SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q


(Mark One)

  X   Quarterly  Report  pursuant  to  Section  13 or 15(d) of the  Securities
 ---  Exchange  Act of 1934 for the Quarterly Period ended September 30, 1996.
      
      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                            (IRS Employer
 incorporation or organization)                         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  November  6, 1996  there  were  outstanding  16.3  million  shares of the
Company's common stock, $.02 par value.


<PAGE>






                               TABLE OF CONTENTS
<TABLE>
<CAPTION>


                                                                          Page
                                                                          ----
<S>                                                                       <C> 
PART I                  FINANCIAL INFORMATION

Item 1.                 Financial Statements:
                        Balance Sheets                                     3
                        Statements of Operations                           4
                        Statements of Cash Flows                           5
                        Notes to Financial Statements                      6
Item 2.                 Management's Discussion and Analysis
                        of Results of Operations and
                        Financial Condition, Liquidity and
                        Capital Resources                                  8


PART II                 OTHER INFORMATION

Item 1.                 Legal Proceedings                                 10

</TABLE>











 

                                      2

                                     

<PAGE>




                                      NEORX CORPORATION


BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
                                                            September 30,    December 31,
                                                                 1996            1995
                                                            -------------    ------------
                                                             (unaudited)

                                           ASSETS

CURRENT ASSETS:
<S>                                                           <C>               <C>     
  Cash and cash equivalents                                   $  1,335          $  7,182
  Short-term investments                                        19,210             8,937
  Inventories                                                      716               538
  Prepaids and other                                             1,004               931
                                                               -------           -------
    Total current assets                                        22,265            17,588
                                                               -------           -------

FACILITIES AND EQUIPMENT, at cost:
  Equipment and furniture                                        3,693             3,498
  Leasehold improvements                                         3,218             3,233
                                                               -------           -------
                                                                 6,911             6,731
  Less: accumulated depreciation and amortization               (6,203)           (5,914)
                                                               -------           -------
    Facilities and equipment, net                                  708               817
                                                               -------           -------

OTHER ASSETS                                                       123               113
                                                               -------           -------
                                                              $ 23,096          $ 18,518
                                                               =======           =======


                            LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                            $    768          $  1,511
  Accrued liabilities                                              751               531
  Deferred revenue                                                 250               250
  Current portion of capital leases                                 47                51
                                                               -------           -------
    Total current liabilities                                    1,816             2,343
                                                               -------           -------

NON-CURRENT LIABILITIES:
  Convertible subordinated debentures, 9 3/4%                    1,195             1,195
  Capital leases, less current portion                              56                88
                                                               -------           -------
    Total non-current liabilities                                1,251             1,283
                                                               -------           -------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Series preferred stock, $.02 par value,
    3,000,000 shares authorized:
      Convertible exchangeable preferred stock, Series 1
        208,000 shares issued and outstanding                        4                 4
      Convertible preferred stock, Series 2,
        14,000 and -0- shares issued and
        outstanding, respectively                                    1                 -
  Common stock, $.02 par value, 60,000,000
    shares authorized, 16,071,000 and
    14,359,000 shares issued and
    outstanding, respectively                                      321               287
  Additional paid-in capital                                   139,307           128,098
  Deferred compensation                                              -              (139)
  Accumulated deficit                                         (119,604)         (113,358)
                                                               -------           -------
    Total shareholders' equity                                  20,029            14,892
                                                               -------           -------
                                                              $ 23,096          $ 18,518
                                                               =======           =======

</TABLE>

                             See notes to financial statements.

                                              3

<PAGE>




                                       NEORX CORPORATION




STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>



                                       Three months ended         Nine months ended
                                          September 30,             September 30,
                                       -------------------       ------------------- 
                                        1996         1995         1996         1995
                                       ------       ------       ------       ------     
REVENUES:

<S>                                   <C>         <C>            <C>         <C>    
  Contract revenues and fees          $ 4,505     $     -        $ 4,526     $    57
                                       ------      ------         ------      ------

OPERATING EXPENSES:

  Research and development              2,410       1,904          7,101       5,889

  General and administrative            1,232       1,142          3,849       3,455
                                       ------      ------         ------      ------

    Total operating expenses            3,642       3,046         10,950       9,344
                                       ------      ------         ------      ------

Income (loss) from operations             863      (3,046)        (6,424)     (9,287)

Other income (expense):
  Investment and interest
    income, net                           280         286            873         746

  Interest expense                        (36)        (37)          (107)       (104)
                                       ------      ------         ------      ------

Net income (loss)                     $ 1,107     $(2,797)       $(5,658)    $(8,645)
                                       ======      ======         ======      ======

Preferred stock dividends                (186)       (133)          (588)       (477)
                                       ------      ------         ------      ------

Net income (loss) applicable to
  common shares                       $   921     $(2,930)       $(6,246)    $(9,122)
                                       ======      ======         ======      ======

Net income (loss) per common share    $   .06     $  (.22)       $  (.41)    $  (.71)
                                       ======      ======         ======      ======

Weighted average common shares
  outstanding                          15,740      13,578         15,378      12,824
                                       ======      ======         ======      ======
</TABLE>











                              See notes to financial statements.

