<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)

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

      For the quarterly period ended March 31, 1999

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

      For the transition period from _____ to_______

                         Commission file number 0-11103

                                 CENTOCOR, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

      Pennsylvania                                              23-2117202
-------------------------------                              -------------------
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                               Identification No.)

200 Great Valley Parkway                   Malvern, Pennsylvania     19355-1307
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                  610-651-6000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |

Shares of Common Stock outstanding at May 3, 1999 were 70,905,337.
<PAGE>
 
Part I:  Financial Information
Item I: Financial Statements

                         CENTOCOR, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                    (Unaudited)
                                                     March 31,      December 31,
                                                       1999             1998
-------------------------------------------         -----------     -----------
<S>                                                <C>             <C>
ASSETS

Current assets:

         Cash and cash equivalents (Notes
           4 and 8)                                 $    60,780     $    67,332
         Short-term investments (Note 4)                131,197         137,938
         Accounts and contracts receivable               67,637          90,780
         Inventory (Note 5)                              45,934          45,259
         Prepaid expenses                                 4,533           7,056
         Other current assets                             4,333           5,676
                                                    -----------     -----------
                                                        314,414         354,041

Property, plant and equipment:
         Land and buildings                              73,998          75,813
         Equipment, furniture, fixtures,
         improvements and construction 
           in progress                                  199,646         168,895
                                                    -----------     -----------
                                                        273,644         244,708
         Less accumulated depreciation                  (87,862)        (89,285)
                                                    -----------     -----------
                                                        185,782         155,423

Long-term investments (Note 4)                           19,962          21,332

Deferred tax assets (Note 9)                            304,004         309,094

Intangible and other assets (Note 6)                    241,083         242,199
                                                    -----------     -----------

             Total assets                           $ 1,065,245     $ 1,082,089
                                                    ===========     ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       2
<PAGE>
 
                         CENTOCOR, INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS (CONT'D.)

                                 (In thousands)

<TABLE>
<CAPTION>
                                                           (Unaudited)
                                                            March 31,     December 31,
                                                              1999            1998
-------------------------------------------------          -----------    -----------
<S>                                                        <C>            <C>        
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

          Accounts payable                                 $    13,789    $    15,670
          Accrued expenses                                      70,402         89,084
          Notes payable (Note 8)                                 5,882          6,383
          Unearned revenues                                      2,586          4,457
          Other current liabilities (Note 7)                    15,800         15,800
                                                           -----------    -----------
                                                               108,459        131,394

Long-term debt (Note 8)                                        460,000        460,000

Other liabilities                                                4,505          4,476

Shareholders' equity (Notes 4, 8, and 12):
          Preferred Stock, $.01 par value,
            10,000 shares authorized, none issued                   --             --
          Common Stock, $.01 par value,
            100,000 shares authorized and
            70,902 and 70,756 issued and
            outstanding at March 31, 1999 and
            December 31, 1998, respectively                        709            708
          Additional paid-in capital                         1,101,391      1,098,315
          Deficit                                             (608,101)      (618,185)
          Accumulated other comprehensive income(loss)          (1,718)         5,381
                                                           -----------    -----------
                                                               492,281        486,219
                                                           -----------    -----------

              Total liabilities and shareholders' equity   $ 1,065,245    $ 1,082,089
                                                           ===========    ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       3
<PAGE>
 
                         CENTOCOR, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
For the three months ended March 31,                      1999           1998
--------------------------------------------------------------------------------
<S>                                                   <C>            <C>
Revenues:
  Sales                                                $ 100,497      $  56,505
  Contracts                                                  250            360
                                                       ---------      ---------
                                                         100,747         56,865

Costs and expenses:
  Cost of sales                                           32,364         20,760
  Research and development                                20,951         19,913
  Marketing, general and administrative                   34,254         15,867
  Special charges (Note 11)                                   --        145,405
                                                       ---------      ---------
                                                          87,569        201,945

Other income (expenses):
  Interest income                                          2,231          4,164
  Interest expense                                        (5,327)        (2,687)
  Litigation charge (Note 14)                                 --         (3,430)
  Gain on sale of investments (Note 4)                     5,196          6,931
  Other                                                    1,529            (55)
                                                       ---------      ---------
                                                           3,629          4,923
                                                       ---------      ---------

Income (loss) before provision for income
taxes                                                     16,807       (140,157)

Provision for income taxes (Note 9)                        6,723            150
                                                       ---------      ---------

Net income (loss)                                      $  10,084      $(140,307)
                                                       =========      =========

Basic earnings (loss) per share                        $    0.14      $   (2.00)
                                                       =========      =========

Diluted earnings (loss) per share                      $    0.14      $   (2.00)
                                                       =========      =========

Weighted average number of shares
  outstanding                                             70,863         70,185
                                                       =========      =========

Weighted average common and dilutive
  equivalent shares outstanding                           72,388         70,185
                                                       =========      =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       4
<PAGE>
 
                         CENTOCOR, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
For the three months ended March 31,                          1999         1998
----------------------------------------------------------------------------------
<S>                                                        <C>          <C>       
    Cash flows from (used for) operating activities:
      Net income (loss)                                    $  10,084    $(140,307)
      Adjustments to reconcile net income (loss) to net
        cash from (used for) operating activities:
         Provisions for depreciation and amortization         10,927        5,158
         Special charges (Note 11)                                --      145,405
         Gain on sale of investments                          (5,196)      (6,931)
         Changes in assets and liabilities:
              Accounts and contracts receivable               17,468      (12,259)
              Interest receivable                                (44)         105
              Inventory                                       (2,514)      (3,546)
              Prepaid expenses                                (1,150)        (259)
              Other current assets                              (150)        (170)
              Intangible and other assets                     (6,649)      (7,412)
              Accounts payable                                  (942)      (2,114)
              Accrued expenses and other liabilities          (7,796)       7,174
              Other long-term liabilities                       (237)         150
                                                           ---------    ---------
        Net cash from (used for) operating activities         13,801      (15,006)

    Cash flows used for investing activities:
      Purchases of investments                              (138,583)     (58,209)
      Sales of investments                                   151,686       51,373
      RETAVASE acquisition and related costs                      --     (337,039)
      Purchases of fixed assets                              (35,558)     (17,881)
                                                           ---------    ---------
        Net cash used for investing activities               (22,455)    (361,756)

    Cash flows from financing activities:
      Net proceeds from issuances of Common Stock              1,544          306
      Net proceeds from issuance of long-term debt                --      448,500
                                                           ---------    ---------
        Net cash from financing activities                     1,544      448,806

    Effect of foreign currency translation                       558         (314)
                                                           ---------    ---------

    Net increase (decrease) in cash and cash equivalents      (6,552)      71,730

    Beginning cash and cash equivalents                       67,332       85,565
                                                           ---------    ---------

    Ending cash and cash equivalents                       $  60,780    $ 157,295
                                                           =========    =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       5
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

Note 1

Basis of Presentation

      Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical
company that creates, acquires and markets therapies that yield long-term
benefits for patients and the healthcare community. Its products, developed
through monoclonal antibody and other technologies, help physicians deliver
innovative treatments to improve human health and restore patients' quality of
life.

      The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
periods. These financial statements do not include all disclosures required for
annual financial statements and should be read in conjunction with the more
complete disclosures contained in Centocor, Inc.'s audited financial statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998.

      The statements reflect, in the opinion of management, all adjustments of a
normal and recurring nature necessary to present fairly the Company's
consolidated financial position at March 31, 1999 and December 31, 1998 and the
consolidated results of operations and cash flows for the three months ended
March 31, 1999 and 1998. The results of operations and the cash flows are not
necessarily indicative of the results to be expected for the entire year.

Note 2

Commitments and Contingencies

      Liquidity and Capital Resources

      The Company, since inception, has incurred significant operating expenses
attempting to develop therapeutic and diagnostic products. The Company has also
incurred significant special charges. Consequently, the Company had experienced
substantial net cash outflows, which have been only partially offset by
significant contract revenues received through collaborative alliances with
pharmaceutical companies and the Company's financing activities and, more
recently, by therapeutic product sales.

      The Company's future financial condition is dependent upon the Company's
rate of net cash inflows and, ultimately, upon the achievement of significant
and sustained levels of therapeutic product sales. Under the Company's strategy
of entering into collaborative alliances with established pharmaceutical
companies, the Company generally shares sales revenues from products covered by
such arrangements with its partners. The level of future sales of the Company's
products will be dependent upon several factors, including, but not limited to,
the timing and extent of future regulatory approvals of those products, approval
and commercialization of competitive products and the degree of acceptance of
the Company's products in the marketplace. There can be no assurance that the
FDA or other regulatory authorities will approve expanded labeling for ReoPro,
RETAVASE, REMICADE or other products or will approve any other of the Company's
product candidates under development for commercial sale. Failure to obtain, on
a timely basis, initial or expanded regulatory approvals for the Company's
products and product candidates will have a material adverse effect on the
Company.

