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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2002

Commission File No. 0-16614

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NEORX CORPORATION(Exact name of Registrant as specified in its charter)

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

410 West Harrison Street, Seattle, Washington 98119-4007(Address of principal executive offices)

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
ý    No o

As
of May 6, 2002, approximately 26.6 million shares of the Registrant's Common Stock, $.02 par value per share, were outstanding.

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TABLE OF CONTENTS        QUARTERLY REPORT ON FORM 10-Q  FOR THE QUARTER ENDED MARCH 31, 2002

|        |  |                                                                                                    |  | PAGE
|------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                              |  |     
|Item 1. |  | Financial Statements:                                                                              |  |     
|        |  | Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001                   |  | 3   
|        |  | Condensed Consolidated Statements of Operations for the three months Ended March 31, 2002 and 2001 |  | 4   
|        |  | Condensed Consolidated Statements Of Cash Flows for the three months Ended March 31, 2002 and 2001 |  | 5   
|        |  | Notes to Condensed Consolidated Financial Statements                                               |  | 6   
|Item 2. |  | Management's Discussion and Analysis of Results of Operations and Financial Condition              |  | 9   
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 21  
|PART II |  | OTHER INFORMATION                                                                                  |  |     
|Item 5. |  | Other Information                                                                                  |  | 22  
|Item 6. |  | Exhibits                                                                                           |  | 22  
|        |  | Signature                                                                                          |  | 23  

2

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEORX CORPORATION AND SUBSIDIARY        CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands, except share data)  (unaudited)

|                                     |                                                                                                                                                                           | March 31,
2002                                                                                                                                                                                                            |                                            | December 31,
2001 |       
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ------
|ASSETS                               |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|Current assets:                      |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     | Cash and cash equivalents                                                                                                                                                 |                                                                                                                                                                                                                           | $                                          | 2,636             |       
|                                     | Investment securities                                                                                                                                                     |                                                                                                                                                                                                                           |                                            | 23,724            |       
|                                     | Notes receivable                                                                                                                                                          |                                                                                                                                                                                                                           |                                            | 179               |       
|                                     | Prepaid expenses and other current assets                                                                                                                                 |                                                                                                                                                                                                                           |                                            | 858               |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total current assets                       |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|Facilities and equipment, at cost:   |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     | Land                                                                                                                                                                      |                                                                                                                                                                                                                           |                                            | 460               |       
|                                     | Building                                                                                                                                                                  |                                                                                                                                                                                                                           |                                            | 9,004             |       
|                                     | Leasehold improvements                                                                                                                                                    |                                                                                                                                                                                                                           |                                            | 3,315             |       
|                                     | Equipment and furniture                                                                                                                                                   |                                                                                                                                                                                                                           |                                            | 11,703            |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | 24,482                                     |                   |       
|                                     | Less: accumulated depreciation and amortization                                                                                                                           |                                                                                                                                                                                                                           |                                            | (9,346            | )     
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           | Facilities and equipment, net                                                                                                                                                                                             |                                            |                   | 15,136
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     | Other assets, net                                                                                                                                                         |                                                                                                                                                                                                                           |                                            | 1,073             |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total assets                               |                   | $     
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|Current liabilities:                 |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     | Accounts payable                                                                                                                                                          |                                                                                                                                                                                                                           | $                                          | 1,598             |       
|                                     | Accrued liabilities                                                                                                                                                       |                                                                                                                                                                                                                           |                                            | 1,686             |       
|                                     | Current portion of note payable                                                                                                                                           |                                                                                                                                                                                                                           |                                            | 420               |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total current liabilities                  |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|Long-term liabilities:               |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     | Note payable, net of current portion                                                                                                                                      |                                                                                                                                                                                                                           |                                            | 5,580             |       
|                                     | Other                                                                                                                                                                     |                                                                                                                                                                                                                           |                                            | 75                |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total long-term liabilities                |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|Shareholders' equity:                |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     | Preferred Stock, $.02 par value, 3,000,000 shares authorized:                                                                                                             |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           | Convertible Preferred Stock, Series 1, 205,340 shares issued and outstanding at March 31, 2002 and December 31, 2001 (entitled in liquidation to $5,300 and $5,175 at March 31, 2002 and December 31, 2001, respectively) |                                            |                   | 4     
|                                     | Common stock, $.02 par value, 60,000,000 shares authorized, 26,578,723 and 26,571,098 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively |                                                                                                                                                                                                                           |                                            | 532               |       
|                                     | Additional paid-in capital                                                                                                                                                |                                                                                                                                                                                                                           |                                            | 223,957           |       
|                                     | Accumulated other comprehensive incomeunrealized gain on investment securities                                                                                           |                                                                                                                                                                                                                           |                                            | 250               |       
|                                     | Accumulated deficit                                                                                                                                                       |                                                                                                                                                                                                                           |                                            | (190,496          | )     
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           | Total shareholders' equity                                                                                                                                                                                                |                                            |                   | 34,247
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           | Total liabilities and shareholders' equity |                   | $     
|                                     |                                                                                                                                                                           |                                                                                                                                                                                                                           |                                            |                   |       

