to issue up
to 3,000,000 shares of preferred stock and to determine the price, rights,
preference, privileges and restrictions, including voting rights, of those
shares without any further vote or action by our shareholders. The issuance of
preferred stock could have the effect or delaying, deferring or preventing a
change of control of NeoRx, even if this change would benefit our shareholders.
In addition, the issuance of preferred stock may adversely affect the market
price of our common stock and the voting and other rights of the holders of our
common stock.

We have adopted a shareholders rights plan, which is intended to protect
the rights of shareholders by deterring coercive or unfair takeover tactics.
The board of directors declared a dividend to holders of our common stock of
one preferred share purchase right for each outstanding share of the common
stock. The right is exercisable ten days following the offer to purchase or
acquisition of beneficial ownership of 20% of the outstanding common stock by a
person or group of affiliated persons. Each right entitles the registered
holder, other than the acquiring person or group, to purchase from NeoRx
one-hundredth of one share of Series A Junior Participating Preferred Stock at
the price of $40, subject to adjustment. The rights expire April 10, 2006. In
lieu of exercising the right by purchasing one one-hundredth of one

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NEORX CORPORATION AND SUBSIDIARY

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

share of Series A Preferred Stock, the holder of the right, other than
the acquiring person or group, may purchase for $40 that number of
shares of our common stock having a market value of twice that price.

Washington law imposes restrictions on some transactions between a
corporation and significant shareholders. Chapter 23B.19 of the Washington
Business Corporation Act prohibits a target corporation, with some exceptions,
from engaging in particular significant business transactions with an acquiring
person, which is defined as a person or group of persons that beneficially owns
10% or more of the voting securities of the target corporation, for a period of
five years after the acquisition, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporations
board of directors prior to the acquisition. Prohibited transactions include:



| |  |  | A merger or consolidation with, disposition of assets to, or
issuance or redemption of stock to or from the acquiring person;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Termination of 5% or more of the employees of the target
corporation; and                                                    
|
| |  |  | Receipt by the acquiring person of any disproportionate benefit as
a shareholder.                                            

A corporation may not opt out of this statute. This provision may have
the effect of delaying, deterring or preventing a change in control of NeoRx.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to the impact of interest rate changes and changes
in the market values of its investments.

Interest Rate Risk

The Companys exposure to market rate risk for changes in interest rates
relates primarily to the Companys debt securities included in its investment
portfolio. The Company does not have any derivative financial instruments.
The Company invests in debt instruments of the U.S. Government and its agencies
and high-quality corporate issuers. Investments in both fixed rate and
floating rate interest earning instruments carry a degree of interest rate
risk. Fixed rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while floating rate securities may
produce less income than expected if interest rates fall. Due in part to these
factors, the Companys future investment income may fall short of expectations
due to changes in interest rates or the Company may suffer losses in principal
if forced to sell securities that have declined in market value due to changes
in interest rates. At June 30, 2001, the Company owned government debt
instruments in the amount of $2.7 million and corporate debt securities in the
amount of $37.6 million. The Companys exposure to losses as a result of
interest rate changes is managed through investing primarily in securities with
relatively short maturities of up to three years.

Investment Risk

The Company has received equity instruments under licensing agreements.
These instruments are included in investment securities and are accounted for
at fair value with unrealized gains and losses reported as a component of
comprehensive loss and classified as accumulated other comprehensive income -
unrealized gain on investment securities in shareholders equity. Such
investments are subject to significant fluctuations in fair market value due to
the volatility of the stock market. At June 30, 2001, the Company owned such
corporate equity securities in the amount of $0.2 million.

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NEORX CORPORATION AND SUBSIDIARY







PART II. OTHER INFORMATION







Item 2. Changes in Securities and Use of Proceeds

On April 19, 2001, the Company issued to International Isotopes, Inc. a
warrant to purchase 800,000 shares of the Companys common stock, at an
exercise price of $10 per share. The warrant was issued as partial
consideration for the Companys purchase of certain radiopharmaceutical
manufacturing assets of International Isotopes located in Denton, Texas. The
aggregate purchase price for the assets was $14.8 million, $1.3 million of
which was allocated to the warrant.