                                               4

<PAGE>





                                       NEORX CORPORATION




STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>

                                            Three months ended       Nine months ended
                                               September 30,           September 30,
                                            ------------------      -------------------
                                             1996        1995        1996         1995
                                            -----       ------      ------       ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                         <C>         <C>        <C>          <C>     
Net income (loss)                           $ 1,107     $(2,797)   $ (5,658)    $(8,645)
                                             ------      ------     -------      ------
Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities:
  Depreciation and amortization                  89          93         289         304
  Increase in inventories                      (131)       (159)       (178)       (157)
  Increase in prepaids and other assets         (22)       (164)       (121)       (141)
  Increase (decrease) in accounts payable
    and accrued liabilities                      67         244        (350)         92
  Compensation expense on stock
    awards and options                           28          24         167          70
  Common stock issued for services               49           -         290          80
                                             ------      ------     -------      ------
       Total adjustments                         80          38          97         248
                                             ------      ------     -------      ------
Net cash provided by (used in)
  operating activities                        1,187      (2,759)     (5,561)     (8,397)
                                             ------      ------     -------      ------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (purchases of)
  short-term investments                     (4,386)        605     (10,273)       (677)
Facilities and equipment purchases              (37)        (52)       (180)       (122)
Other                                             -           -          54           -
                                             ------      ------     -------      ------
Net cash provided by (used in)
  investing activities                       (4,423)        553     (10,399)       (799)
                                             ------      ------     -------      ------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
  and warrants                                    -       1,880       5,771       8,331
Proceeds from sale of preferred stock             -           -       4,425           -
Repayments of capital lease obligations         (13)        (16)        (37)        (24)
Proceeds from stock options exercised             4         226         208         274
Preferred stock dividends                         -           -        (254)       (204)
                                             ------      ------     -------      ------
Net cash provided by (used in)
  financing activities                           (9)      2,090      10,113       8,377
                                             ------      ------     -------      ------
Net decrease in cash and cash equivalents    (3,245)       (116)     (5,847)       (819)
Cash and cash equivalents:
Beginning of period                           4,580       1,725       7,182       2,428
                                             ------     -------     -------      ------
End of period                               $ 1,335     $ 1,609    $  1,335     $ 1,609
                                             ======      ======     =======      ======
</TABLE>






                              See notes to financial statements.

                                               5

<PAGE>



                               NEORX CORPORATION



NOTES TO FINANCIAL STATEMENTS

1.  Basis of Presentation

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  Form 10-K for the year ended  December 31,
1995.

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 September 30, 1996 and the results
of  operations  and cash  flows  for the  three  and nine  month  periods  ended
September 30, 1996 and 1995.

The results of operations  for the three and nine month periods ended  September
30, 1996 are not necessarily  indicative of the expected  operating  results for
the full year.

NeoRx Corporation is no longer considered a company in the development stage and
therefore  will no longer  present  results of operations and cash flows for the
period from inception. The Company's first product,  Verluma(TM) Small Cell Lung
Cancer  Imaging  Kit,  received   marketing   approval  by  the  Food  and  Drug
Administration ("FDA") in August 1996. Upon FDA approval, the Company received a
$4.5 million  milestone  payment from its  marketing  partner,  The DuPont Merck
Pharmaceutical Company ("DuPont Merck"). Sales are expected to begin in November
1996, from which NeoRx will receive royalties.


                                      6

<PAGE>



                               NEORX CORPORATION


NOTES TO FINANCIAL STATEMENTS (continued)

2.  Shareholders' Equity

Changes in  shareholders'  equity from  December 31, 1995 to September  30, 1996
were as follows (in thousands):
<TABLE>
<CAPTION>
            <S>                                             <C>
            Balance December 31, 1995                       $14,892

            Preferred stock issued                            4,425
            Common stock issued                               6,819
            Preferred stock dividends                          (588)
            Net loss                                         (5,658)
            Amortization of deferred compensation               139
                                                             ------

            Balance September 30, 1996                      $20,029
                                                             ======
</TABLE>

3. During the quarter ended  September 30, 1996,  the Company  exchanged  25,300
shares of Series 2  Convertible  Preferred  Stock for  562,138  shares of Common
Stock and paid  accrued  dividends  on the  shares by issuing  21,910  shares of
Common Stock valued at an average price of $5.34 per share.



                                      7

<PAGE>



                               NEORX CORPORATION



Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition, Liquidity and Capital Resources

Quarter and nine months ended  September  30, 1996  compared to quarter and nine
months ended September 30, 1995.