      Legal Proceedings

      In July 1995, PaineWebber Development Corporation, a wholly-owned
subsidiary of PaineWebber Group Inc., caused a suit to be filed against the
Company by PaineWebber R&D II, L.P. ("PWR&DII"), a research and development
partnership formed by PaineWebber in the mid-1980s and managed by it since then.
PWR&DII was 


                                       6
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

an investor in Centocor Partners III, L.P. ("CPIII"), a research partnership for
which PaineWebber acted as the sales agent and in other capacities. The Company
purchased the Class A and Class C limited partners' interests in CPIII in
January 1997 and purchased the Class B limited partnership interest in CPIII in
May 1997.

      The suit was filed in the Court of Chancery of the State of Delaware.
CPIII is named as a nominal defendant and the Company and Centocor Development
Corporation III ("CDCIII"), a wholly owned subsidiary of the Company which acted
as the general partner of CPIII, were named as defendants against whom relief is
sought. The claim in this case was that at least $25,000,000 of the money paid
by Lilly to the Company in 1992 represented profits from the marketing of
ReoPro, obligating the Company to pay a portion thereof to CPIII, and that the
Company was obligated to pay an increased percentage of the profits from ReoPro
to the former CPIII limited partners going forward. The Company answered the
complaint in the Delaware action and filed a cross-claim against nominal
defendant CPIII and a third-party complaint against PaineWebber Group Inc. and
PaineWebber Development Corporation. The cross-claim sought an offset against
any damages awarded the partners based on theories of unjust enrichment and
quasi contract. The third-party claims (later amended to add additional theories
of liability and to make PaineWebber, Inc. an additional third-party defendant)
sought to hold the PaineWebber entities liable for some or all of any alleged
injury to the partnership. On November 1, 1995, an additional suit was commenced
in the Delaware Court of Chancery by John E. Abdo, a limited partner of CPIII,
against the Company, CDCIII and certain of their officers and directors. The
complaint, filed derivatively on behalf of CPIII, asserted claims, inter alia,
for breach of contract, breach of fiduciary duty, common law fraud, and
conspiracy and aiding and abetting. The Company answered this complaint and also
filed a cross-claim against nominal defendant CPIII and a third party complaint
against PaineWebber Group Inc. and PaineWebber Development Corporation, later
amended to add additional theories of liability and to name PaineWebber, Inc. as
a further third-party defendant. Abdo moved to amend his complaint to assert
claims against the persons appointed by PaineWebber to the CDCIII Board of
Directors. That motion was granted. Motions to disqualify PWR&DII from serving
as the derivative plaintiff were filed in July 1996 by CPIII and in August 1996
by the Company and CDCIII. Abdo joined those motions. No decision has been
issued on those motions. The case brought by PWR&DII has been settled, subject
to final approval of the settlement by the Court. As part of the settlement, the
complaint was amended to restate the claims as class claims. Abdo and
Pharmaceutical Partners II, L.P., a limited partnership which had purchased
CPIII limited partnership interests, objected to the settlement and were
permitted to take discovery regarding the settlement. A hearing on the
settlement was held on September 4, 1997. On March 15, 1999, the Court issued an
opinion and order in which it approved the settlement as fair and reasonable.
Once the Court has acted upon the applications for attorneys' fees, the Court
will enter an order and final judgement. The settlement will become effective if
the Court's order and final judgement is affirmed (in the event of an appeal) or
is not appealed and is no longer subject to appeal. If the order becomes final,
all claims will be dismissed, including those of Abdo.

      On January 19, 1998, a class action captioned Surgener v. Centocor, Inc.
and David P. Holveck was filed in the United States District Court for the
Eastern District of Pennsylvania. Other similar suits were filed thereafter. The
Court consolidated the actions and plaintiffs subsequently filed a consolidated
class action complaint. The complaint in this action charges the Company and its
chief executive officer with having violated the federal securities laws.
Plaintiffs sought to represent a class of those who purchased the Company's
stock between December 2, 1997 and December 16, 1997, inclusive, and allege that
defendants made false and misleading statements in connection with earnings
forecasts. Damages in an unspecified amount are sought. On June 25, 1998,
defendants filed a motion to dismiss the complaint. On December 1, 1998, the
Court denied defendants' motion. On December 22, 1998, defendants answered the
complaint, denying all liability and raising various affirmative defenses. The
court has certified the action as a class action on behalf of all persons who
purchased the Company's securities between December 2, 1997 and December 16,
1997. Discovery has commenced. Pursuant to a pretrial order, all fact and expert
discovery must be completed by September 1, 1999. The Company believes this
action is without merit and intends to defend it vigorously.


                                       7
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

      Pursuant to the Asset Purchase Agreement between the Company and Roche
Healthcare, entered into in connection with the Company's acquisition of the
U.S. and Canadian product rights for RETAVASE, the Company assumed
responsibility for certain RETAVASE patent litigation instituted by Genentech,
Inc. against Boehringer Mannheim GmbH and Boehringer Mannheim Corporation in the
United States and Germany. The Purchase Agreement provides that the cost of the
RETAVASE patent litigation (in the United States and Germany) is to be shared
equally by Roche Healthcare and the Company, and Roche is committed to assist
the Company in the litigation by making available, at Roche's expense, witnesses
and documents. If, as a result of (i) a binding determination (including a
permanent, temporary or preliminary injunction for so long as such injunction is
not stayed or vacated) in connection with the RETAVASE patent litigation (a
"Binding Determination") or (ii) a settlement of the RETAVASE patent litigation
(a "Settlement"), the Company is unable during the life of the relevant
Genentech patents to engage in the manufacture or sale of RETAVASE in the United
States and Canada, Roche Healthcare would be required to reimburse to the
Company up to 100% of the purchase price under the Purchase Agreement (excluding
any part of the $20,000,000 placed in escrow at the closing of the Purchase
Agreement) depending upon the length of the period for which the Company's
manufacturing and sale activities are prohibited. Furthermore, Roche Healthcare
would be required under the Purchase Agreement to indemnify the Company for (i)
any damages (including lost profits) and (ii) any reasonable royalty payments,
for which the Company may become liable to Genentech as a result of a Binding
Determination or a Settlement. Roche Healthcare's total purchase price
reimbursement and indemnification obligations relating to the RETAVASE patent
litigation are limited to an aggregate of 125% of the total purchase price under
the Purchase Agreement, excluding any portion of the Escrow Amount previously
returned to the Company. In the event the governance agreement between Roche
Healthcare's parent and Genentech allows Roche Healthcare's parent to control
Genentech or in the event the parent obtains 100% of the stock of Genentech,
Roche Healthcare's parent will cause the patent litigation to be dismissed with
prejudice and will cause Genentech not to institute any additional infringement
litigation relating to RETAVASE.

      In a suit filed in the United States District Court for the District of
Massachusetts, Genentech charges Boehringer Mannheim GmbH and Boehringer
Mannheim Corporation with infringement of five patents. Genentech seeks judgment
of infringement, an injunction, treble damages, and costs including attorney's
fees. The defendants have denied infringement and raised various affirmative
defenses and counterclaims. Defendants seek a declaration of invalidity,
unenforceability and non-infringement, damages under the antitrust laws and a
state statute and costs, including attorney's fees. The Court directed the
parties to address initially three of the patents (United States Patent Nos.
4,342,832, 5,034,225 and 4,511,502), reserving two for later disposition (United
States Patent Nos. 5,221,619 and 5,185,259). The Court conducted a Markman
hearing as to the first three patents to be considered in order to construe
their claims. It subsequently issued an opinion which limited the construction
of the claims asserted by Genentech in certain instances, while not accepting
all of defendants' arguments as to construction. Thereafter, the Court
entertained argument on the motions by the defendants for summary judgment of
noninfringement as to the same three patents. On March 27,1998, the Company
moved to intervene as a named defendant in the litigation, and the Court
thereafter joined the Company as a party. On April 14, 1999, the Court granted
summary judgment dismissing Genentech's claims for infringement of United States
Patent Nos. 4,342,832 and 4,511,502, but held that there remained issues
precluding summary judgment at this time with respect to the claims of United
States Patent No. 5,034,225. The Court has not set a trial date for the case
concerning United States Patent 5,034,225, nor has it set a schedule for
proceedings with respect to United States Patent Nos. 5,221,619 and 5,185,259.
There can be no assurance that the defendants will prevail in obtaining a
judgment for noninfringement, invalidity, or unenforceability of United States
Patent Nos. 5,034,225, 5,221,619 and 5,185,259 in any subsequent trial or on any
of the patents (including those recently dismissed) in a subsequent appeal. An
adverse determination in these proceedings could trigger the reimbursement or
indemnification provisions set forth above and could have a material adverse
effect on the Company's ability to sell RETAVASE.