The Company issued the warrant to International Isotopes in a transaction
exempt under Section 4(2) under the Securities Act of 1933, in good faith
reliance on representations and warranties by International Isotopes, including
that International Isotopes is an accredited/sophisticated investor, that it
has no plan for public distribution of the warrant and the shares issuable upon
exercise of the warrant, and that it acknowledges the warrant and the shares
are restricted securities within the meaning of the Securities Act.

The warrant is exercisable for a period of three years expiring April 19,
2004. The warrant is subject to antidilution adjustments upon the occurrence
of designated events. Subject to satisfaction of certain conditions, the
warrant will expire if there is a change of control of the Company during the
exercise period. If at any time during the exercise period, the closing
price of the Companys common stock equals or exceeds $20 per share, the
Company at any time thereafter has the right to acquire all or any portion of
the warrant shares at a purchase price of $.01 per share. The closing price
for purposes of this calculation is the average of the closing or last sale
prices reported for the Companys common stock on the NASDAQ National Stock
Market for the immediately preceding 20 business days. The warrant is
exercisable only for cash, and no fractional shares will be issued.

In July 2001, International Isotopes transferred the warrant to 27 of its
preferred shareholders in exchange for agreement by such preferred shareholders
to amend the terms of International Isotopes preferred stock. International
Isotopes made the sale in reliance on the Section 4(1-1/2) exemption
recognized in cases interpreting the Securities Act. Each preferred
shareholder represented in writing that it was an accredited/sophisticated
investor, that it had no plan for public distribution of the warrant and the
shares in violation of the securities laws and that it was aware the warrant
and the shares issuable upon exercise of the warrant are restricted securities
within the meaning of the Securities Act. On July 25, 2001, the Company filed
with the SEC a registration statement on Form S-3 to register for resale the

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NEORX CORPORATION AND SUBSIDIARY

800,000 shares issuable upon exercise of the warrant. As of the date of
this report, that registration statement is not yet effective.







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

The Companys annual meeting of shareholders was held on May 22, 2001.
The following nominees were elected as directors, each to hold office until his
or her successor is elected and qualified, by the vote set forth below:

|                    |  |     |            |          |  |  |           | 
|------------------- |  | --- | ---------- | -------- |  |  | --------- | 
|Nominee             |  | For |            | Withheld
|                    |  |     |            |         
|Paul G. Abrams*     |  |     | 22,466,804 |          |  |  | 1,127,591 | 
|                   
|                   
|                   
|                   
|Jack L. Bowman      |  |     | 22,815,321 |          |  |  | 1,127,591 | 
|                   
|                   
|                   
|                   
|Frederick B. Craves |  |     | 22,785,039 |          |  |  | 1,127,591 | 
|                   
|                   
|                   
|                   
|E. Rolland Dickson  |  |     | 22,818,528 |          |  |  | 1,127,591 | 
|                   
|                   
|                   
|                   
|Carl S. Goldfischer |  |     | 22,815,894 |          |  |  | 1,127,591 | 
|                   
|                   
|                   
|                   
|Alan A. Steigrod    |  |     | 22,817,602 |          |  |  | 1,127,591 | 

*     Dr. Abrams resigned as a director effective July 30, 2001. Douglass B.
Given was appointed by the Board to fill the vacancy created by Dr. Abrams
resignation.

The proposal to increase the number of shares issuable under the Companys
Restated 1994 Stock Option Plan was approved by the vote set forth below:

|        |  |       |            | 
|------- |  | ----- | ---------- | 
|        |  | Votes
|        |  |      
|For     |  |       | 20,783,917 | 
|       
|       
|       
|       
|Against |  |       | 2,852,240  | 
|       
|       
|       
|       
|Abstain |  |       | 244,632    | 







Item 5. Other Information

None.

