##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 10-K/A (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934  OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission file number 0-22147 ILEX ONCOLOGY, INC. (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of
incorporation or organization)
    
    74-2699185
(I.R.S. Employer
Identification No.)4545 Horizon Hill Blvd.
San Antonio, Texas
(Address of principal executive offices)
    
    78229
(Zip Code)
 Registrants telephone number, including area code: (210) 949-8200 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or15(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
[ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of thisForm 10-Kor any
amendment to thisForm 10-K. [ ]. Indicate by check mark if the issuer is an accelerated filer (as defined
in Exchange Act rule 12b-2). Yes [X] No [ ]. The aggregate market value of the common stock held by non-affiliates of
the Registrant as of June 30, 2003 was approximately $612,625,521 based on the
closing price of $19.38 for such date reported on the Nasdaq National Stock
Market. The number of shares outstanding of the Registrants common stock as of
February 19, 2004 is 39,061,379.




---



TABLE OF CONTENTS  PART IIITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 8. FINANCIAL STATEMENTS AND SCHEDULESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSignaturesINDEX TO CONSOLIDATED FINANCIAL STATEMENTSReport of Independent AuditorsREPORT OF INDEPENDENT PUBLIC ACCOUNTANTSCONSOLIDATED BALANCE SHEETSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOMECONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSConsent of Ernst & Young LLPCertification of President and CEO - Section 302Certification of VP and CFO - Section 302Certification of President and CEO - Section 906Certification of VP and CFO - Section 906    Table of Contents  ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A INTRODUCTORY NOTE The Company is filing this amendment to our Annual Report on Form 10-K for
the year ended December 31, 2003, originally filed with the Securities and
Exchange Commission on March 12, 2004, in response to comments received from
the Securities and Exchange Commission. This Form 10-K/A contains the following changes to the disclosures
contained in the Companys Form 10-K filed on March 12, 2004:  
    
    Part II, Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Net
Loss  This paragraph has been amended to delete the non-GAAP net loss
information originally included after the first sentence.
    
    Part II, Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Results of Operations  December 31, 2003 and 2002  Operating Expenses
 Research and Development Costs  Additional disclosure regarding our
major research and development projects has been added.
    
    Part II, Item 8. Financial Statements and Supplementary Data 
Note 2 Significant Accounting Policies  Revenue Recognition 
Product Profit and Royalty  Additional disclosure regarding what
events must occur before product profit and royalty revenue resulting
from CAMPATH sales are recognized has been added.
    
    Part II, Item 8. Financial Statements and Supplementary Data 
Note 2 Significant Accounting Policies  Intangible Assets and
Goodwill  Additional disclosure required by SFAS 142 has been added
to the last two sentences of the first paragraph and the last
sentence of the second paragraph.
    
    Part IV  Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K  (c) Exhibits  The following required Exhibits
are filed as part of this Annual Report on Form 10-K/A: 
    
    
    23.1
    
    
    Consent of Ernst & Young LLP
    
    
    31.1
    
    
    Certification of President and Chief Executive
Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    31.2
    
    
    Certification of Senior Vice President and Chief
Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
    
    
    32.1
    
    
    Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
    
    
    32.2
    
    
    Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 Except as set forth herein, no other information included in our Annual
Report on Form 10-K is amended by this Form 10-K/A. The filing of this Form
10-K/A shall not be deemed an admission that the Annual Report on Form 10-K,
when filed, knowingly included any untrue statement of a material fact or
omitted to state a material fact necessary to make a statement not misleading. Other than those items mentioned above, this Form 10-K/A does not reflect
events occurring after March 12, 2004, the date of filing of the Form 10-K, or
otherwise modify or update any of the information or disclosures contained
therein in any way. 1