                                       8
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

      The patent litigation in Germany consists of a number of different
proceedings: 1) infringement suits by Genentech and its licensee against
Boehringer Mannheim based on the European patent EP 0 093 619 and on patents EP
0 217 379 and EP 0 228 862; 2) a nullity suit by Boehringer Mannheim against the
patent EP 0 093 619; 3) a nullity suit by Boehringer Mannheim against the patent
EP 0 217 379; and 4) an appeal by Boehringer Mannheim from the decision of the
European Patent Office arising from Boehringer Mannheim's opposition to the
patent EP 0 228 862. The nullity suits and the opposition appeal challenge the
validity of the patents in issue or seek construction of the claims in a manner
which would exclude RETAVASE. The infringement suit based on the patent EP 0 093
619 was initially stayed pending the outcome of the corresponding nullity
action. Following a hearing in the nullity action against the patent EP 0 093
619 on July 14, 1998, the court revoked the claims as originally stated, but
allowed alternative claims, the definition of which and the reasons for which
were subsequently set forth by the court. Boehringer Mannheim, Genentech and
Genentech's European licensee have all filed notices of appeals. The court in
the infringement action based on patents EP 0 217 379 and EP 0 228 862 has
directed certain questions to an expert. No report has been received from the
expert. At a hearing on July 28, 1998 in Boehringer Mannheim's nullity suit
against the patent EP 0 217 379, the court directed that further evidence be
submitted. After a further hearing, the court declared that patent invalid. No
date has been set for a hearing on the appeal in the opposition proceedings with
regard to patent EP 0 228 862. The infringement suit, based on patent EP 0 093
619, is now proceeding, following the decision in the related nullity action,
with the appointment of an expert to render advice to the Court. If any of the
German patent proceedings remain pending at the date when the Company is no
longer dependent on Boehringer Mannheim for the supply of RETAVASE, the defense
and risk of the remaining proceedings will revert to Boehringer Mannheim. An
adverse determination in these proceedings prior to the time when the Company is
no longer dependant on Boehringer Mannheim GmbH for the supply of RETAVASE could
trigger the reimbursement or indemnification provisions set forth above and
could have a material adverse effect on the Company's ability to sell RETAVASE.

      On March 17, 1998, two additional patents were issued to Genentech, United
States Patent Nos. 5,728,565 (the "'565" Patent) and 5,728,566 (the "'566
Patent"). The `565 and `566 Patents issued from the same original application as
United States Patent No. 5,185,259, one of the patents at issue in the suit that
Genentech brought in the District of Massachusetts. That same day, March
17,1998, Genentech brought suit against the Company for infringement of the `565
and `566 Patents in the United States District Court for the Northern District
of California (Case No. C-98-1046). In that suit, as in Massachusetts, Genentech
seeks judgment of infringement, an injunction, damages and costs including
attorney's fees. The Company answered the complaint, denying infringement of the
`565 and `566 Patents and raising various affirmative defenses concerning
invalidity of those patents. On July 17, 1998, the Company filed an amended
answer and counterclaims against Genentech expanding the affirmative defenses
and further alleging that the `565 and `566 Patents are invalid and
unenforceable. The amended answer also asserts counterclaims against Genentech
for declaratory judgments of noninfringement, invalidity and unenforceability of
the `565 and `566 Patents and for monopolization and attempted monopolization
under the federal antitrust and unfair competition claims and moved to strike
certain of the Company's affirmative defenses of equitable estopped and/or
implied license, patent misuse, abandonment and laches. On November 9,1998, the
Court entered an order denying Genentech's motion to dismiss the antitrust and
unfair competition counterclaims and granting Genentech's motion to strike with
respect to two of the affirmative defenses (equitable estoppel/implied license
and laches) while denying the remainder of the motion to strike. The parties
have agreed that the antitrust and unfair competition claims will be separated
for discovery and trial along with issues relating to damages.

      On February 9,1999, another patent was issued to Genentech, United States
Patent No. 5,869,314 (the "'314 Patent"). The `314 Patent issued from the same
original applications as the `565 and `566 Patents. The same day, February 9,
1999, Genentech brought suit against the Company for infringement of the `314
Patent in the United States District Court for the Northern District of
California (Case No. C-99-0604). In that suit, as in its other suits in
Massachusetts and California, Genentech seeks judgment of infringement, an
injunction, damages, and costs including attorney's fees. The Company answered
the complaint on April 19,1999, and asserted defenses and 


                                       9
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

counterclaims similar to those it had asserted in Case No. C-98-1046 except that
it did not include the equitable estoppel/implied license and laches defenses
that had been dismissed in the Case No. C-98-1046.

      Because of the similarity of the claims in the `314 Patent to the claims
in the `565 and `566 Patents, the Court conducted a Markman hearing on all three
patents (`565, `566, and `314) on April 30, 1999. The Court has not yet issued
an opinion construing the claims of those patents. At the April 30,1999 hearing,
the Court stated that Case No. C-99-0604 should proceed along the same schedule
as Case No. C-98-1046. Therefore, trial in both cases is presently scheduled to
commence in or about October, 1999 and dispositive motions in both cases will be
considered in August, 1999. There can be no assurance that the Company will
prevail in its defense of Case Nos. C-98-1046 and C-99-0604, or on any
counterclaims that the Company has asserted. An adverse determination in these
proceedings could have a material adverse effect on the Company's ability to
sell RETAVASE.

      Roche Healthcare has confirmed Centocor's understanding that the suits
that Genentech has brought against the Company in the Northern District of
California are covered by the indemnification and reimbursement provisions of
the Purchase Agreement.

      While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not have
a material adverse effect on the Company.

      Royalties

      In January 1997, the Company exercised its option to acquire the limited
partnership interests in CPIII and made an advance payment of approximately
$13,598,000 in cash to the Class A and Class C limited partners of CPIII. The
Company recorded this payment as a prepaid royalty in January 1997. The Company
thereafter acquired the Class B limited partnership interest. The Company is
required to make future royalty payments to the former limited partners of CPIII
based upon future sales of ReoPro.

      The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses and/or
options to license certain technology resulting from the research, generally
require the Company to pay royalties to such institutions on the sales of any
products that utilize the licensed technology. Further, the Company has licenses
under certain patents, patent applications and technology and pays the licensors
or their licensees royalties under such agreements.

      The Company has entered into indemnity agreements with the former limited
partners of Centocor Cardiovascular Imaging Partners ("CCIP"), CPII and CPIII
pursuant to which the Company would be obligated, under certain circumstances,
to compensate these parties for the fair market value of their respective
interests under any license agreements with the Company relating to their
respective products which are lost through the exercise by the U.S. government
of any of its rights relating to the licensed technology. The amount of any such
loss would be determined annually by independent appraisal.

      All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.


                                       10
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

      Product Liability and Product Recall

      The testing and marketing of medical products entails an inherent risk of
product liability. There is also a risk that circumstances might develop
requiring a product recall. The Company maintains limited product liability
insurance coverage and does not maintain product recall or product tampering
insurance coverage. Centocor's business may be materially adversely affected by
a successful product liability claim in excess of any insurance coverage. There
can be no assurance that product liability insurance coverage will continue to
be available to Centocor in the future on reasonable terms or at all.

Note 3

Collaborative Arrangements

      Relationship with Eli Lilly and Company

      In July 1992, Centocor and Lilly entered into a Sales and Distribution
Agreement later amended in June 1993. Under that Agreement, as amended, Centocor
is principally responsible for developing and manufacturing ReoPro, and Lilly
will assist Centocor in the regulatory filings and continued development of
ReoPro for various clinical indications. Also, in the event Centocor cannot
manufacture ReoPro or under certain other circumstances, such as material breach
of the agreement by or the bankruptcy of Centocor, Lilly has the option to
assume the manufacture of ReoPro and assure the continued supply of the product,
even to the extent of acquiring Centocor's related manufacturing assets at their
independently appraised values.

      In June 1996, the Company and Lilly further amended its Sales and
Distribution Agreement, pursuant to which Lilly no longer has the right to buy
ReoPro for resale in Japan, but Lilly retains its exclusive right to buy and
resell ReoPro in the rest of the world.

      Because of the complementary nature of RETAVASE and ReoPro in the
cardiovascular field, the Company believes that joint promotion of RETAVASE and
ReoPro could result in increased market penetration for ReoPro. Accordingly, the
Company and Lilly are jointly promoting ReoPro in the United States.

      Relationship with Fujisawa Pharmaceutical Co., Ltd.

      In August 1996, Centocor entered into an agreement with Fujisawa
Pharmaceutical Co., Ltd., appointing Fujisawa as the exclusive distributor of
ReoPro in Japan. The Company and Fujisawa will co-develop ReoPro in Japan and
jointly file for Japanese product approval. Fujisawa shall bear all external
costs associated with the clinical development of ReoPro in Japan and may make
future milestone payments to the Company.