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NEORX CORPORATION AND SUBSIDIARY







Item 6. Exhibits and Reports on Form 8-K







EXHIBIT INDEX

|        |  |                                                                                                                                                |  |                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|        |  |                                                                                                                                                |  | Incorporation  
|Exhibit |  | Description                                                                                                                                    |  | by Reference to
|        |  |                                                                                                                                                |  |                
|3.1(a)  |  | Restated Articles of Incorporation, dated
April 29, 1996                                                                                       |  | *              
|       
|       
|       
|       
|3.1(b)  |  | Articles of Amendment, dated March 31, 1997,
to Restated Articles of Incorporation                                                             |  | **             
|       
|       
|       
|       
|3.1(c)  |  | Articles of Amendment, dated August 8, 1997,
to Restated Articles of Incorporation                                                             |  | XXXXX          
|       
|       
|       
|       
|3.2     |  | Bylaws, as amended, of the registrant                                                                                                          |  | XXXXX          
|       
|       
|       
|       
|4.1     |  | Form of Indenture, dated as of June 1, 1989,
between NeoRx Corporation and First Interstate
Bank of Washington, N.A., as Trustee               |  | ***            
|       
|       
|       
|       
|10.1    |  | Restated 1994 Stock Option Plan ()                                                                                                            |  |               
|       
|       
|       
|       
|10.2    |  | Lease Agreement for 410 West Harrison
facility, dated February 15, 1996, between
NeoRx Corporation and Diamond Parking, Inc.                   |  | #              
|       
|       
|       
|       
|10.3    |  | Amendment No. 1, dated August 14, 2000, to
Lease Agreement between NeoRx Corporation and
Dina Corporation                                      |  | X              
|       
|       
|       
|       
|10.4    |  | 1991 Stock Option Plan for Non-Employee
Directors, as amended ()                                                                              |  | = =            
|       
|       
|       
|       
|10.5    |  | 1991 Restricted Stock Option Plan ()                                                                                                          |  | ******         
|       
|       
|       
|       
|10.6    |  | Agreement, dated as of December 15, 1995                                                                                                       |  | = = = =        
|       
|       
|       
|       
|10.7    |  | Consulting Agreement, dated as of July 7,
1993, between NeoRx Corporation and Dr. Fred
Craves ()                                              |  | =              
|       
|       
|       
|       
|10.8    |  | Amendment No. 4 to consulting agreement, dated
July 1, 2000 between NeoRx Corporation and Dr.
Fred Craves ()                                  |  | X              
|       
|       
|       
|       
|10.9    |  | Agreement, dated as of June 1, 1987, between
NeoRx Corporation and the Board of Trustees of
the Leland Stanford Junior University, as
amended  |  | = =            
|       
|       
|       
|       
|10.10   |  | Amendment No. 4, dated July 11, 1997, to
Contract between NeoRx Corporation and the
Board of Trustees of the Leland Stanford
Junior University |  | X              
|       
|       
|       
|       
|10.11   |  | Indemnification Agreement ()                                                                                                                  |  | #              
|       
|       
|       
|       
|10.12   |  | Form of Key Executive Severance Agreement ()                                                                                                  |  | ##             
|       
|       
|       
|       
|10.13   |  | Officer Change in Control Agreement ()                                                                                                        |  | XXXXX          
|       
|       
|       
|       
|10.14   |  | Key Executive Severance Agreement ()                                                                                                          |  | XXXXX          
|       
|       
|       
|       
|10.15   |  | License Agreement, dated June 30, 1999,
between NeoRx Corporation and The Dow Chemical
Company                                                 |  | /\             
|       
|       
|       
|       
|10.16   |  | Credit Facility Agreement, dated February 3,
2000, between NeoRx Corporation and PPD, Inc.                                                     |  | /\/\           