See accompanying notes to the condensed consolidated financial statements.

3

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NEORX CORPORATION AND SUBSIDIARY        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)  (unaudited)

|                                                             |                                     | Three months
ended March 31, |       
|------------------------------------------------------------ | ----------------------------------- | ---------------------------- | ------
|
|Revenues                                                     |                                     | $                            | 310   
|                                                             |                                     |                              |       
|Operating expenses:                                          |                                     |                              |       
|Research and development                                     |                                     |                              | 6,041 
|General and administrative                                   |                                     |                              | 1,739 
|                                                             |                                     |                              |       
|                                                             |                                     | Total operating expenses     |       
|                                                             |                                     |                              |       
|Loss from operations                                         |                                     |                              | (7,470
|                                                             |                                     |                              |       
|Other income (expense):                                      |                                     |                              |       
|                                                             | Realized gain on sale of securities |                              |       
|                                                             | Interest income                     |                              |       
|                                                             | Interest expense                    |                              |       
|                                                             |                                     |                              |       
|                                                             |                                     | Total other income           |       
|                                                             |                                     |                              |       
|Net loss                                                     |                                     |                              | (7,067
|Preferred stock dividends                                    |                                     |                              | (125  
|                                                             |                                     |                              |       
|Net loss applicable to common shares                         |                                     | $                            | (7,192
|                                                             |                                     |                              |       
|Net loss per common sharebasic and diluted                  |                                     | $                            | (0.27 
|                                                             |                                     |                              |       
|Weighted average common shares outstandingbasic and diluted |                                     |                              | 26,576
|                                                             |                                     |                              |       

See
accompanying notes to the condensed consolidated financial statements.

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NEORX CORPORATION AND SUBSIDIARY        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)  (unaudited)

|                                                     |                                                                                         | Three months
ended March 31,                             |       
|---------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------
|
|Cash flows from operating activities:                |                                                                                         |                                                          |       
|                                                     | Net loss                                                                                |                                                          | $     
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities:             |                                                          |       
|                                                     | Depreciation and amortization                                                           |                                                          |       
|                                                     | Gain on sale of securities                                                              |                                                          |       
|                                                     | Stock options and warrants issued for services                                          |                                                          |       
|                                                     | Change in operating assets and liabilities:                                             |                                                          |       
|                                                     |                                                                                         | Increase in notes receivable                             |       
|                                                     |                                                                                         | (Increase) decrease in prepaid expenses and other assets |       
|                                                     |                                                                                         | Increase (decrease) in accounts payable                  |       
|                                                     |                                                                                         | Increase (decrease) in accrued liabilities               |       
|                                                     |                                                                                         |                                                          |       
|                                                     | Net cash used in operating activities                                                   |                                                          |       
|                                                     |                                                                                         |                                                          |       
|Cash flows from investing activities:                |                                                                                         |                                                          |       
|                                                     | Proceeds from sales and maturities of investment securities                             |                                                          |       
|                                                     | Purchases of investment securities                                                      |                                                          |       
|                                                     | Facilities and equipment purchases                                                      |                                                          |       
|                                                     |                                                                                         |                                                          |       
|                                                     | Net cash provided by investing activities                                               |                                                          |       
|                                                     |                                                                                         |                                                          |       
|                                                     | Cash flows from financing activitiesProceeds from stock options and warrants exercised |                                                          |       
|                                                     |                                                                                         |                                                          |       
|Net increase (decrease) in cash and cash equivalents |                                                                                         |                                                          | (1,461
|Cash and cash equivalents:                           |                                                                                         |                                                          |       
|                                                     | Beginning of period                                                                     |                                                          |       
|                                                     |                                                                                         |                                                          |       
|                                                     | End of period                                                                           |                                                          | $     
|                                                     |                                                                                         |                                                          |       