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 PART II. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is included to describe our financial position
and results of operations for each of the previous three years in the period
ended December 31, 2003. The Consolidated Financial Statements and notes
thereto contain detailed information that should be referred to in conjunction
with this discussion. GENERAL On February 26, 2004, we entered into a definitive merger agreement with
Genzyme. Under the terms of the Merger Agreement, each outstanding share of
ILEX common stock, $0.01 par value per share, will be converted into the right
to receive a fraction of a share (the Exchange Ratio) of Genzyme common
stock. The Exchange Ratio will be calculated by dividing $26.00 by the average
per share closing price of Genzyme common stock (the Genzyme Share Price) as
reported by the NASDAQ National Market over the twenty trading days ending on
the fifth trading day prior to the closing date of the Mergers, except that if
the Genzyme Share Price is greater than $59.88, the Exchange Ratio will be
0.4342, and if the Genzyme Share Price is less than $46.58, the Exchange Ratio
will be 0.5582. In addition, each outstanding option to purchase ILEX common
stock will be converted into an option to purchase the number of shares of
Genzyme common stock equal to the number of shares of ILEX common stock subject
to such option multiplied by the Exchange Ratio, and the associated exercise
price will be adjusted accordingly. Until the closing date, which is
anticipated to occur in mid-2004, we will continue to operate independently of
Genzyme. The closing of the transaction is contingent upon approval by certain
regulatory authorities including the U.S. Federal Trade Commission and our
shareholders. We are a product-driven biopharmaceutical company focused on developing
and commercializing a portfolio of novel therapeutic treatments primarily in
oncology. We have leveraged our core competencies in clinical drug development
to identify, develop and commercialize our proprietary product candidates. Our
lead product is marketed in the United States as CAMPATH ® and in Europe and
other countries as MABCAMPATH ® for the treatment of patients with B-cell
chronic lymphocytic leukemia (CLL) who have been treated with alkylating agents
and who have failed fludarabine therapy. CLL is a type of blood cancer
characterized by progressive accumulation of B-lymphocytes, a type of immune
system cell formed in the bone marrow. In addition to CAMPATH, we have product
candidates in clinical trials, principally addressing oncology, as well as
several active preclinical and drug discovery programs. Our pipeline comprises
product candidates at various stages of clinical development, including
monoclonal antibodies, agents that have toxic effects on certain cells
(cytotoxic agents) or inhibit cellular growth (cytostatic agents) with novel
mechanisms of action, agents that inhibit the formation of new blood vessels
(angiogenesis inhibitors) and agents which block cellular messaging associated
with cancer growth and metastasis (signal transduction inhibitors). We have incurred losses since inception and had an accumulated deficit
through December 31, 2003 of $345.5 million. Our losses have resulted primarily
from research and product development activities, including licensing of
products and product and corporate acquisitions for which we incur in-process
research and development charges and administrative expenses. We plan to
continue to invest in key research and development activities. We expect to
continue to incur operating losses throughout 2004. Our revenue for the
foreseeable future will be limited to our product profit and royalty revenue,
product development revenue, interest income and other miscellaneous income. Currently the revenues recorded in product profit and royalty revenue
consist of our profit share from net U.S. sales of CAMPATH and royalty revenue
from the rest of the world sales. Participation from our CAMPATH distributor,
Schering AG, for services performed and costs incurred in connection with the
development of CAMPATH are recorded as product development revenues. The
development of CAMPATH is ongoing for B-cell chronic lymphocytic leukemia
(CLL), multiple sclerosis (MS), non-Hodgkins lymphoma (NHL) and solid organ
transplantation. Prior to January 1, 2002, we accounted for CAMPATH activities as follows:  
    
    our operating revenue included product development revenue we received
from the ILEX Pharmaceuticals, L.P., formerly known as Millennium &
ILEX Partners, L.P. (the Partnership);
    
    our research and development expenses included all of the development
costs for CAMPATH, which were largely offset by the revenue we
received from the Partnership; 2




