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, 1997 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                             (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 October 22, 1997 there were outstanding 20,706,726 shares of the Company's
common stock, $.02 par value.


<PAGE>

<TABLE>
<CAPTION>


                                TABLE OF CONTENTS

                          QUARTERLY REPORT ON FORM 10-Q
                    FOR THE QUARTER ENDED September 30, 1997


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

Item 1.                      Financial Statements:

                             Balance Sheets as of September 30, 1997    
                             and December 31, 1996                            3

                             Statements of Operations for the
                             three and nine month periods ended
                             September 30, 1997 and 1996                      4

                             Statements of Cash Flows for the
                             three and nine month periods ended
                             September 30, 1997 and 1996                      5

                             Notes to Financial Statements                    6

Item 2.                      Management's Discussion and Analysis
                             of Results of Operations and
                             Financial Condition                              8

Item 3.                      Quantitative and Qualitative
                             Disclosure About Market Risks                    *

PART II                          OTHER INFORMATION

Item 1.                      Legal Proceedings                                10

Item 2.                      Changes in Securities                            *

Item 3.                      Defaults Upon Senior Securities                  *

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

Item 5.                      Other Information                                *

Item 6.                      Exhibits and Reports on Form 8-K                 10

                             Signatures                                       11
</TABLE>
* No information is provided due to inapplicability of this item.

<PAGE>




                                NEORX CORPORATION



BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
                                                                        September 30,        December 31,
                                                                            1997                 1996
                                                                        -------------        ------------
                                                                         (unaudited)

                                     ASSETS
<S>                                                                       <C>                   <C>
CURRENT ASSETS:
  Cash and cash equivalents ..................................            $   4,845             $   2,945
  Short-term investments .....................................               32,081                15,322
  Inventories ................................................                   --                   600
  Prepaids and other .........................................                1,802                   845
                                                                          ---------             ---------
    Total current assets .....................................               38,728                19,712
                                                                          ---------             ---------

FACILITIES AND EQUIPMENT, at cost:
  Equipment and furniture ....................................                3,970                 3,744
  Leasehold improvements .....................................                3,272                 3,237
                                                                          ---------             ---------
                                                                              7,242                 6,981
  Less: accumulated depreciation and amortization ............               (6,567)               (6,295)
                                                                          ---------             ---------
    Facilities and equipment, net ............................                  675                   686
                                                                          ---------             ---------

OTHER ASSETS .................................................                  111                   112
                                                                          ---------             ---------
                                                                          $  39,514             $  20,510
                                                                          =========             =========


                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable ...........................................            $     900             $   1,235
  Accrued liabilities ........................................                  983                   910
  Current portion of capital leases ..........................                   42                    44
                                                                          ---------             ---------
    Total current liabilities ................................                1,925                 2,189
                                                                          ---------             ---------

NON-CURRENT LIABILITIES:
  Convertible subordinated debentures, 9 3/4% ................                1,195                 1,195
  Capital leases, less current portion .......................                   12                    47
                                                                          ---------             ---------
    Total non-current liabilities ............................                1,207                 1,242
                                                                          ---------             ---------

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,
      Convertible preferred stock, Series 2, 5,000 and 7,000
        shares issued and outstanding, respectively, and
      Convertible preferred stock, Series 3, 26,000 and -0-
        shares issued and outstanding, respectively ...........                   5                     4
   Common stock, $.02 par value, 60,000,000 shares authorized,
    20,259,000 and 16,451,000 shares issued and outstanding,
    respectively ................................................               405                   329
  Additional paid-in capital ....................................           162,508               140,789
  Accumulated deficit ...........................................          (126,536)             (124,043)
                                                                          ---------             ---------
    Total shareholders' equity ..................................            36,382                17,079
                                                                          ---------             ---------
                                                                          $  39,514             $  20,510
                                                                          =========             =========
</TABLE>

                                           See notes to financial statements.