      Relationship with Glaxo Wellcome plc

      In November 1993, Centocor and Glaxo Wellcome plc ("Glaxo Wellcome")
entered into an agreement for the development and marketing of certain of
Centocor's monoclonal antibody-based cancer therapeutic products, including
PANOREX (edrecolomab). In November 1994, Centocor and Glaxo Wellcome amended
their agreement and Glaxo Wellcome became the exclusive worldwide distributor
for PANOREX. Under the agreement, Glaxo Wellcome is responsible principally for
the continuing clinical development of PANOREX, and Centocor is responsible
principally for manufacturing PANOREX and securing regulatory approvals.

      Relationship with Roche Healthcare Limited

      In March 1998, Centocor and Roche Healthcare Limited entered into the
RETAVASE Asset Purchase Agreement, pursuant to which Centocor acquired the North
American product rights to RETAVASE. The 


                                       11
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

RETAVASE Asset Purchase Agreement requires that Centocor establish and qualify,
either directly or through contract manufacturers, arrangements for the
manufacture of RETAVASE for sale in the United States within four years of the
consummation of the acquisition (subject to extension by the United States
Federal Trade Commission (the "FTC") for up to two additional one year periods
if it appears that the required FDA approvals are likely to be obtained within
such extended time period) (the "Transfer Period"). Under the Purchase
Agreement, Centocor is entitled to recover all or a portion of the $20,000,000
Escrow Amount upon the achievement of certain manufacturing milestones. Roche
will cooperate in Centocor's establishment of manufacturing arrangements by
providing training and other assistance and has agreed to maintain assets
sufficient to supply RETAVASE for the Transfer Period. Centocor must be
successful in establishing such manufacturing arrangements by the end of the
Transfer Period or the RETAVASE assets will revert to Roche, which must then
divest them to another party.

      Relationship with Boehringer Mannheim GmbH and Boehringer Mannheim
Corporation

      During the Transfer Period Boehringer Mannheim GmbH will continue to
supply RETAVASE to Centocor from its facilities in Germany at an agreed price
per unit pursuant to a Supply Agreement. Boehringer Mannheim GmbH has
represented and warranted that the products supplied to Centocor will meet FDA
approved specifications and has provided the Company with customary indemnities,
including for damages that result from the failure of the product to meet FDA
approved specifications.

      Relationship with Schering-Plough Corporation

      In April 1998, Centocor entered into an agreement with Schering-Plough
Corporation ("Schering-Plough"), giving Schering-Plough exclusive worldwide
marketing rights, excluding the United States, Japan and portions of the Far
East, to REMICADE. REMICADE is a novel monoclonal antibody in development for
the treatment of Crohn's disease and rheumatoid arthritis.

      Under terms of the agreement, Centocor received a $20,000,000
non-refundable payment and could receive additional payments of up to
$30,000,000 upon the achievement of certain milestones. In addition,
Schering-Plough and the Company will divide profits related to REMICADE and have
agreed to share certain internal and external development expenses related to
the product. Centocor retains U.S. marketing rights for REMICADE for all
indications, but reserves the right to co-promote with Schering-Plough. Centocor
previously granted distribution rights to REMICADE in Japan and portions of the
Far East to Tanabe Seiyaku Co., Ltd.

      Relationship with Biovail Corporation International

      On September 15, 1998, Centocor entered into an agreement with Biovail
Corporation International, making Biovail the exclusive distributor of RETAVASE
in Canada in exchange for an up-front payment of $4,000,000 and additional
payments on future sales, which will be recognized as income over the life of
the agreement.

      Relationship with Pharmacia & Upjohn

      In March 1999 Pharmacia & Upjohn and the Company announced an agreement to
co-promote Pharmacia & Upjohn's FRAGMIN (dalteparin sodium injection) in the
United States.

      Under the terms of the agreement, the Company will promote FRAGMIN to
cardiovascular specialists across the U.S. after marketing clearance, if
received, by the U.S. Food and Drug Administration of a new indication for the
treatment of unstable angina. FRAGMIN is currently under FDA review for this
indication.


                                       12
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

      FRAGMIN, a low molecular weight heparin preparation, is marketed by
Pharmacia & Upjohn in more than 40 countries. In the U.S., it is currently
marketed by Pharmacia & Upjohn for the prevention of deep-vein thrombosis in
patients at risk undergoing abdominal surgery.

Note 4

Cash Equivalents and Investments 

      Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that the Company has both
the intent and ability to hold to maturity are carried at amortized cost.
Securities that the Company does not intend to hold to maturity are classified
either as "available for sale" or as "trading" and are carried at fair value.
Unrealized gains and losses on securities classified as available for sale are
carried as a separate component of shareholders' equity. Unrealized gains and
losses on specific securities classified as trading are reported as a component
of other income (expenses).

      At March 31, 1999, securities classified as trading, available for sale
and held to maturity are summarized below (in thousands).

<TABLE>
<CAPTION>
                                                   Unrealized
                                 Adjusted    ----------------------      Fair
Trading securities:                Cost        Gains        Losses       Value
                                 ---------   ---------    ---------    ---------
<S>                             <C>         <C>          <C>          <C>
Securities and obligations of
the U.S. Treasury and other
U.S. government agencies         $  44,534   $      32    $    (255)   $  44,311
Other short-term obligations        20,198          20          (53)      20,165
Corporate bonds and
commercial paper                    92,674          --           --       92,674
                                 ---------   ---------    ---------    ---------
                                 $ 157,406   $      52    $    (308)   $ 157,150
                                 =========   =========    =========    =========

                                                   Unrealized
                                 Adjusted    ----------------------      Fair
Investments available for sale:    Cost        Gains        Losses       Value
                                 ---------   ---------    ---------    ---------
Equity securities                $   5,693   $      --    $    (731)   $   4,962
                                 =========   =========    =========    =========

                                 Carrying           Unrealized           Fair
                                   Value        Gains       Losses       Value
Investments held to maturity:    ---------   ---------    ---------    ---------

Certificates of deposit          $   5,840   $      --    $      --    $   5,840
                                 =========   =========    =========    =========

</TABLE>
At March 31, 1999, these securities were classified as follows (in thousands):

<TABLE>
<CAPTION>
<S>                            <C>
Cash equivalents                 $ 31,793
Short-term investments            131,197
Long-term investments               4,962
                                 --------

                                 $167,952
                                 ========
</TABLE>

                                       13
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

      The Company has agreed to maintain investments with fair values of
$5,840,000 as of March 31, 1999 at a lending bank as collateral for loans from
that bank. See Note 8 - Debt.

      As part of the Company's agreements with Roche Healthcare, the Company has
placed $20,000,000 in escrow, $15,000,000 of which is classified as a long-term
investment. Centocor is entitled to recover all or a portion of the $20,000,000
upon the successful completion of certain milestones in the transfer of the
manufacturing of RETAVASE from Boehringer Mannheim to Centocor.

      In February 1999, the Company entered into a series of foreign exchange
forward contracts to hedge changes in exchange rates that impact the Company's
inventory production activities in Leiden, the Netherlands. Ultimately, the
Company's cost of sales is affected by changes in exchange rates. At March
31,1999 the Company has foreign exchange forward contracts valued at $69,700,000
to hedge anticipated inventory production for the remainder of 1999.

      In March 1999, the Company sold an equity investment in Biometric Imaging,
Inc. consisting of 3,174,603 shares classified as available for sale resulting
in a realized gain of $5,196,000.

      In February 1998, Centocor Diagnostics, Inc., a wholly owned subsidiary of
Centocor, Inc. ("Centocor Diagnostics"), sold an equity investment in
ChromaVision Medical Systems, Inc. consisting of 962,740 shares classified as
available for sale resulting in a realized gain of $6,931,000.

Note 5

Inventory

      Inventory, net of reserves, consists of the following (in thousands):
<TABLE>
<CAPTION>
                                  March 31,      December 31,
                                     1999            1998
                                  ---------      ------------
     <S>                         <C>            <C>
      Raw materials               $   6,994      $      5,801
      Work in progress               24,398            20,908
      Finished goods                 14,542            18,550
                                  ---------      ------------
                                  $  45,934      $     45,259
                                  =========      ============
</TABLE>

      Inventories have various expiration dates. The Company continually
evaluates the extent of inventory reserves considered necessary based upon the
future regulatory and commercial status of such products. There can be no
assurance that additional reserves for inventories will not be required in the
future.


                                       14
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

Note 6

Intangible and Other Assets

      Intangible and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                 March 31,     December 31,
                                                    1999           1998
                                                -----------    ------------
     <S>                                       <C>            <C>
      Acquired regulatory licenses              $    80,799    $     82,248
      Goodwill                                       36,032          36,678
      Prepaid royalties related to CPIII             26,564          26,802
      Deferred charges                               11,765          12,976
      Debt issuance costs                            10,895          11,345
      Other licenses                                 22,377          18,017
      All other                                      52,651          54,133
                                                -----------    -------------
                                                $   241,083    $     242,199
                                                ===========    =============
</TABLE>

      Intangible and other assets related to the acquisition of RETAVASE,
consisting primarily of goodwill and acquired regulatory licenses, are being
amortized over periods ranging from six to fifteen years.