See
accompanying notes to the condensed consolidated financial statements.

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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 accounting principles generally accepted in the United States of America 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, 2001.

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 March 31, 2002 and the results of its operations and cash flows for the periods ended March 31, 2002 and 2001.

The
results of operations for the quarters ended March 31, 2002 and 2001 are not necessarily indicative of the expected operating results for the full year.

Note 2. Line of Credit

In May 2002, the Company received a commitment for a general-purpose line of credit of $10,000,000 with Silicon Valley Bank (SVB). Funds may be drawn at
any time provided the Company is in compliance with the following covenants:



Interest
is payable monthly on any unpaid balances at the bank's prime rate (4.75% on the date of the signing of the agreement). Principal is payable in full in two years from the date
of the signing of the agreement provided the Company remains in compliance with the above covenants. The Company has not drawn funds on this line of credit to date.

Note 3. Net Loss Per Common Share

Basic and diluted loss per share are based on net loss applicable to common shares, which is comprised of net loss and preferred stock dividends in all periods
presented. Shares used to calculate basic loss per share are based on the weighted average number of common shares outstanding during the period. Shares used to calculate diluted loss per share are
based on the potential dilution that

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would occur upon the exercise or conversion of securities into common stock using the treasury stock method. Calculations of basic and diluted loss per share for the quarters ended March 31,
2002 and 2001 exclude the effect of options and warrants to purchase additional shares of common stock because the share increments would be antidilutive.

The
computation of diluted net loss per share excludes the following options and warrants to acquire shares of common stock for the periods indicated because their effect would be
antidilutive:

March 31, 2002

March 31, 2001Common stock options

4,636,129

3,186,567Weighted average exercise price per share

$5.05

$5.51Common stock warrants

1,051,000

270,000Weighted average exercise price per share

$8.85

$4.82


In
addition, 234,088 shares of common stock that would be issuable upon conversion of the Company's preferred stock are not included in the calculation of diluted loss per share for the
quarters ended March 31, 2002 and 2001 because the effect of including such shares would be antidilutive.

Note 4. Comprehensive Loss

The Company's comprehensive loss for the quarters ended March 31, 2002 and 2001 was $7,395,000 and $3,297,000, respectively. The comprehensive loss for the
quarters ended March 31, 2002 and 2001 consisted of net loss of $7,067,000 and $3,581,000, respectively, and a net unrealized gain (loss) on investment securities of $(328,000) and $284,000 for
the quarters ended March 31, 2002 and 2001, respectively.

Note 5. New Accounting Pronouncements

In July 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 was adopted by the Company on January 1, 2002. The adoption of
Statements No. 141 and 142 did not have any impact on the Company's consolidated financial statements.

In
August 2001, the FASB issued Statement No. 143,Accounting for Asset Retirement Obligations,which addresses financial
accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) normal use of the asset. Statement No. 143 requires that
the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. If the obligation is settled for other than the carrying amount
of the liability, the Company will recognize a gain or loss on settlement. The Company will adopt this Statement on January 1, 2003. Management has not yet determined the impact of adopting
this statement on its consolidated financial statements.