For the quarter ended September 30, 1996, contract revenues and fees earned were
$4,505,000;  there were no revenues  recorded for the same quarter of 1995.  For
the nine months  ended  September  30,  1996,  contract  revenues  and fees were
$4,526,000  compared to $57,000 recorded for the nine months ended September 30,
1995.  The  increase in revenue was due to a $4,500,000  milestone  payment from
DuPont Merck upon FDA marketing clearance of Verluma.

Total  operating  expenses  increased 20% to $3,642,000  from $3,046,000 for the
quarters ended September 30, 1996 and 1995, respectively, and for the nine month
periods  increased 17% to $10,950,000 from $9,344,000.  Research and development
expenses  increased 27% to $2,410,000  from  $1,904,000  for the quarters  ended
September  30,  1996 and  1995,  respectively,  and for the nine  month  periods
increased 21% to $7,101,000 from $5,889,000. The increases in both the three and
nine month  periods were  primarily due to antibody  humanization  and increased
clinical trial activities.  General and administrative  expenses increased 8% to
$1,232,000  from  $1,142,000 for the quarters ended September 30, 1996 and 1995,
respectively,  and for the nine month periods  increased 11% to $3,849,000  from
$3,455,000. The increase for the nine month period was principally due to patent
filing and other legal costs.

Interest  income  decreased to $280,000 from $286,000 for the three months ended
September  30, 1996 and 1995,  respectively,  and  increased  to  $873,000  from
$746,000 for the nine months ended  September  30, 1996 and 1995,  respectively.
Interest expense remained essentially unchanged for the periods.

The company  reported a net income of $1,107,000 for the quarter ended September
30, 1996  compared to a net loss of $2,797,000  for quarter ended  September 30,
1995. For the nine months ended  September 30, 1996, the net loss was $5,658,000
compared to a net loss of $8,645,000 in the 1995 period.


                                      8

<PAGE>



                              NEORX CORPORATION



Liquidity and capital resources.

The Company  expects  that its capital  resources  and  interest  income will be
sufficient  to finance its  currently  anticipated  working  capital and capital
requirements into 1998. The Company's  working capital and capital  requirements
will depend upon numerous factors, including results of research and development
activities, clinical trials, the levels of resources that the Company devotes to
establishing and expanding marketing and manufacturing capabilities, competitive
and  technological  developments and the timing and cost of  relationships  with
parties to collaborative agreements.  The Company will need to raise substantial
additional  funds to conduct  research and development  activities,  preclinical
studies and clinical  trials  necessary to bring its products to market,  and to
establish marketing and limited manufacturing capabilities.  The Company intends
to seek  additional  funding  through  public  and  private  equity  financings,
arrangements with corporate collaborators and other sources.  Adequate funds may
not be available when needed or on terms acceptable to the Company.

When  used in this  report,  the  words  "expects",  "anticipates"  and  similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain  risks and  uncertainties  such as those  factors  stated
above that could cause actual results to differ materially from those projected.
See "Important  Factors Regarding  Forward-Looking  Statements" in the Company's
Form 10-K for the year ended  December 31, 1995.  Readers are  cautioned  not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this report. Readers are also urged to carefully review and consider
the various  disclosures made by the Company which attempt to advise  interested
parties of the  factors  which  affect the  Company's  business  detailed in the
Company's  Securities and Exchange  Commission  filings and those described from
time-to-time  in the  Company's  press  releases and other  communications.  The
Company  undertakes  no  obligation  to  publicly  release  the  results  of any
revisions to these forward-looking statements that may be made to reflect events
or  circumstances  after  the  date  hereof  or to  reflect  the  occurrence  of
unanticipated events.


                                      9

<PAGE>



                                NEORX CORPORATION


                         PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

IN RE BLECH SECURITIES LITIGATION

The Company had been named as an additional  codefendant in an amended complaint
filed in the United States District Court Southern District of New York on March
27, 1995 in a pending  purported class action suit against David Blech, D. Blech
& Co.  and a number  of  other  defendants,  including  eleven  publicly  traded
biotechnology companies.

On June 6, 1996 the Court granted the Company's motion to dismiss with leave for
plaintiffs to replead on or before July 26, 1996. The plaintiffs  filed a second
amended  complaint on July 26, 1996. The second  amended  complaint did not name
NeoRx as a defendant.  NeoRx is not a defendant in the subject suit.  Plaintiffs
have not appealed the Court's June 6, 1996 order of dismissal.





                                  SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                  NeoRx Corporation
                                  (Registrant)


Date: November 13, 1996           By: \s\ Paul G. Abrams
                                      ------------------
                                      Paul G. Abrams
                                      Authorized Officer, President
                                      and Chief Executive Officer


                                      \s\ J. Timothy Beer
                                      -------------------
                                      J. Timothy Beer
                                      Chief Accountant

                                      10