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A  
    
    our portion of the profits resulting from CAMPATH sales and the other
revenues and expenses of the Partnership was recorded in equity in
income (loss) of joint venture. In December 2003 and in connection with our co-development agreement, we
paid Bioenvision $3.5 million for the exclusive U.S. and Canadian sublicense
for clofarabine in oncology. Under the terms of the agreement, an additional
$4.0 million, due in two payments, is triggered upon completing the submission
of the New Drug Application (NDA). On August 4, 2003, we completed an underwritten public offering of our
common stock, pursuant to which we sold 5.5 million shares. In addition, the
Cancer Therapy and Research Center Endowment, an ILEX shareholder, offered and
sold 500,000 shares of our common stock. Proceeds, net of costs to us, from
this offering were approximately $87.4 million. The net proceeds from this
offering have been and will continue to be used to fund clinical trials of our
lead product candidates; for clinical and preclinical studies for our other
product candidates; for potential licenses and acquisitions of other businesses
or complementary products and technologies; and for working capital, capital
expenditures and other general corporate purposes. On October 29, 2001, we announced that we had entered into a definitive
Purchase and Sale agreement (Purchase Agreement) to purchase Millennium
Pharmaceuticals, Inc.s (Millenniums) 50% equity interest in the Partnership.
The acquisition closed on December 31, 2001. We estimated the purchase price at
$127.6 million based on the net present value of the required future cash
payments discounted at 6.5%, our estimated incremental borrowing rate on the
date of purchase. The terms of the agreement required an initial cash payment
of $20.0 million and an additional $120.0 million in scheduled payments over
the following three years. As of December 31, 2003, $40.0 million remains due
to Millennium. At our option, $10.0 million of this remainder may be paid in
our common stock. We anticipate $20.0 million of the maturities will be paid in
the second or third quarter of 2004 with the remaining $20.0 million to be paid
on December 31, 2004. In addition, Millennium will be entitled to royalties
based upon net U.S. CAMPATH sales above specified levels beginning in 2005. In February 2001, we acquired Symphar, now known as ILEX Oncology Research
Sarl, and its research platform in medicinal chemistry and nuclear receptor
biology, which has led to drug candidates in several therapeutic fields,
including cardiovascular and bone disease. The Symphar acquisition, combined
with our preclinical signal transduction and angiogenesis inhibition programs
in Boston, gives us the capability to translate early-stage research leads into
clinical drug development programs. Under the terms of the agreement, we
acquired Symphar for $28.9 million, including $15.0 million in cash and 521,121
shares of our common stock. CRITICAL ACCOUNTING POLICIES We believe that our most critical accounting issues include our policy for
the recognition of revenue from outlicensing agreements, the valuation and
impairment review of the intangible assets acquired in connection with the
purchase of Millenniums interest in the Partnership and the process of
determining the amount of in-process research and development obtained in an
acquisition. Outlicensing revenue is earned and recognized based on the performance
requirements of the respective outlicensing agreements. Non-refundable license
fees for which no further performance obligations exist, and no continuing
involvement by us is required, are recognized on the earlier of when the
payments are received or when collection is assured. Revenue from
non-refundable license fees where we continue involvement through development
collaboration or have an obligation to supply product is recognized ratably
over the applicable development period or patent life. Revenue associated with performance milestones is recognized based upon
the achievement of the milestones, as defined in the respective agreements.
Revenue under research and development cost reimbursement contracts is
recognized as the related costs are incurred. Advance payments received in
excess of amounts earned are classified as deferred revenue until earned. The amount recorded as completed technology and the amount recorded as
trademark within our other intangible assets were determined based on an
independent appraisal of the estimated timing and amount of revenue to be
generated from sales of CAMPATH. Additionally, we perform a test at least
annually to determine that the amounts recorded as intangible assets are
recoverable. Amounts recorded as in-process research and development are based
upon assumptions and estimates regarding the amount and timing of projected
revenues and costs as well as the appropriate discount rates and expected
trends in technology. No assurance can be given, however, that the underlying
assumptions used to estimate revenue, development costs or profitability or the
events associated with such projects will transpire as estimated. For these
reasons, actual results may vary from projected results. The most significant
and uncertain assumptions relating to the in-process projects involve the
projected timing of completion and revenues attributable to each project. 3