      Prepaid royalties related to CPIII represent an advance payment of
approximately $13,600,000 in cash paid to the former limited partners of CPIII
in connection with the purchase of the limited partnership interests in CPIII
and an additional $15,800,000 payable to the former limited partners of CPIII in
connection with the revision of future royalties. See Note 2 - Commitments and
Contingencies and Note 7 - Other Current Liabilities.

      Deferred charges include a prepayment of certain future royalties and a
prepayment associated with the commercialization and market development of
ReoPro.

      Intangible and other assets are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amount of the
asset may not be recoverable. Impairment is evaluated by using identified or
expected cash flows.

Note 7

Other Current Liabilities

      In June 1997, the Company announced that it had reached an agreement to
settle the litigation brought by PaineWebber R&D Partners II, L.P. on behalf of
CPIII, against Centocor arising out of Centocor's Sales and Distribution
Agreement with Lilly with respect to ReoPro. See Note 2 - Commitments and
Contingencies. The settlement is conditional on the finality of the Delaware
Chancery Court approval of the settlement. The agreement provides, among other
things, for Centocor to pay the former limited partners of CPIII $10,800,000
from which attorney's fees and expenses will be deducted, an additional
$5,000,000, when cumulative world-wide sales of ReoPro exceed $600,000,000 and a
revision to the royalties payable to the former limited partners of CPIII. The
Company has recorded a current liability for the $15,800,000 for these probable
payments to the former limited partners of CPIII.


                                       15
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

Note 8

Debt

Notes Payable

      Notes payable at March 31, 1999 and December 31, 1998 consists of
$5,882,000 and $6,383,000, respectively, of borrowings under short-term notes at
an interest rate of 3.9% per annum at March 31, 1999, payable in Dutch guilders
no later than September 30, 1999. These borrowings are secured by investments at
the lending bank of $5,840,000.

Long-term debt

4 3/4% Convertible Subordinated Debentures

      On February 20, 1998, the Company issued $460,000,000 aggregate principal
amount of the 4 3/4% Convertible Subordinated Debentures (the "4 3/4%
Debentures") due February 15, 2005. The 4 3/4% Debentures are convertible by the
holders into approximately 9,338,000 shares of the Company's Common Stock at an
initial conversion price of $49.261 per share, subject to adjustment in certain
circumstances. The 4 3/4% Debentures are not redeemable by the Company prior to
February 21, 2001. After February 21, 2001, the 4 3/4% Debentures will be
redeemable by the Company at a redemption price of 102.714% of the principal
amount of the 4 3/4% Debentures and declining annually. The holders of the 
4 3/4% Debentures will be entitled at any time after 90 days following the date 
of original issuance thereof through the close of business on the final maturity
date of the 4 3/4% Debentures, subject to prior redemption, to convert any of
the 4 3/4% Debentures or portions thereof into Common Stock of the Company,
subject to the terms of the Indenture. At March 31, 1999, the aggregate amount
of senior obligations outstanding amounted to $5,882,000.

Note 9

Income Taxes

      The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The
Company has net operating loss carryforwards for tax purposes that begin to
expire in 2005. Since realization of the entire tax benefit associated with
these carryforwards is not assured, a partial valuation allowance was recorded
against this tax benefit. In addition, pursuant to the Tax Reform Act of 1986,
the annual utilization of these losses may be limited. The Company believes that
any such limitation will not have a material impact on the utilization of these
carryforwards.

      Centocor has approximately $360,000,000 of gross deferred tax assets
consisting primarily of the future tax benefit from net operating loss
carryforwards. In the fourth quarter of 1998, the Company concluded that it is
more likely than not that it will realize a portion of the benefit of such tax
assets. Accordingly, the Company reduced the valuation allowance against the
asset and recorded a tax benefit of $282,000,000 in December 1998. Due to the
recognition of the Company's tax benefit in 1998, the Company's effective tax
rate will approximate the applicable statutory rates.

      The recognition of these deferred tax assets under SFAS 109 has no impact
on the Company's cash flows for income taxes despite the change in the Company's
effective tax rate. A provision for income taxes of $6,723,000 was recorded for
the three months ended March 31, 1999 as compared to $150,000 for the three
months ended March 31, 1998. The Company's effective tax rate for the three
months ended March 31, 1999 is 40% compared to 7% for the three months ended
March 31, 1998.


                                       16
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

Note 10

Supplemental Information on Cash Flows

      Interest paid for the three months ended March 31, 1999 was $10,925,000.
There were no interest payments made for the three months ended March 31, 1998.

      Income tax payments made for the three months ended March 31, 1999 were
$269,000. Income tax payments for the three months ended March 31, 1998 were
approximately $12,000.

      In March 1999, the Company sold an equity investment in Biometric Imaging,
Inc. consisting of 3,174,603 shares classified as available for sale resulting
in a realized gain of $5,196,000.

      In February 1998, Centocor Diagnostics sold an equity investment in
ChromaVision Medical Systems, Inc. consisting of 962,740 shares classified as
available for sale resulting in a gain of $6,931,000.

Note 11

Special Charges

      In the first quarter of 1998, the Company recorded special charges of
$145,405,000 consisting of the following:

      Acquisition of RETAVASE

      On March 13, 1998, the Company completed the acquisition of the U.S. and
Canadian product rights for RETAVASE, an acute-care cardiovascular drug, from
Roche Healthcare for $335,000,000 in cash.

      RETAVASE is a recombinant biologic cardiology care product administered
for the treatment of acute myocardial infarction (heart attack) to improve blood
flow to the heart. It is among the class of fibrinolytic drugs known as "clot
busters." RETAVASE received marketing authorization from the FDA in October 1996
and was launched in January 1997.

      Charges relating to the acquisition of RETAVASE consist of (in thousands):

      Charge for acquired research and development
        related to the acquisition of RETAVASE            $ 134,495
      One-time transitional expenses related to the
        integration of RETAVASE into Centocor                 4,943
                                                          ---------
                                                          $ 139,438
                                                          =========

      The value of acquired research and development related to this acquisition
represents the planned development of a combination cardiovascular therapy
employing the fibrinolytic drug RETAVASE in combination with ReoPro. This
combination therapy, in research and development at acquisition, was expected to
address potential side effects of RETAVASE therapy, increase the speed of
therapy, amplify the effectiveness of RETAVASE, improve long-term outcomes and
increase safety through lower RETAVASE doses.

      At the date of acquisition, RETAVASE had been on the market for over a
year. However, the combination therapy was at an early stage of development and
could not be considered technologically feasible. While certain animal studies
had been done showing favorable results, the ReoPro/RETAVASE therapy was at the
point of  


                                       17
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

commencing Phase II clinical trials. It was expected to require a full series of
Phase II trials as well, despite this therapy representing the combination of
two drugs previously approved for sale.

      At the acquisition date, there remained questions as to both the potential
efficacy and safety of the combination therapy. Given alternative therapies
available in the cardiovascular field, improved efficacy at prevailing safety
levels or equivalent efficacy with improved safety would need to be established
for commercial viability to exist. Because of the great uncertainty associated
with these issues, and both the uncertainty and remaining effort associated with
clinical trials for this therapy, the combination ReoPro/RETAVASE therapy had
not established technological feasibility at the acquisition date.

      The estimated value of all acquired intangible assets including the
acquired combination therapy project were determined. Other identified
intangibles included the commercial reteplase (RETAVASE) full-dose product line,
patents, trademarks and trade names, the customer base of prescribing physicians
associated with RETAVASE and the assembled workforce (principally sales and
marketing personnel) associated with the commercial product line.

      The value of the acquired in-process research and development project was
determined by projecting expected completion costs for the combination therapy
as well as projected cash flows resulting from its commercialization. The net
cash flows implied by this projection were discounted to present value using an
appropriate risk adjusted cost of capital. This rate was developed by including
a risk premium above the return associated with the valuation of the reteplase
product line, and above the observed weighted average costs of capital for
comparable companies involved with the sale and development of similar
therapies.