In
October 2001, the FASB issued Statement No. 144,Accounting for Impairment or Disposal of Long-Lived Assets,which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the

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Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,it retains many of the fundamental provisions of that Statement. Statement
No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,for the disposal of a segment of a business. However, it
retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale,
abandonment, or in distribution to owners) or is classified as held for sale. The Company adopted the provisions of Statement No. 144 on January 1, 2002. The adoption of this statement
did not have any impact on the Company's consolidated financial statements.

Note 6. Liquidity

The Company has incurred losses annually since inception and has limited working capital. The Company believes its existing working capital will be sufficient to
fund operations into the first quarter of 2003. The Company is addressing its need for additional capital by exploring opportunities for strategic partnerships in connection with its STR and
Pretarget® technologies and sales of equity securities. In the event additional funds are not obtained through strategic partnering opportunities and/or sales of securities, the Company
plans to cut expenses through the elimination of some of its non-critical technologies and processes. The Company's actual capital requirements will depend on 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 of revenues and expense
reimbursements resulting from relationships with third parties or collaborative agreements. The Company intends to seek additional funding through arrangements with corporate partners, licensing
agreements, public or private equity financing, or other sources. 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
products 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.

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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.

Critical Accounting Policies

Basis of Revenue Recognition:The Company does not have any significant revenue sources that will continue into 2002. On
occasion the Company derives revenue from licensing its non-strategic patent technologies and government grants. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 101, revenues from collaborative agreements are recognized as earned as the Company performs research activities under the terms of each agreement. Billings in excess of amounts
earned are classified as deferred revenue. Non-refundable upfront technology license fees, where the Company is providing continuing services related to product development, are deferred.
Such fees are recognized as revenue over the product development periods based on estimated total development costs.

Quarter ended March 31, 2002 Compared with March 31, 2001

Revenue for the quarter ended March 31, 2002 was $310,000 compared to $1,039,000 for the quarter ended March 31, 2001. Revenue for the quarter ended
March 31, 2002 consisted primarily of revenue from government grants and a facilities lease agreement. Revenue for the quarter ended March 31, 2001 was primarily from government grants.
The Company recognizes revenue from government grants as earned. The Company does not have any significant revenue sources that will continue throughout 2002. On occasion the Company derives revenue
from licensing its non-strategic patent technologies, and government grants. Pursuant to SAB 101, the timing and amount of license revenue recognized during an accounting period is
determined by the nature of the contractual provisions included in the license arrangement.

Total
operating expenses for the quarter ended March 31, 2002 increased 42% to $7,780,000 from $5,486,000 in the quarter ended March 31, 2001. Research and development
expenses for the quarter ended March 31, 2002 increased 54% to $6,041,000 from $3,920,000 for the same time period in 2001. The increase in research and development expenses for the first
quarter ended March 31, 2002 was predominantly due to the addition of the Company's radiopharmaceutical manufacturing facility in Denton, Texas. First quarter research and development expenses
also increased from clinical activities for the Company's Pretarget® Lymphoma and Pretarget® Carcinoma product development programs. NeoRx's proposed Skeletal Targeted
Radiotherapy product, which we call STR, has been placed on clinical hold with the US Food and Drug Administration. The dosimetry trial is open for enrollment and the Company is actively screening
patients at three clinical sites. The Company is in discussions with the FDA on the design of its STR pivotal trials with the goal of initiating the pivotal program by year-end.

We
expect research and development expenses to continue to increase due to planned clinical trials for STR, increased spending for our Pretarget® clinical trials for
lymphoma, Pretarget Carcinoma and a

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third Pretarget technology. The extent of increased costs associated with the STR clinical trials is dependant upon the timing and terms of eventual FDA approval to resume the pivotal program for
STR.

General
and administrative expenses for the quarter ended March 31, 2002 increased 11% to $1,739,000 versus $1,566,000 for the quarter ended March 31, 2001. The increase in
general and administrative costs during the first quarter of 2002 was due to increased staff, legal and corporate communications expenses. Costs for general and administrative are also expected to
increase slightly with the addition of administrative staff and services in 2002.

Other
income for the first quarter of 2002 was $403,000 compared to $866,000 for the first quarter of 2001. Other income included interest income for the first quarter of 2002 of
$396,000 compared to $813,000 for the first quarter of 2001. Other income is expected to decline due to declining balances of cash and cash equivalents.