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A The following discussion addresses our consolidated results of operations
for 2003, 2002 and 2001, our liquidity and capital resources and contractual
obligations. It should be read in conjunction with our Financial Statements,
the Notes thereto and other financial information beginning on page F-1 of this
report. RESULTS OF OPERATIONS  DECEMBER 31, 2003 AND 2002 Operating Revenues Product Profit and Royalty Revenue.Product profit and royalty revenue,
which is our share of CAMPATH net profits on U.S. sales and a royalty on the
rest of the world sales, totaled $23.3 million in 2003 compared to $10.8
million in 2002. The increase of $12.5 million in product profit and royalty
revenue is due to an increase in global net sales of CAMPATH. Global net sales
of CAMPATH, recorded by Schering AG and Berlex, were $71.7 million in 2003
compared to $44.1 million in 2002. Product Development Revenue.Product development revenue represents
Schering AGs contribution to research and development expenses. Revenue from
product development decreased to $6.3 million through December 31, 2003 from
$9.8 million through December 31, 2002, a decrease of $3.5 million or 36%.
Product development revenue decreased primarily because the advance balance
from Schering AG was depleted in the first quarter of 2003. Outlicensing Revenue.Outlicensing revenue increased to $2.8 million in
2003 from $0.6 million in 2002, an increase of $2.2 million. In 2003, our
outlicensing revenue consisted primarily of a $2.5 million payment received
from QuatRx, which was recognized as revenue in the third quarter. The revenues
generated related to the granting of an exclusive worldwide license to certain
lipid-focused research platforms. Contract Research Services Revenue. Revenue from our fee-for-service CRO
business decreased to $1.8 million in 2003 from $9.4 million in 2002. The
decrease of $7.6 million, or 81%, in our CRO revenues is consistent with our
plan to transition out of the fee-for-service CRO business. Operating Expenses Research and Development Costs. Research and development costs increased
to $49.0 million in 2003, from $46.9 million in 2002. This increase of $2.1
million, or 4%, was due to increased development spending on our product
pipeline, specifically CAMPATH and ILX-651, which was partially offset by a
decrease in other research and development program spending and reductions in
salary and facility-related operating expenses. The following table summarizes our major research and development
projects, including the costs incurred in each of the years ended December 31,
2003, 2002, 2001, total research and development costs incurred to date and the
estimated completion dates for each project in development. The information
contained in the column labeled Estimated Completion Date is our estimate of
the timing to complete only the current in-process development phases. The
actual timing to complete the phases may differ materially from these
estimates. 4




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A Research and Development
    
    
    
    
    
    
    
    
    
    EstimatedExpenses for the Year Ended
    
    
    
    
    
    completion DateDecember 31,
    
    Research andDevelopment
    
    CurrentPhases of
    
    of our in-processPhase ofProduct
    
    2003
    
    2002
    
    2001
    
    Expenses to Date
    
    Development
    
    Development(in millions)Direct
costs(1):CAMPATH(2)
    
    $
    16.1
    
    
    $
    7.7
    
    
    $
    4.3
    
    
    $
    38.6
    
    
    I - III
    
    
    2004 - 2007Clofarabine(3)
    
    
    7.8
    
    
    
    9.4
    
    
    
    1.6
    
    
    
    18.8
    
    
    I and II
    
    
    2004 - 2006ILX-651(4)
    
    
    2.7
    
    
    
    1.3
    
    
    
    7.1
    
    
    
    11.3
    
    
    II
    
    
    2005-2006MUC1(5)
    
    
    1.6
    
    
    
    0.9
    
    
    
    0.2
    
    
    
    2.7
    
    
    Preclinical
    
    
    2005Other products(6)
    
    
    4.9
    
    
    
    7.3
    
    
    
    7.7
    
    
    
    35.3
    
    
    Preclinical, Phase I and II
    
    
    2005Other operating costs(7)
    
    
    15.9
    
    
    
    20.3
    
    
    
    12.9
    
    
    
    83.0Total research and
development costs
    
    
    49.0
    
    
    
    46.9
    
    
    
    33.8
    
    
    
    189.7Licensing costs
    
    
    8.4
    
    
    
    5.7
    
    
    
    10.3
    
    
    
    29.3Total project costs
    
    $
    57.4
    
    
    $
    52.6
    
    
    $
    44.1
    
    
    $
    219.0
   (1)
    
    The major components of the direct costs include various clinical
expenses, consulting expenses, other third-party costs, salaries and
employee benefits, supplies and materials.(2)
    