                                                          3


<PAGE>



                                                             NEORX CORPORATION




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




                                              Three months ended         Nine months ended
                                                 September 30,             September 30,
                                             --------------------       --------------------
                                               1997        1996           1997        1996
                                             --------    --------       --------    --------
  
<S>                                          <C>         <C>            <C>         <C>     
REVENUES ..........................          $  5,002    $  4,505       $ 10,349    $  4,526
                                             --------    --------       --------    --------

OPERATING EXPENSES:

  Research and development ........             2,804       2,690          8,194       7,814

  General and administrative ......               938         952          2,912       3,136
                                             --------    --------       --------    --------

    Total operating expenses ......             3,742       3,642         11,106      10,950
                                             --------    --------       --------    --------

Income(loss) from operations ......             1,260         863           (757)     (6,424)

OTHER INCOME (EXPENSE):
  Investment and interest income ..               507         280          1,289         873

  Interest expense ................               (33)        (36)          (102)       (107)
                                             --------    --------       --------    --------

Net income(loss) ..................          $  1,734    $  1,107       $    430    $ (5,658)
                                             ========    ========       ========    ========

Preferred stock dividends .........              (315)       (186)        (2,923)       (588)
                                             --------    --------       --------    --------

Net income(loss) applicable to
 common shares ....................          $  1,419    $    921       $ (2,493)   $ (6,246)
                                             ========    ========       ========    ========

Net income(loss) per common share .          $    .08    $    .06       $   (.15)   $   (.41)
                                             ========    ========       ========    ========

Weighted average common shares
  outstanding .....................            18,288      15,740         17,193      15,378
                                             ========    ========       ========    ========









</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,
                                              --------------------      --------------------
                                                1997        1996         1997         1996
                                              --------    --------      -------     --------

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                           <C>         <C>           <C>         <C>      
Net income(loss) ..........................   $  1,734    $  1,107      $    430    $ (5,658)
                                              --------    --------      --------    --------
Adjustments to reconcile net income(loss)
  to net cash provided by (used in)
  operating activities:  
    Depreciation and amortization .........         76          89           272         289
    (Increase) decrease in inventories ....        643        (131)          600        (178)
    Increase in prepaids and other assets .       (928)        (22)         (945)       (121)
    Increase (decrease) in accounts payable
      and accrued liabilities .............        (92)         67          (462)       (350)
    Compensation expense on stock awards
      and options .........................       --            28            --         167
    Common stock issued for services ......        101          49           101         290
                                              --------    --------      --------    --------

Net cash provided by (used in) operating
  activities ..............................      1,534       1,187            (4)     (5,561)
                                              --------    --------      --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of short-term investments, net ..     (5,430)     (4,386)      (16,759)    (10,273)
Facilities and equipment purchases ........       --           (37)         (261)       (180)
Other .....................................          5        --              17          54
                                              --------    --------      --------    --------

Net cash used in investing activities .....     (5,425)     (4,423)      (17,003)    (10,399)
                                              --------    --------      --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of common stock ........       --          --           2,661       5,771
Proceeds from sales of preferred
  stock ...................................      4,910        --          16,370       4,425
Repayments of capital lease
  obligations .............................         (9)        (13)          (36)        (37)
Proceeds from stock options
  exercised ...............................        162           4           297         208
Preferred stock dividends .................       (130)       --            (385)       (254)
                                              --------    --------      --------    --------
Net cash provided by (used in)
  financing activities ....................      4,933          (9)       18,907      10,113
                                              --------    --------      --------    --------

Net increase (decrease) in cash
  and cash equivalents ....................      1,042      (3,245)        1,900      (5,847)
Cash and cash equivalents:

Beginning of period .......................      3,803       4,580         2,945       7,182
                                              --------    --------      --------    --------

End of period .............................   $  4,845    $  1,335      $  4,845    $  1,335
                                              ========    ========      ========    ========





</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 annual report on Form 10-K for the year ended
December 31, 1996.

Certain  reclassifications  were made to the 1996  financial  statements to make
them comparable with the 1997 presentation.

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, 1997 and the results
of  operations  and cash  flows  for the  three  and nine  month  periods  ended
September 30, 1997 and 1996.

The results of operations  for the three and nine month periods ended  September
30, 1997 are not necessarily  indicative of the expected  operating  results for
the full year.