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NEORX CORPORATION AND SUBSIDIARY

|        |  |                                                                                                                                                                                                                   |  |                
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|        |  |                                                                                                                                                                                                                   |  | Incorporation  
|Exhibit |  | Description                                                                                                                                                                                                       |  | by Reference to
|        |  |                                                                                                                                                                                                                   |  |                
|10.17   |  | Clinical Manufacture and Supply Agreement,
dated February 21, 2000, between NeoRx
Corporation and International Isotopes, Inc.                                                                                    |  | /\/\           
|       
|       
|       
|       
|10.18   |  | Clinical Manufacture and Supply Agreement,
dated September 1, 2000, between NeoRx
Corporation and ABC Labs                                                                                                        |  | /\/\/\         
|       
|       
|       
|       
|10.19   |  | Facilities Lease, dated July 24, 2000, between
NeoRx Corporation and F5 Networks                                                                                                                                  |  | /\/\/\         
|       
|       
|       
|       
|10.20   |  | Stock Option Agreement, dated December 19,
2000, between NeoRx Corporation and Carl S.
Goldfischer ()                                                                                                            |  | X              
|       
|       
|       
|       
|10.21   |  | Asset Purchase Agreement, dated March 20,
2001, between International Isotopes Inc. and
NeoRx Corporation                                                                                                         |  | X              
|       
|       
|       
|       
|10.22   |  | Stock Option Agreement, dated January 17,
2001, between NeoRx Corporation and Carl S.
Goldfischer ()                                                                                                             |  | X              
|       
|       
|       
|       
|10.23   |  | Consulting Agreement, dated December 19, 2000,
between NeoRx Corporation and Carl S.
Goldfischer ()                                                                                                              |  | X              
|       
|       
|       
|       
|10.24   |  | Consulting Agreement, dated November 6, 2000,
between NeoRx Corporation and Douglass
Given()                                                                                                                     |  | X              
|       
|       
|       
|       
|10.25   |  | Stock Option Agreement, dated November 16,
2000, between NeoRx Corporation and Douglass
Given ()                                                                                                                 |  | X              
|       
|       
|       
|       
|10.26   |  | Sublicense Agreement, dated May 15, 1997,
between NeoRx Corporation and Boehringer
Manheim GmbH. Certain portions of the
agreement have been omitted pursuant to a
grant of confidential treatment                |  | ^              
|       
|       
|       
|       
|10.27   |  | Clinical Manufacture and Supply Agreement,
dated January 25, 2001, between NeoRx
Corporation and ABC Labs, Inc. Certain
portions of the agreement have been omitted
pursuant to a grant of confidential treatment |  | ^              
|       
|       
|       
|       
|10.28   |  | Consulting Agreement, dated February 28, 2001,
between NeoRx Corporation and CR Strategies,
L.L.C. Certain portions of the agreement have
been omitted pursuant to a grant of
confidential treatment              |  | ^              
|       
|       
|       
|       
|10.29   |  | Stock Option Agreement, dated March 12, 2001,
between NeoRx Corporation and Adeoye Y.
Olukotun ()                                                                                                                |  | ^^             
|       
|       
|       
|       
|10.30   |  | Stock Option Agreement, dated March 12, 2001,
between NeoRx Corporation and Raymond F.
Smelter ()                                                                                                                |  | ^^             
|       
|       
|       
|       
|10.31   |  | First Amendment to Sublease Agreement, dated
March 30, 2001, between NeoRx Corporation and
F5 Networks                                                                                                            |  | ^^             
|       
|       
|       
|       
|23.1    |  | Consent of KPMG LLP                                                                                                                                                                                               |  | X              