    CAMPATH is a humanized monoclonal antibody that binds to a specific
target, CD52, on cell surfaces leading the bodys immune system to destroy
malignant, or cancerous, cells. CAMPATH is still in the early stages of
commercialization. It is approved for use in patients with B-cell chronic
lymphocytic leukemia who have been treated with alkylating agents and who
have failed fludarabine therapy. We are now conducting a Phase III
post-approval study, Phase I/II trials in non-Hodgkins lymphoma, Phase II
trials in multiple sclerosis and a Phase III study with CAMPATH used in
conjunction with fludarabine. Although we are conducting other CAMPATH
studies, the research and development costs included in the table above
associated with CAMPATH primarily relate to the aforementioned studies.
We estimate our direct costs to complete these in-process clinical
development phases and studies in CAMPATH to be approximately $50 to $55
million.(3)
    
    Clofarabine is a next-generation, purine nucleoside antimetabolite that
is currently under investigation in pediatric and adult leukemias and
solid tumors. We initiated Phase II trials in 2002 in both children and
adults with refractory acute leukemia. We have completed the submission
of a New Drug Application with the U.S. Food and Drug Administration for
pediatric leukemias based on Phase II data. We have also completed a
Phase I trial of clofarabine in combination with the chemotherapy drug
ara-C (cytarabine) in adults with a spectrum of hematologic malignancies.
We are currently conducting a Phase I trial in adults with advanced solid
tumors and a Phase I trial using an oral formulation of clofarabine for
adults with advanced solid tumors. We estimate our direct costs to
complete the in-process clinical development phases and studies in
clofarabine to be approximately $2 to $4 million.(4)
    
    ILX-651 is a next-generation synthetic pentapeptide analog of the natural
substance dolastatin-15 that targets tubulin and has been chemically
modified to provide improved pharmacological properties over earlier
members of its class. We recently closed a Phase I study in patients with
solid tumors. We are currently conducting Phase II trials in recurrent or
metastatic melanoma and in locally advanced or metastatic non-small cell
lung cancer. We estimate our direct costs to complete the in-process
clinical development phases in ILX-651 to be approximately $8 to $10
million.(5)
    
    MUC1 functions like an oncogene to promote cancer growth and is highly
overexpressed on the cell surface of approximately 70% of the 1.2 million
tumors diagnosed each year. Alteration in its function could potentially
impact the growth of many highly resistant tumor types. MUC1 also serves
an anti-apoptotic function, which could reduce the effectiveness of a
variety of standard anticancer agents. If so, it appears that drugs which
interfere with MUC1 could potentially improve the activity of other
chemotherapy agents already in use today. We have several parallel
programs under way to discover drug candidates that target MUC1. We are
developing monoclonal antibodies and are exploring small molecules to
disrupt MUC1 function as well as using small interfering RNA to explore
and/or validate molecular targets in the MUC1 oncogenic pathway. An
antibody program is being conducted through a research collaboration with
Abgenix, Inc. that was initiated in 2002 to develop a fully human
monoclonal antibody against MUC1 for the treatment of cancer. We estimate
our direct costs to complete our preclinical development work related to
MUC1 to be approximately $3 to $5 million. 5




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A  (6)
    
    We currently have other products in clinical trials as well as a number
of preclinical programs. Other products also includes products that have
been discontinued.(7)
    