      Centocor Diagnostics, Inc. Restructuring

      Charges related to the Centocor Diagnostics, Inc. restructuring consist of
(in thousands):

      Severance            $  3,142
      Asset impairments       2,825
                           --------
                           $  5,967
                           ========


                                       18
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

Note 12

Comprehensive Income

      In January 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of Statement 130 had no impact on the
Company's net income or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive income
(loss).
<TABLE>
<CAPTION>
                                                       For the three
                                                        months ended
                                                   ----------------------
                                                   March 31,    March 31,
                                                     1999         1998
                                                   ---------    ---------
     <S>                                          <C>          <C>
      Net income (loss)                            $  10,084    $(140,307)
      Foreign currency translation adjustments        (7,129)      (1,213)

      Unrealized gain (loss) on marketable
        securities                                        30         (963)

      Reclassification adjustment - realized
        gain on available for sale security               --       (6,931)
                                                   ---------    ---------
      Subtotal other comprehensive income (loss)      (7,099)      (9,107)
                                                   ---------    ---------

      Total comprehensive income (loss)            $   2,985    $(149,414)
                                                   =========    =========
</TABLE>

The components of accumulated other comprehensive income are as follows (in
thousands):
<TABLE>
<CAPTION>
                                                   March 31,    December 31,
                                                     1999          1998
                                                   ----------   ------------
     <S>                                          <C>          <C>
      Cumulative foreign currency translation 
        adjustments                                $    (987)   $      6,142
      Unrealized gain (loss) on marketable 
        securities                                      (731)           (761)
                                                   ----------   ------------
      Other comprehensive income                   $  (1,718)   $      5,381
                                                   =========    ============
</TABLE>

Note 13

Earnings per share

      The Company adopted Financial Accounting Standard Board Statement No. 128
Earnings per Share in 1997. Below is a reconciliation of basic earnings per
share to diluted earnings per share.

<TABLE>
<CAPTION>
                                           For the three months ended March 31, 1999 
                                           -----------------------------------------
                                              Income          Shares
                                           (in thousands)  (in thousands)     Per Share
                                            (Numerator)    (Denominator)       Amount
                                           --------------  --------------     ---------
<S>                                        <C>                     <C>        <C>      
Basic EPS                                  $     10,084            70,863     $    0.14
Incremental shares from assumed 
exercise of dilutive options and warrants            --             1,525
                                           ------------    --------------     ---------
Diluted EPS                                $     10,084            72,388     $    0.14
                                           ============    ==============     =========
</TABLE>


                                       19
<PAGE>
 
                         Centocor, Inc. and Subsidiaries
              Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)
--------------------------------------------------------------------------------

      When dilutive, options are included as share equivalents using the
treasury stock method and are included in the calculation of diluted per share
data. The approximately 9,338,000 shares issuable upon the conversion of the 
4 3/4% Debentures are not assumed to have converted and are not included in the
calculation of diluted per share data in all periods presented since their
effect is antidilutive.

      For the quarter ended March 31, 1998 no exercise of options and warrants
or other common stock equivalents is assumed since their effect is antidilutive,
resulting from the Company reporting a loss for this period.

Note 14

Litigation Charge

      In October 1992, the Company was served with a complaint filed by the
Velos Group, a Maryland partnership ("Velos") in the U.S. District Court for the
District of Maryland. The complaint primarily alleged that the Company breached
certain provisions of a license agreement between Velos and the Company pursuant
to which the Company has exclusive rights to U.S. Patent No. 5,057,598, as well
as various patent applications and foreign patents. The complaint sought
declaratory relief and monetary relief in excess of $100,000,000. On February
20, 1998, the Company and Velos entered into a comprehensive settlement
agreement resolving all claims between them. Upon the execution and delivery of
the settlement agreement, the Company paid to Velos $4,750,000 in full and final
satisfaction of any and all obligations that the Company may have owed as the
result of any claims that had been brought by Velos, or that it may have owed in
the future under the provisions of the license agreement, including the future
minimum annual royalty payments that would become due. The Company and Velos
exchanged general releases and both parties filed stipulations dismissing all
litigation between them (including appeals). The Company granted to Velos a
fully-paid exclusive license to United States Patent No. 5,057,598 (which had
been assigned to the Company on November 7, 1990 and has no applicability to any
of the Company's products or product candidates); and the parties terminated the
license agreement. As a result of the completion of the comprehensive settlement
agreement in February 1998, the Company recorded a one-time charge to earnings
of $3,430,000 primarily representing the portion of the payment due to Velos
which had not been previously expensed.


                                       20
<PAGE>
 
Item 2: Management's Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

Results of Operations

General

      This quarterly report on Form 10-Q contains forward-looking statements
that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
current expectations, estimates and projections about the Company's business and
industry, management's beliefs and certain assumptions made by the Company's
management. Investors are cautioned that matters subject to forward-looking
statements involve risks and uncertainties including economic, competitive,
governmental, technological and other factors which may affect the Company's
business and prospects. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict. Such risks
and uncertainties include, but are not limited to, those associated with (i) the
timing, completion and outcome of clinical trials for, regulatory approval of,
and market acceptance of the Company's products; (ii) the strength of the
Company's patent position and the patent position of others; (iii) the Company's
forward integration into direct commercialization of certain products; (iv) the
Company's ability to construct and maintain manufacturing facilities that meet
regulatory requirements and satisfy the Company's inventory needs; (v) the
Company's dependence on its collaborative partners; (vi) uncertainties regarding
health care reform and reimbursement from third party payors; (vii) changes in
the competitive environment in which the Company operates; (viii) the outcome of
pending litigation; (ix) the potential for product liability claims and (x) the
availability of raw materials and other necessary inputs into the production
process. Therefore, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements. Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.

      Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical
company that creates, acquires and markets therapies that yield long-term
benefits for patients and the healthcare community. Its products, developed
through monoclonal antibody and other technologies, help physicians deliver
innovative treatments to improve human health and restore patients' quality of
life.

      The Company, since inception, has incurred significant operating expenses
developing therapeutic and diagnostic products. The Company has also incurred
significant special charges. Consequently, the Company had experienced
substantial operating losses. The Company expects that its sales of therapeutic
products in 1999 will provide sufficient revenues to cover operating expenses
and provide net income for the year. The Company's results for the three months
ended March 31, 1999 and March 31,1998 have been affected by various significant
one-time events. For the three months ended March 31, 1999 the significant
one-time event was a gain on sale of an investment in Biometric Imaging, Inc.
Significant one-time events for the three months ended March 31, 1998 included
special charges, a gain on sale of an investment in ChromaVision Medical
Systems, Inc. and a litigation charge. Excluding such significant one-time
events, the Company's diluted earnings per share would have been $0.10 and $0.02
for the three months ended March 31, 1999 and March 31,1998, respectively.

      The Company has four therapeutic products approved for sale and several
product candidates in various stages of development.

      ReoPro(R) (abciximab) is co-promoted in the United States by Centocor and
Eli Lilly and Company ("Lilly"). Lilly distributes the product worldwide, except
in Japan, where Fujisawa Pharmaceutical Company, Ltd. ("Fujisawa") will
distribute it if approved. ReoPro is a therapeutic product approved for the
reduction of acute ischemic cardiac complications in patients undergoing
percutaneous coronary intervention ("PCI") such as angioplasty procedures, and
for those patients with unstable angina who are refactory to conventional
therapy and for whom PCI is planned within twenty-four hours.


                                       21
<PAGE>
 
Item 2: Management's Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

      REMICADE(TM) (infliximab) is marketed in the United States by Centocor.
REMICADE was cleared for marketing by the U.S. Food and Drug Administration
("FDA") in August 1998 for the treatment of moderately-to-severely active
Crohn's disease for the reduction of signs and symptoms in patients who have an
inadequate response to conventional therapy. It is also indicated as a treatment
for patients with fistulizing Crohn's disease for reduction in the number of
draining enterocutaneous fistula(s). Centocor has retained exclusive marketing
rights for REMICADE in the United States. Following approval from global
regulatory agencies, if achieved, Tanabe Seiyaku Company, Ltd. ("Tanabe") will
market the product in Japan and parts of the Far East, while Schering-Plough
Ltd. ("Schering-Plough") will market REMICADE in all other countries throughout
the world.

      RETAVASE(R) (reteplase) is marketed in the United States by Centocor. In
March 1998, Centocor completed the acquisition of the United States and Canadian
product rights for RETAVASE, a leading acute care cardiovascular drug, from
Roche Healthcare Ltd. ("Roche"). RETAVASE is a recombinant biologic cardiology
care product administered for the treatment of acute myocardial infarction
(heart attack) to improve blood flow to the heart. It is among the class of
drugs known as "clot busters".

      PANOREX(R) (edrecolomab) is marketed by Glaxo Wellcome plc and sold in
Germany as an adjuvant therapy in the treatment of post-operative colorectal
cancer.

      PANOREX, RETAVASE and REMICADE are trademarks of Centocor. ReoPro is a
trademark of Lilly.

      Three months ended March 31, 1999 compared to the three months ended March
31, 1998

      The increase in sales for the three months ended March 31, 1999, as
compared to the three months ended March 31, 1998 is principally due to REMICADE
sales in 1999 which did not exist in 1998, as well as an increase in sales of
ReoPro and RETAVASE.

      For the three months ended March 31, 1999, ReoPro sales to Lilly were
$58,028,000 and Lilly's announced sales to end-users were $101,000,000. For the
three months ended March 31, 1998 sales to Lilly were $45,688,000 and Lilly's
announced sales to end-users were $70,000,000. The Company's sales of RETAVASE
for the three months ended March 31, 1999 were $20,391,000 and initial sales of
RETAVASE by Centocor for the period beginning March 16, 1998 through March 31,
1998 were $2,300,000. For the three months ended March 31, 1999, the Company's
sales of Panorex to Glaxo Wellcome were $998,000 as compared to $1,390,000 for
the three months ended March 31, 1998. REMICADE sales for the three months ended
March 31, 1999 were $21,080,000. REMICADE sales commenced in September 1998.