Liquidity and capital resources

The Company has financed its operations primarily through the sale of equity securities, collaborative agreements and debt instruments. The Company invests excess
cash in investment securities that will be used to fund future operating costs. Cash, cash equivalents and investment securities totaled $26,360,000 at March 31, 2002 versus $33,581,000 at
December 31, 2001. The Company funds current operations with its existing cash and investments derived from sales of equity securities in prior years. On occasion, the Company derives revenue
from licensing its non-strategic patent technologies and government grants.

In
May 2002, the Company received a commitment for a $10.0 million general-purpose line of credit with Silicon Valley Bank (SVB). The line of credit will be used to fund
further growth and development of the Company's clinical product technologies. Funds may be drawn at any time provided the Company is in compliance with the following covenants:



Interest
is payable monthly on any unpaid balances at the bank's prime rate (4.75% on the date of the signing of the agreement). Principal is payable in full in two years from the date
of the signing of the agreement provided the Company remains in compliance with the above covenants. The Company has not drawn funds on this line of credit to date.

The
Company also maintains a line of credit with Pharmaceutical Product Development, Inc. (PPD) of up to $5.0 million to assist in funding its phase III trial of its STR
product in development. The Company's STR phase III trial was placed on clinical hold in November of 2000. This line of credit is available to the Company only upon the successful resumption of phase
III trials and the proceeds can
only be applied to the expenses related to the phase III trials. The Company has not drawn funds on this line of credit to date, which carries an annual interest rate of 16%.

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In
January 2002, the Company sold the remainder of its investment in Angiotech Pharmaceuticals, Inc. for $1.4 million and recognized a gain on the sale of
approximately $109,000.

The
Company will need to raise additional capital to fund its planned STR pivotal trials, Pretarget® phase I/II trials and its current operating cash needs. The Company
expects that its cash, cash equivalents, investment securities and interest income will be sufficient to fund its anticipated working capital and capital requirements into the first quarter of 2003.
The Company is addressing its need for additional capital by exploring opportunities for strategic partnerships in connection with its STR and Pretarget® technologies and sales of equity
securities. In the event additional funds are not obtained through strategic partnering opportunities and/or sales of securities, the Company plans to cut expenses through the elimination of some of
its non-critical technologies and processes.

The
Company's actual capital requirements will depend on 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 of revenues and expense reimbursements resulting from
relationships with third parties or collaborative agreements. The Company has obtained additional funding in the past through arrangements with corporate partners, licensing agreements, public or
private equity financing, or other sources. 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 products 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.

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 March 31, 2002, we had an accumulated deficit of $190 million. These losses have resulted
principally from costs incurred in our research and development programs and from our general and administrative activities. 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. 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 clinical trials for these products. We plan to continue to simultaneously conduct clinical trials and preclinical research
for a number of different cancer therapy product candidates, 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:



11

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The
Company expects that its cash, cash equivalents, investment securities and interest income will be sufficient to fund its anticipated working capital and capital requirements into
the first quarter of 2003. The Company is addressing its need for additional capital exploring opportunities for strategic partnerships in connection with its STR and Pretarget®
technologies and sales of equity securities. In the event additional funds are not obtained through strategic partnering opportunities and/or sales of securities, the Company plans to cut expenses
through elimination of some of its non-critical technologies and processes. However, the amount of additional financing we may need within this time frame depends on a number of factors,
including the following:



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 required to enter into relationships 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 Food and Drug
Administration (FDA) 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, often takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. Our Skeletal Targeted Radiotherapy (STR) and Pretarget® product candidates are novel; therefore, regulatory agencies lack direct experience
with them. This may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our STR and Pretarget® product candidates. A STR phase
III study was placed on clinical hold by the FDA after some patients in our STR phase I/II multiple myeloma trials developed a serious late toxicity. The FDA requested that we collect additional
radiation dosimetry data from a small number of patients to validate the revised methodology we propose to use to calculate radiation dose in our pivotal trials. We have discussed with the FDA a
revised plan for pivotal trials of STR in patients with multiple myeloma, submitted a protocol for the requested dosimetry study and are now actively seeking enrollment of patients for the dosimetry
trial at several sites. Based