2.  New Accounting Standard

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No. 128,  "Earnings  Per  Share"("SFAS  128"),
effective for financial  statements  for periods ending after December 15, 1997.
SFAS 128 specifies the computation,  presentation,  and disclosure  requirements
for earnings per share,  and will simplify the computation of earnings per share
for many companies eliminating calculation provisions which were required by the
prior earnings per share accounting standard.  For entities with complex capital
structures,  the statement requires dual presentation of both Basic Earnings Per
Share and Diluted Earnings Per Share on the face of the statement of operations.
In the opinion of management,  the adoption of SFAS 128 will not have a material
effect on the Company's calculation of earnings per share.

                                        6

<PAGE>


                                NEORX CORPORATION


NOTES TO FINANCIAL STATEMENTS (continued)

3.       Shareholders' Equity

Changes in  shareholders'  equity from  December 31, 1996 to September  30, 1997
were as follows (in thousands):
<TABLE>

                  <S>                                    <C>   
                  Balance December 31, 1996              $17,079

                  Preferred stock issued                  18,488
                  Common stock issued                      3,308
                  Preferred stock dividends               (2,923)
                  Net income                                 430
                                                         -------

                  Balance September 30, 1997             $36,382
                                                         =======
</TABLE>

The  Company   entered  into  an  agreement  on  August  8,  1997  with  Janssen
Pharmaceutica, N.V. ("Janssen"), a wholly-owned subsidiary of Johnson & Johnson,
for  the  worldwide   development,   manufacture  and  distribution  of  NeoRx's
Avicidin(R)  cancer therapy product.  The Company received a $5,000,000  license
fee and rights to future  milestone  payments and  royalties  on product  sales.
Janssen  has  assumed   responsibility   for   development,   registration   and
commercialization  of the product and will fund 95% of the  estimated  remaining
costs for  development  and  clinical  trials.  In  exchange,  Johnson & Johnson
received  a  worldwide  exclusive  license  to  Avicidin  and the right of first
negotiation  to  subsequent  oncology  products  that fall under the  agreement.
Subsequent  oncology  products  developed and marketed  under the agreement will
trigger royalty obligations and possible future milestone payments to NeoRx.

In connection with this  agreement,  Johnson & Johnson  Development  Corporation
("JJDC"),  also a  wholly-owned  subsidiary of Johnson & Johnson,  purchased for
$5,000,000 1,000 shares of NeoRx Series 4 Convertible Preferred Stock, par value
$.02 per share, at a stated value of $5,000 per share at the dividend rate of 7%
per annum  ("Series 4 Preferred  Stock").  On September  12, 1997,  the Series 4
Preferred  Stock  automatically  converted  into 833,000  shares of NeoRx Common
Stock, in accordance with the JJDC agreement,  when the Common Stock attained an
average  closing price of at least $6.00 per share.  These  converted  shares of
Common  Stock are not freely  tradeable  for one year and are  subject to volume
limitations in the second year.


                                        7

<PAGE>


                                NEORX CORPORATION


NOTES TO FINANCIAL STATEMENTS (continued)

In March and April of this year,  the Company sold a total of 120,000  shares of
Series 3 Convertible Preferred Stock, $.02 par value, at a stated rate of 7% per
annum  ("Series 3 Preferred  Stock").  The shares are  convertible at 85% of the
average stock market  closing bid price of the Common Stock for the five trading
days ending one day prior to the day of conversion,  but not less than $3.93 nor
more  than  $6.42 per  share.  During  the  quarter,  93,000  shares of Series 3
Preferred  Stock were converted into 2,042,000  shares of Common Stock.  Between
October  1 and  October  22,  1997,  an  additional  25,000  shares  of Series 3
Preferred Stock were converted into 427,000 shares of Common Stock.

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

Quarter and nine months ended  September  30, 1997  compared to quarter and nine
months ended September 30, 1996.

Revenues for the quarter ended  September 30, 1997 were  $5,002,000  compared to
$4,505,000 for the quarter ended September 30, 1996. In August 1997, the Company
entered  into  an  agreement   with  Janssen  for  the  worldwide   development,
manufacture and distribution of NeoRx's  Avicidin cancer therapy product.  NeoRx
received  $10,000,000  up front;  $5,000,000  was for the  purchase  of Series 4
Preferred  Stock and the remaining  $5,000,000 was recorded as license  revenue.
For the same quarter in 1996, the Company  received  $4,500,000  from The DuPont
Merck Pharmaceutical Company relating to their prior agreement to market NeoRx's
Verluma(R)  lung cancer  imaging  product.  Revenues  for the nine months  ended
September 30, 1997 were  $10,349,000  compared to $4,526,000 for the same period
in 1996. In addition to the Janssen  licensing  agreement,  NeoRx entered into a
licensing  agreement  with  Schwarz  Pharma  during the  second  quarter of 1997
covering  NeoRx's  Biostent(R)  product that resulted in license  revenue during
that quarter of $5,333,000.