      The level of the Company's sales of ReoPro to Lilly and of PANOREX to
Glaxo Wellcome is dependent upon the orders placed and the levels of inventory
maintained by each of these marketing partners. The Company expects ReoPro
end-user sales to increase in 1999 as market acceptance continues to grow.
Therefore, the Company expects its sales of ReoPro to Lilly to increase in 1999
over 1998 levels. RETAVASE and REMICADE sales are also expected to increase in
1999 over 1998 as additional market acceptance is achieved. PANOREX sales to
Glaxo Wellcome in 1999 are not expected to have a significant impact on the
Company's financial results.

      Diagnostic product sales for the three months ended March 31, 1998 were
$7,507,000. In November 1998, the Company sold the oncology diagnostic business
to Fujirebio Inc. for approximately $36,500,000 in cash. Under the terms of the
sale, Fujirebio has purchased Centocor's in vitro diagnostic oncology business,
which includes immunoassays using monoclonal antibody technology that aids in
the detection and monitoring of tumor-associated antigens.

      The level of future sales of the Company's products will be dependent upon
several factors, including, but not limited to, the timing and extent of future
regulatory approvals, the availability of production capacity, as well as the
continued availability of necessary raw materials and intermediate inputs into
the production process, 


                                       22
<PAGE>
 
Item 2: Management's Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

approval and commercialization of competitive products and ultimately, the
degree of acceptance of the Company's products in the marketplace.

      Cost of sales increased for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 due primarily to REMICADE
sales in 1999 that did not exist in 1998, a full quarter of RETAVASE sales in
1999 as well as increased sales of ReoPro to Lilly. The Company is required to
make certain royalty payments, based on sales of products. These payments
represent a significant percentage of cost of sales. The Company expects an
increase in cost of sales in 1999, the extent of which will depend primarily on
the amount and mix of products sold. Other factors that can influence cost of
sales include, but are not limited to, exchange rate fluctuations, unplanned
production losses, cell line yields, increases in royalty obligations, costs of
raw materials and production interruptions due to plant upgrades.

      Research and development expenses for the three months ended March 31,
1999 increased as compared to the three months ended March 31, 1998 due
principally to REMICADE and ReoPro clinical activities which are being shared
with Schering-Plough and Lilly, respectively. The level of the Company's total
research and development expenses in future periods will be dependent upon the
extent of clinical trial-related activities. Research and development expenses
are expected to increase in 1999 as compared to 1998 due to clinical trial
activities in connection with the continued expansion of ReoPro use for
additional indications including, but not limited to, acute myocardial
infarction, unstable angina and in stroke. In addition, clinical trial
activities for REMICADE, primarily Phase III trials for the Crohn's disease and
severe rheumatoid arthritis indications, are expected to continue throughout
1999.

      Marketing, general and administrative expenses for the three months ended
March 31, 1999 increased as compared to the three months ended March 31, 1998
due principally to the integration of the Company's RETAVASE and REMICADE sales
force and related infrastructure into the organization, amortization of the cost
of acquired intangibles and continued ReoPro, RETAVASE and REMICADE market
development efforts. Marketing, general and administrative expenses are expected
to increase in 1999 as compared to 1998 due primarily to the Company's increased
investment in the direct promotion and sale of RETAVASE and REMICADE and
co-promotion of ReoPro and Fragmin.

      Interest income decreased for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 due to the decrease in the
level of the Company's investments and lower rates of return on the Company's
investments. Interest income in future periods will depend primarily on the
level of the Company's investments and the rates of return obtained on such
investments.

      Interest expense increased for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 due to the issuance of the
Company's 4 3/4% Convertible Debentures in February 1998. Interest expense in
1999 is expected to increase slightly as a result of the interest on the 4 3/4%
Debentures. Interest expense in future periods will depend upon the level of
debt outstanding.

      The Company expects its effective tax rate in 1999 to be approximately
40%.

      Per Share Calculations

      At March 31, 1999, approximately 5,282,000 shares of the Company's Common
Stock were issuable upon exercise of outstanding options and warrants and upon
vesting of restricted stock awards. The Company uses the weighted average number
of shares outstanding in calculating basic per share data. When dilutive,
options and warrants are included as share equivalents using the treasury stock
method and are included in the calculation of diluted per share data. The
approximately 9,338,000 shares issuable upon conversion of the 4 3/4% Debentures
are not considered Common Stock equivalents and are not included in the
calculation of basic or diluted per share data but would be included in the
calculation of diluted per share data if their effect is dilutive. 


                                       23
<PAGE>
 
Item 2: Management's Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

      No shares issuable upon conversion of the 4 3/4% Debentures were included
in the per share calculations for any period presented since to do so would have
been anti-dilutive. Depending upon the market value of the Company's Common
Stock and its results of operations for such periods, the Company may be
required to include shares issuable upon the conversion of the 4 3/4% Debentures
in its calculations of per share data for such periods if the effect would be
dilutive.

      Liquidity and Capital Resources

      The Company, since inception, has incurred significant operating expenses
attempting to develop its products. The Company has also incurred significant
special charges. Consequently, the Company had experienced substantial net cash
outflows, which have been only partially offset by significant contract revenues
received through collaborative alliances with pharmaceutical companies and the
Company's financing activities.

      The Company's future financial condition is dependent upon the Company's
rate of net cash inflows and, ultimately, upon the achievement of significant
and sustained levels of therapeutic product sales. Under the Company's
collaborative alliances with established pharmaceutical companies, the Company
generally shares sales revenues from products covered by such arrangements with
its partners. The level of future sales of the Company's products will be
dependent upon several factors, including, but not limited to, the timing and
extent of future regulatory approvals of those products, approval and
commercialization of competitive products and the degree of acceptance of the
Company's products in the marketplace. There can be no assurance that FDA or
other regulatory authorities will approve expanded labeling for ReoPro, REMICADE
and other products or will approve any other of the Company's product candidates
under development for commercial sale. Failure to obtain, on a timely basis,
initial or expanded regulatory approvals for the Company's products and product
candidates will have a material adverse effect on the Company.

      At March 31, 1999, the Company had cash, cash equivalents and investments
of $211,939,000, including equity investments of $4,962,000. For the three
months ended March 31, 1999, the Company had cash flows from operations of
$13,801,000. The Company's total cash flows for the three months ended March 31,
1999 included the receipt of $6,596,000 representing the proceeds from the sale
of an equity investment in Biometric Imaging Inc., and $1,544,000 from the
exercise of options to purchase shares of the Company's Common Stock. The extent
and timing of future option exercises, if any, are primarily dependent upon the
market price of the Company's Common Stock and general financial market
conditions, as well as the exercise prices and expiration dates of the options.
At March 31, 1999 the Company had a note payable of $5,882,000 which is secured
by investments at the lending bank of $5,840,000, and $20,000,000 of its cash is
held in escrow and is restricted based upon the successful completion of certain
milestones in the transfer of the manufacturing of RETAVASE from Boehringer
Mannheim to Centocor. The Company's total cash, cash equivalents and investments
decreased by $14,663,000 from December 31, 1998, principally as a result of
capital expenditures relating to the establishment of a U.S. biopharmaceutical
manufacturing facility to support ReoPro and REMICADE production. The Company
believes that its cash, cash equivalents and investments will be sufficient to
fund its operations through at least the end of 2000.

      Accounts receivable at March 31, 1999 decreased as compared to December
31, 1998 due primarily to the timing of receipts from sales of ReoPro to Lilly.

      Gross property, plant and equipment at March 31, 1999 increased as
compared to December 31, 1998, principally due to the investment of $35,558,000
for the purchase of property and equipment, partially offset by the impact of
exchange rates on property and equipment denominated in foreign currencies. The
Company expects its total investments in property, plant and equipment to
increase in 1999 by an amount up to approximately $100,000,000 for its
manufacturing capacity expansion plans in Europe and the establishment of a 


                                       24
<PAGE>
 
Item 2: Management's Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

U.S. biopharmaceutical manufacturing facility to support ReoPro and REMICADE
production requirements. The Company continually evaluates the future needs for
its facilities and equipment. There can be no assurance that there will be
losses resulting from sales, or that reserves to reduce the carrying value, of
certain fixed assets will not be required in the future.

      Long-term investments at March 31, 1999 decreased as compared to December
31, 1998 principally due to the sale of an equity investment in Biometric
Imaging, Inc., classified as available for sale in March 1999.

      The Company has entered into indemnity agreements with the former limited
partners of CCIP, CPII and CPIII pursuant to which the Company would be
obligated, under certain circumstances, to compensate these parties for the fair
market value of their respective interests under any license agreements with the
Company relating to their respective products which are lost through the
exercise by the U.S. government of any of its rights relating to the licensed
technology. The amount of any such loss would be determined annually by
independent appraisal.