12

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on the results of this study and subject to approval from the FDA, we plan to initiate a revised pivotal program for STR in late 2002. Our pivotal trials for STR cannot begin until we receive
authorization from the FDA. During the first quarter of 2002, we continued our Pretarget Phase I study for the treatment of lymphoma. The FDA has requested that we complete a 90 day
follow-up on all of the previously treated patients in this trial and review the data and any related matters before treating additional patients. We currently are collecting these data. We will not
commence dosing additional patients until the agency reviews these data and related matters and we receive authorization to proceed.

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 in filing and pursuing applications necessary to gain regulatory approvals. This may impede our ability to obtain
timely approvals from the FDA or foreign regulatory agencies, if at all. We will not be able to commercialize any of our potential products until we obtain regulatory approval, and consequently any
delay in obtaining, or inability to obtain, regulatory 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 or 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 also may be required to undertake post-marketing trials. In addition, if we or other parties 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 and 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, including scheduling conflicts with participating
clinicians and clinical institutions and difficulties in identifying and enrolling patients who meet trial eligibility criteria, may cause significant delays. 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 and 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 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

13

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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:



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 initiate
our revised pivotal program for STR. The data collected from our clinical trials may not be sufficient to support regulatory approval 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 or foreign regulatory
agencies 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.

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

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



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, including the radionuclides used in our STR and Pretarget® product candidates, is critical to our success. For example, holmium-166, the
radionuclide used in our STR product candidate, loses its effectiveness for treating patients within a short period of time. As a result, the STR product must be shipped within 24 hours of its
manufacture to the site where the patient is to be treated. 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, University of Missouri Research Reactor
facility group (MURR), for the holmium-166 component of our STR product candidate. We plan to establish an additional supplier for this material. 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.

14

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In December 2001 we entered into a contract with MURR to supply holmium-166, the radionuclide used in our STR product candidate. MURR is responsible for the
manufacture of holmium-166, including process qualification, quality control, packaging and shipping, from its Columbia, Missouri reactor facility. This supply contract follows a previous
arrangement in which MURR provided NeoRx supplies of holmium-166 for the STR product in development. Our business and operations could be materially adversely affected if MURR does not
continue to perform satisfactorily under this agreement. We intend to negotiate a long-term supply contract for holmium-166. If we are unable to negotiate a
long-term contract in a timely fashion upon favorable terms, or if under our current supply contract, MURR is unable or unwilling to provide supplies of holmium-166 in a
satisfactory manner, we may suffer delays in, or be prevented from, initiating or completing pivotal clinical trials of our STR product.

Yttrium-90,
the radionuclide used in our Pretarget® product candidates, is available from several commercial sources in the US and Europe. We have qualified two
of these sources to supply this radionuclide for our Pretarget® product candidates. We intend to establish longer-term supply agreements with one or more yttrium-90
producers for phase II and III clinical trials.

The
radiolabeling of the DOTA-biotin compound, also used in our Pretarget® product, is currently performed at our manufacturing facility in Seattle. We plan to
transfer the radiolabeling process to our radiopharmaceutical facility in Denton, Texas for phase III clinical trials.

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 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. If we are unsuccessful in negotiating a license to enhance or supplement our technologies, we may be unable to make
our technologies commercially viable. 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 certain 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,
any potential third-party manufacturers and we must continually adhere to current Good Manufacturing Practices (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 product candidates. 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 any of our third-party manufacturers or we fail to comply with
these requirements, we may be subject to regulatory action.

In
April 2001, we purchased a radiopharmaceutical manufacturing and distribution facility and certain other assets located in Denton, Texas from International Isotopes Inc.
In addition to the manufacturing facility, we purchased existing equipment, documentation, and certain processes. NeoRx also retained approximately 40 employees from International Isotopes. The
facility has achieved cGMP status and has been issued appropriate radiation permits by the State of Texas. We intend to use the facility to produce STR and other products in development.