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NEORX CORPORATION AND SUBSIDIARY

|        |  |                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*       |  | Filed as an exhibit to the Companys Form 10-K
for the fiscal year ended December 31, 1996 and
incorporated herein by reference.                                                                                                         
|       
|**      |  | Filed as an exhibit to the Companys
Registration Statement on Form S-3
(Registration No. 333-25161), filed April 14,
1997 and incorporated herein by reference.                                                                         
|       
|***     |  | Filed as an exhibit to the Companys
Registration Statement on Form S-1
(Registration No. 33-28545), effective May 31,
1989 and incorporated herein by reference.                                                                        
|       
|******  |  | Filed as an exhibit to the Companys Annual
Report on Form 10-K for the fiscal year ended
September 30, 1991 and incorporated herein by
reference.                                                                                       
|       
|=       |  | Filed as an exhibit to the Companys
Registration Statement on Form S-2
(Registration No. 33-71164) effective December
13, 1993 and incorporated herein by reference.                                                                    
|       
|= =     |  | Filed as an exhibit to the Companys Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference.                                                                                                         
|       
|= = = = |  | Filed as an exhibit to the Companys Form 10-K
for the fiscal year ended December 31, 1995 and
incorporated herein by reference.                                                                                                         
|       
|       |  | Filed as an exhibit to the Companys
Registration Statement on Form S-8, filed July
31, 1997 and incorporated herein by reference.                                                                                                       
|       
|#       |  | Filed as an exhibit to the Companys Form 10-Q
for the quarterly period ended March 31, 1996
and incorporated herein by reference.                                                                                                       
|       
|##      |  | Filed as an exhibit to the Companys Form 10-Q
for the quarterly period ended June 30, 1996
and incorporated herein by reference.                                                                                                        
|       
|X       |  | Filed as an exhibit to the Companys Form 10-K
for the fiscal year ended December 31, 2000.                                                                                                                                              
|       
|XXXXX   |  | Filed as an exhibit to the Companys Form 10-K
for the fiscal year ended December 31, 1998.                                                                                                                                              
|       
|/\      |  | Filed as an exhibit to the Companys Form 10-Q
for the quarterly period ended September 30,
1999 and incorporated herein by reference.
Certain portions of the agreement have been
omitted pursuant to a grant of confidential
treatment.
|       
|/\/\    |  | Filed as an exhibit to the Companys Form 10-Q
for the quarterly period ended March 31, 2000
and incorporated herein by reference. Certain
portions of the agreement have been omitted
pursuant to a grant of confidential treatment.    
|       
|/\/\/\  |  | Filed as an exhibit to the Companys Form 10-Q
for the quarterly period ended September 30,                                                                                                                                              

33



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NEORX CORPORATION AND SUBSIDIARY

|   |  |                                                                                                                                                                                                                                      
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | 2000 and incorporated herein by reference.
Certain portions of the agreement have been
omitted pursuant to a grant of confidential
treatment.                                                                                        
|  
|^  |  | Filed as an exhibit to the Companys Form 10-Q
for the quarterly period ended March 31, 2001
and incorporated herein by reference. Certain
portions of the agreement have been omitted
pursuant to a grant of confidential treatment.
|  
|^^ |  | Filed as an exhibit to the Companys Form 10-Q
for the quarterly period ended March 31, 2001
and incorporated herein by reference.                                                                                                   
|  
|  |  | Management contract or compensatory plan.                                                                                                                                                                                            

(b) Current Reports on Form 8-K.



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Form 8-K dated April 19, 2001, relating to the purchase of certain
radiopharmaceutical manufacturing assets of International Isotopes, Inc.
located in Denton, Texas.
|
| | Form 8-K dated May 7, 2001, relating to a Company update of its Skeletal
Targeted Radiotherapy (STR) Phase I/II trial data.                                          
|
| | Form 8-K dated June 5, 2001, relating to the appointment of Wolfgang Oster
as Chief Operating Officer.                                                               

34



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##### Table of Contents









SIGNATURE

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.



| | NeoRx Corporation
         (Registrant)
| | ---------------------------------------

Date: August 6, 2001



| |     |                                                                                   
| | --- | ----------------------------------------------------------------------------------
| | By: | /s/ Melinda G. Kile                                                               
| |     | Melinda G. Kile
Controller
(Principal Financial and Accounting Officer, Secretary)

35