      Legal Proceedings

      The Company is subject to certain litigation, as more fully described in
Note 2 to the Centocor, Inc. and Subsidiaries Condensed Notes to Consolidated
Financial Statements (Unaudited). While it is not possible to predict with
certainty the eventual outcome of these matters, the Company believes that those
proceedings will not have a material adverse effect on the Company.

      Product Liability and Product Recall

      The testing and marketing of medical products entails an inherent risk of
product liability. There is also a risk that circumstances might develop
requiring a product recall. The Company maintains limited product liability
insurance coverage and does not maintain product recall or product tampering
insurance coverage. Centocor's business may be materially adversely affected by
a successful product liability claim in excess of any insurance coverage. There
can be no assurance that product liability insurance coverage will continue to
be available to Centocor in the future on reasonable terms or at all.


                                       25
<PAGE>
 
Item 2: Management's Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

      Year 2000 Issues

      The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches. The "Year 2000" or
"Y2K" problem is pervasive; virtually every computer operation may be affected
in some way by the rollover of the two digit year value to 00. The risk is that
computer systems will not properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail, resulting in business
interruption. The Year 2000 issue is expected to affect the systems of the
Company and various entities with which the Company interacts, including the
Company's marketing partners, suppliers, and various vendors.

      To address the Y2K problem, the Company has established a Year 2000
project and a Y2K Steering Committee comprised of representatives from key
functional areas. In addition, an Information Technology Association of America
certified Y2K consulting firm has been engaged to assist with the validation and
management of the Year 2000 project. The project encompasses global corporate
initiatives, including the Company's manufacturing facility in the Netherlands
and the United States manufacturing facility which is currently under
construction.

      In a separate project to replace some of the Company's legacy systems, the
Company is in the process of implementing a new Enterprise Resource Planning
("ERP") system, which is Y2K compliant, with a goal to complete the initial
phase of the project by the second quarter of 1999. The completion of the
initial phase of this project will result in replacing many of the Company's
primary financial and manufacturing business applications and will
simultaneously replace some of the Company's critical systems (i.e., systems
which, if not Y2K compliant, pose risks to revenues, manufacturing processes or
individuals, property and the environment). Centocor's goal is to achieve full
Y2K readiness by the end of the third quarter of 1999.

      The Centocor Year 2000 Project is designed to address three major areas:
(1) information technology systems, including business application software; (2)
hardware, equipment and instrumentation, including embedded systems; (3) and
third party relationships. The Company's approach within each of these areas is
to inventory, assess and prioritize those systems which present potential Y2K
problems; remediate (repair, replace or upgrade) non-compliant items; test each
major area of exposure to ensure compliance; and develop contingency plans to
minimize potential business interruption.

      High-level risk assessments have been completed for all functional areas.
Inventory and assessments for Information Technology Department-supported
business systems and infrastructure as well as hardware, equipment and
instrumentation are completed. Remediation or replacement is in process. Test
plans and scripts are under development, with testing to occur as new equipment
is acquired or old equipment is replaced. All testing is scheduled for
completion by the end of the second quarter of 1999.

      The failure of the Company or third parties to be fully Year 2000
compliant for essential systems and equipment by January 1, 2000 could result in
interruptions in normal business operations. The Company's potential risks
include, but are not limited to, (i) the failure of security systems, heating
systems or other operational systems and equipment of the Company's facilities
and (ii) the inability to receive critical equipment and/or supplies from
vendors. Each of these events could have a material adverse affect on the
Company's business, results of operations and financial condition.

      

                                       26
<PAGE>
 
Item 2: Management's Discussion and Analysis of Financial Conditions and Results
        of Operations
--------------------------------------------------------------------------------

      The Company has contacted all of its critical suppliers and strategic
business partners with regard to their Year 2000 readiness and remediation
plans, and detailed evaluations of those plans, and their potential impact on
the Company, are being developed. Most of those parties state that they intend
to be Y2K compliant by 2000. However, there can be no assurances that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with the Company's systems, would not have a material adverse
affect on the Company. Contingency plans with respect to critical suppliers and
strategic business partners are being developed and are scheduled for completion
by mid-1999. The Company intends to have contingency plans completed for
essential systems and equipment by June 30, 1999; however, there can be no
assurance that it will meet this objective by such date or by January 1, 2000.

      The total costs associated with Year 2000 compliance are not expected to
be material to Centocor's financial position and are estimated to be
approximately $2,500,000.

      The foregoing estimated completion times and costs are management's best
estimates and utilize numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no assurances that these estimates will be
achieved and actual results could differ materially from those estimates.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, the readiness of
strategic partners and similar uncertainties. Further, given the complexity of
the Year 2000 issues, the Company is currently unable at this time to determine
whether Year 2000 failures will have a material impact on results of operation,
liquidity or financial condition. The Company's Y2K Project is intended to
significantly reduce, but not eliminate, levels of uncertainty about Year 2000
compliance.

      Inflation

      The Company believes the effects of inflation generally do not have a
material adverse impact on its operations or financial condition.

      Euro Conversion

      On January 1, 1999, member countries of the European Monetary Union
("EMU") began a three-year transition from their national currencies to a new
common currency, the "Euro". In the first phase, the permanent rates of exchange
between the members' national currency and the Euro has been established and
monetary, capital, foreign exchange and interbank markets will be converted to
the Euro. National currencies will continue to exist as legal tender and may
continue to be used in commercial transactions. By January 2002, Euro currency
will be issued and by July, 2002, the respective national currencies will be
withdrawn. The Company has operations in Leiden, the Netherlands and
accordingly, is establishing action plans that will address the Euro's impact on
information systems, currency exchange rate risk, taxation, contracts and
pricing. Based on its current assessments, management believes that the costs of
the Euro conversion will not have a material impact on the operations, cash
flows or financial position of the Company.


                                       27
<PAGE>
Item 3: Quantitative and Qualitative Disclosures About Market Risk

      Interest Rate Sensitivity

      The Company has exposure to changing interest rates, primarily in the
United States. The Company's investment portfolio includes investment grade debt
instruments. These bonds are subject to interest rate risk and could decline in
value if interest rates fluctuate. Due to the short duration and conservative
nature of these instruments, the Company does not believe that it has material
exposure to interest rate risk related to its investment portfolio. All of the
Company's outstanding indebtedness has a fixed interest rate of 4 3/4% and
matures in 2005, subject to prior redemption.

      Exchange Rate Sensitivity

      The Company conducts operations in countries other than the United States,
primarily its manufacturing facility in Leiden, the Netherlands. The Company's
consolidated financial statements are denominated in U.S. dollars, accordingly,
changes in exchange rates between foreign countries and the U.S. dollar will
affect the translation of financial results of foreign subsidiaries into U.S.
dollars for purposes of recording the Company's consolidated financial results.

      In February 1999, the Company entered into a series of foreign exchange
forward contracts to hedge changes in exchange rates that impact the Company's
inventory production activities in Leiden, the Netherlands. Ultimately, the
Company's cost of sales is affected by changes in exchange rates. At March
31,1999 the Company has foreign exchange forward contracts valued at $69,700,000
to hedge anticipated inventory production for the remainder of 1999.

                                       28
<PAGE>
Part II OTHER INFORMATION

Item 1: Legal Proceedings

See Note 2 to the Centocor, Inc. and Subsidiaries Condensed Notes to
Consolidated Financial Statements (Unaudited), which is attached hereto and
incorporated herein by reference.

Item 6: Exhibits and Reports on Form 8-K

      (a)   Exhibits

            10.1    Development and Manufacturing Agreement between Centocor,
                    Inc. and Covance Biotechnology Services Inc. dated January
                    14, 1999 (The Registrant has requested confidential
                    treatment from the Securities and Exchange Commission for
                    portions of this Agreement.)

            10.2(a) Form of Severance Agreement for Executive Officers

            10.2(b) Schedule of Named Executive Officers and Executive Officers
                    who are parties to a Severance Agreement

            27.0    Centocor, Inc. and subsidiaries Financial Data Schedule for
                    the three months ended March 31,1999

      (b)   Reports on Form 8-K

                  The Registrant has filed the following reports on Form 8-K
                  since the beginning of the quarter ended March 31, 1999:

            Date of Report                      Item Covered
            --------------                      ------------

            none                                     --   

 
                                       29
<PAGE>
                                   SIGNATURES

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


                                       Centocor, Inc.
                                       (Registrant)


Date:  May 14, 1999                    /s/ David P. Holveck
                                       --------------------
                                       David P. Holveck
                                       Chief Executive Officer
                                       (principal executive officer)


Date:  May 14, 1999                    /s/ Dominic J. Caruso
                                       ---------------------
                                       Dominic J. Caruso
                                       Senior Vice President and
                                       Chief Financial Officer
                                       (principal financial and
                                       accounting officer)

 
                                      30