15

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The
NeoRx radiopharmaceutical manufacturing facility in Denton is the principal manufacturing site for the proposed STR product for our planned multiple myeloma clinical trials. This
facility is responsible for all aspects of the manufacture of STR, including process qualification, quality control, packaging and shipping. We believe that the Denton facility will be sufficient to
meet our needs for the planned STR multiple myeloma phase III clinical trials. In January 2001, we extended an existing agreement with ABC Laboratories, Inc. (ABC) for ABC to manufacture
STR product for clinical trials. ABC had supplied doses of STR for the phase I/II clinical trials. ABC has been qualified for all aspects of the manufacture of STR, including process qualification,
quality control, packaging and shipping, and is under contract to the Company to continue to provide these operations through the end of June 2002. We plan to undertake all aspects of STR
manufacture and shipment through our Denton, Texas facility and intend to maintain our relationship with ABC as a back-up supplier through the duration of the existing manufacturing
agreement.

If
we are unable to maintain the necessary cGMP status and permits for our Denton radiopharmaceutical facility, or if we or ABC should encounter delays or difficulties in any aspect of
the manufacture of STR, our clinical testing may be delayed, thereby delaying the submission of products for regulatory approval or the market introduction and subsequent sales of the product. Any
such delay may lower our revenues and potential profitability.

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 we are unable to secure collaborators, or if we lose collaborators, our product development and potential for profitability may suffer. If any collaborator breaches or terminates
an 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 NeoRx and 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 compete successfully, 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 candidate on the treatment of multiple myeloma. Celgene Corp.'s thalidomide product is in development for treatment of multiple myeloma. Other therapeutics with
anti-angiogenic properties and other modes of action are in clinical development for treatment of multiple myeloma. Some competitors have adopted product development strategies targeting
cancer cells with antibodies. IDEC Pharmaceuticals Corp. has a monoclonal antibody product approved for treatment of non-Hodgkin's lymphoma (NHL), and a radioimmunotherapeutic consisting
of an anti-CD20 antibody chemically linked to the radionuclide yttrium-90 (Zevalin), which received FDA approval for marketing in February 2002.
Immunomedics, Inc. and Corixa Corp. have radioimmunotherapy (RIT) products for NHL in late-stage development. Many emerging companies, including Immunomedics, IDEC and Corixa, have
corporate partnership arrangements with large, established 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 GlaxoSmithKline, Amersham PLC, Mallinckrodt, Inc. (Tyco Healthcare) and Bristol-Myers Squibb Co., 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
we are to develop, manufacture and market

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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 (USPTO) 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 USPTO. It is possible that a competitor
may successfully challenge our patents or that a challenge will result in limiting their coverage. 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. Moreover, it 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 were 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

17

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any legal action and a required license under the patent may not be available on acceptable terms or at all.

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 USPTO 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 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 that may be used by our collaborators, involve the controlled use of hazardous
and 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 manufacturing partner 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

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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, 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, our ability to commercialize our products under development may be
adversely affected. In addition, both in the US 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 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 fewer than 125 employees. 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 the 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:



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.

19

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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 of 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 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 certain 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, among other things:



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 or limiting future investment in NeoRx
by significant shareholders.

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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
March 31, 2002, the Company owned government debt instruments in the amount of $1.0 million and corporate debt securities in the amount of $22.7 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 and securities with variable interest rates. The
Company had approximately $7.2 million of corporate debt securities that had maturity dates greater than one year at March 31, 2002, all of which were variable interest rate securities.

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Item 5. Other Information

During the first quarter of 2002, the Company continued its Pretarget Phase I study for the treatment of lymphoma. The FDA has requested that the Company
complete a 90 day follow-up on all of the previously treated patients in this trial and review the data and any related matters before treating additional patients. The Company currently is
collecting these data. The Company will not commence
dosing additional patients until the agency reviews these data and related matters and receives authorization to proceed.

In
May 2002, Wolfgang Oster, M.D., the Company's Chief Operating Officer, resigned. Douglass B. Given, M.D., Ph.D., the Company's President and CEO, has assumed his
responsibilities.

Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K



Form 8-K
dated January 2, 2002, relating to an update on the progress in Pretarget® product development programs.

Form 8-K
dated February 20, 2002, relating to an update on the status of targeted therapeutic product development programs.

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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)
| |  | ------------------------------
| |  | By:                           

Date:
May 15, 2002

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EXHIBIT INDEX

|Exhibit |  | Description                                                                                                                                                                                                        |  | Incorporation 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                        
|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 Plan ()                                                                                                                                                                                     |  | ******                       
|10.6    |  | Agreement, dated as of December 15, 1995                                                                                                                                                                           |  |                         
|10.7    |  | Stock Option Agreement, dated July 30, 2001, between NeoRx Corporation and Douglass B. Given ()                                                                                                                   |  | &                            
|10.8    |  | Indemnification Agreement ()                                                                                                                                                                                      |  | #                            
|10.9    |  | Form of Key Executive Severance Agreement ()                                                                                                                                                                      |  | ##                           
|10.10   |  | Officer Change in Control Agreement ()                                                                                                                                                                            |  | XXXXX                        
|10.11   |  | Key Executive Severance Agreement ()                                                                                                                                                                              |  | XXXXX                        
|10.12   |  | License Agreement, dated June 30, 1999, between NeoRx and The Dow Chemical Company                                                                                                                                 |  | !                            
|10.13   |  | Credit Facility Agreement, dated February 3, 2000, between NeoRx Corporation and Pharmaceutical Product Development                                                                                                |  | !!                           
|10.14   |  | Facilities Lease, dated July 24, 2000, between NeoRx Corporation and F5 Networks                                                                                                                                   |  | !!!                          
|10.15   |  | Stock Option Agreement, dated December 19, 2000, between NeoRx Corporation and Carl S. Goldfischer ()                                                                                                             |  | X                            
|10.16   |  | Stock Option Agreement, dated January 17, 2001, between NeoRx Corporation and Carl S. Goldfischer ()                                                                                                              |  | X                            
|10.17   |  | Stock Option Agreement, dated November 16, 2000, between NeoRx Corporation and Douglass Given ()                                                                                                                  |  | X                            
|10.18   |  | Sublicense Agreement, dated May 15, 1997, between NeoRx Corporation and Roche Molecular Biochemicals. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.           |  | ^                            
|10.19   |  | 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. |  | ^                            
|        |  |                                                                                                                                                                                                                    |  |                              

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|10.20 |  | First Amendment to Sublease Agreement, dated March 30, 2001, between NeoRx Corporation and F5 Networks                                                                                                    |  | ^ 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|10.21 |  | Amendment No. 3 to Consulting Agreement, dated January 1, 2002, between NeoRx Corporation and Bay City Capital BD, LLC                                                                                    |  | &&
|10.22 |  | Separation Agreement, dated September 13, 2001, between NeoRx Corporation and Richard L. Anderson ()                                                                                                     |  | &&
|10.23 |  | Form of VP Change in Control Agreements ()                                                                                                                                                               |  | &&
|10.24 |  | Clinical Manufacture and Supply Agreement, dated December 1, 2001, between NeoRx Corporation and MURR. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment. |  | &&
|10.25 |  | Facilities Lease, dated February 15, 2002, between NeoRx Corporation and Selig Real Estate Holdings Six                                                                                                   |  | &&
|10.26 |  | Form of VP Severance Agreements ()                                                                                                                                                                       |  | &&
|21    |  | Subsidiaries of NeoRx Corporation                                                                                                                                                                         |  | &&

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|&&     |  | Filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference.                                                                                                         
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*      |  | 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 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, 1995 and incorporated herein by reference.                                                                                                         
|&      |  | Filed as an exhibit to the Company's Registration Statement on Form S-8 (Registration No. 333-71368), filed October 10, 2001 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 and incorporated herein by reference.                                                                                                         
|XXXXX  |  | Filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference.                                                                                                         
|!      |  | 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.
|       |  |                                                                                                                                                                                                                                          

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

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