Total operating expenses for the quarter and nine month periods were essentially
unchanged from the prior year;  $3,742,000 and $3,642,000 for the quarters ended
September 30, 1997 and 1996,  respectively,  and $11,106,000 and $10,950,000 for
the nine months ended  September 30, 1997 and 1996,  respectively.  Research and
development expenses increased 4% to $2,804,000 for the current quarter compared
to $2,690,000 for the comparable quarter in 1996, and increased 5% to $8,194,000
for the nine months ended  September 30, 1997 from $7,814,000 for the comparable
period in 1996. General and administrative  expenses were essentially  unchanged
at $938,000 for the current quarter versus  $952,000 for the comparable  quarter
in 1996, and decreased 7% to $2,912,000 for the nine months ended  September 30,
1997 versus $3,136,000 for the same period in

                                        8

<PAGE>


                                NEORX CORPORATION


Item 2. (Continued)

1996.  The decrease for the nine month period was primarily due to
reduced salary expense.

Investment and interest income increased to $507,000 from $280,000 for the three
months  ended  September  30,  1997 and 1996,  respectively,  and  increased  to
$1,289,000  from $873,000 for the nine months ended September 30, 1997 and 1996,
respectively. The increases in both the three and nine month periods were due to
the increase in funds available for investment.

The Company  reported net income of $1,734,000  for the quarter ended  September
30, 1997 compared to $1,107,000  for the quarter ended  September 30, 1996.  For
the nine months ended  September  30, 1997,  the Company  reported net income of
$430,000  compared to a net loss of $5,658,000 in the 1996 period.  The increase
in net  income  for  the  current  nine  month  period  was due  principally  to
additional license revenue.

Liquidity and capital resources.

Under the August 1997 agreement with Janssen,  the Company received  $10,000,000
up front.

The Company  expects that its current  capital  resources and investment  income
will be  sufficient  to finance its currently  anticipated  working  capital and
capital  requirements  into the second  quarter of 1999.  The Company's  working
capital and capital  asset  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  potential  products to market,  and to
establish marketing and limited manufacturing capabilities.  The Company intends
to  seek  additional  funding  through  public  or  private  equity  financings,
arrangements with corporate  collaborators or 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, 1996. Readers

                                        9

<PAGE>


                                NEORX CORPORATION


Item 2.(Continued)

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
advise interested parties of certain 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.


                                      
                           


                           PART II - OTHER INFORMATION

Item 1.           Legal Proceedings

IN RE BLECH SECURITIES LITIGATION

On June 6, 1996, the United States  District Court for the Southern  District of
New York dismissed claims against NeoRx in a purported class action suit against
David  Blech,  D. Blech & Co.  and a number of other  defendants,  including  11
publicly traded biotechnology  companies,  of which one was NeoRx, that had been
named in an  amended  complaint  on March  27,  1995.  The  plaintiffs  have not
appealed the order.  On July 26, 1996,  the  plaintiffs  filed a second  amended
pleading  which did not include any claims  against the Company.  NeoRx is not a
defendant in the subject suit.



Item 6.   Exhibits and Reports on Form 8-K

      (a) Exhibits:
                  None

      (b) Reports on Form 8-K:

                  Current   Report  on  Form  8-K  dated  October  7,  1997  for
                  Agreements  between  Janssen  Pharmaceutica,  N.V.  and  NeoRx
                  Corporation, and Johnson & Johnson Development
                  Corporation and NeoRx Corporation.





                                       10

<PAGE>


                                NEORX CORPORATION

                                   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 11, 1997                           By: /s/Richard L. Anderson
                                                      ----------------------
                                                      Richard L. Anderson
                                                      Authorized Officer and
                                                      Senior Vice President,
                                                      Chief Financial Officer,
                                                      Secretary and Treasurer





                                       11