    Other operating costs include allocations of various overhead costs. Actual future costs to complete each and all of the above-mentioned
in-process development phases could vary significantly from the estimates
provided. We believe that estimates of overall major project completion dates
and associated costs to complete such projects would be highly speculative due
to the numerous uncertainties inherent in the pharmaceutical industry including
the results of preclinical and clinical testing, competition, government
regulation and uncertainties related to manufacturing. Delays or
discontinuation of any of our projects could adversely impact our future
revenues, liquidity and overall financial position. For additional discussion
of the risks and uncertainties regarding our product development, see the
Additional Business Risks section of this Form 10-K. Licensing Costs.Licensing costs increased to $8.4 million in 2003 from
$5.7 million in 2002, an increase of $2.7 million or 47%. In 2003, licensing
costs consisted primarily of expense accruals for the achievement of milestones
associated with the license grant from Genentech as well as $3.5 million paid
to Bioenvision for the exclusive U.S. and Canadian sublicense for clofarabine
in oncology. In 2002, licensing costs consisted primarily of a license fee
expense of $4.0 million related to an exclusive, worldwide license from Knoll
AG (Abbott Laboratories) for ILX-651. We may be required to make future
payments in accordance with these agreements if certain drug development and
time-based milestones are met. Selling, General and Administrative Costs. Selling,general and
administrative costs increased to $14.0 million in 2003, from approximately
$11.3 million in 2002. This increase of $2.7 million, or 24%, is primarily due
to increased compensation charges, commercialization costs and legal fees
associated with the settlement charge. Direct Costs of Research Services. Direct costs of research services
expense decreased to $1.3 million in 2003, from $5.9 million in 2002. This
decrease of $4.6 million, or 78%, is consistent with our aforementioned
transition out of the fee-for-service CRO business. Depreciation and Amortization.Depreciation and amortization increased to
$7.5 million in 2003 from $7.4 million in 2002, an increase of $0.1 million or
1%. This increase was primarily the result of an increase in intangible assets
in 2003. Settlement charge. We incurred a net settlement charge of $16.5 million in
the first quarter of 2003. This charge is the result of the settlement of a
dispute with a former CRO client. Impairment charge. We recorded an impairment charge of $213,000 in 2003.
We determined that the goodwill resulting from the purchase of Symphar S.A. in
2001 had been impaired due to research focus and personnel changes at our
location in Geneva, Switzerland. Interest Income and Other, Net Interest income and other decreased to $4.3 million in 2003, from $7.1
million in 2002, a decrease of $2.8 million, or 39%. Included in interest
income and other in 2002 is a gain on the sale of a marketable security of
$435,000. The remaining decrease is primarily attributable to a reduction in
interest rate returns. Interest Expense Interest expense decreased to $4.1 million in 2003 from $6.7 million in
2002, a decrease of $2.6 million, or 39%. Interest expense relates to the
imputed interest on the note to Millennium for our purchase of its interest in
the Partnership. The decrease in interest expense from 2002 is the result of
the decrease in the outstanding balance on which interest expense is
calculated. Net Loss Net loss increased $15.9 million in 2003, or 34%, to $62.1 million, from
$46.2 million in 2002. Net loss per share increased $0.34 per share to $1.76
per share in 2003, from $1.42 per share in 2002. Excluding the net settlement
charge related to our CRO business of $16.5 million, our non-GAAP net loss was
$45.6 million or $1.29 per share for the year ended December 31, 2003. Our
management believes that the aforementioned non-GAAP measure of net loss and
net loss per share is useful for investors as it excludes the significant,
unusual settlement charge. Management also believes that excluding the
settlement charge from our GAAP net loss provides users of our financial
statements an important insight into our net results and the related trends,
which are affecting our core business. Non-GAAP net loss and net loss per share
should not be considered in isolation and are not 6




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A intended to represent an alternative measure of operating or net results
or any other measure of performance determined in accordance with GAAP. The
following table shows the reconciliation of our GAAP net loss and net loss per
share to our non-GAAP net loss and net loss per share for the year ended
December 31, 2003: Net Loss
    
    Net Loss per shareGAAP net loss and loss per share
    
    $
    (62,114
    )
    
    $
    (1.76
    )Settlement charge
    
    
    16,500
    
    
    
    0.47Non-GAAP net loss and loss per share
    
    $
    (45,614
    )
    
    $
    (1.29
    )
 RESULTS OF OPERATIONS  DECEMBER 31, 2002 AND 2001 Operating Revenues Product Profit and Royalty Revenue.Product profit and royalty revenue
totaled $10.8 million in 2002. Prior to January 1, 2002, our share of CAMPATH
net profits on U.S. sales and royalties on the rest of the world sales was
included in equity in income of joint venture. Product Development Revenue. Product development revenue increased to $9.8
million in 2002 from $4.0 million in 2001, an increase of $5.8 million. This
increase reflects the recognition of our revenues from our development and
distribution partner, which prior to January 1, 2002 were included in equity in
income (losses) of joint venture. Contract Research Services Revenue. Revenue from our CRO business
decreased to $9.4 million in 2002, from $25.2 million in 2001. The decrease of
$15.8 million, or 63%, in our CRO revenues is consistent with our plan to
transition out of the fee-for-service CRO business. Operating Expenses Research and Development Costs. Research and development costs increased
to $46.9 million in 2002, from $33.8 million in 2001. This increase of $13.1
million, or 39%, was due to increased development spending on our product
candidates, particularly for clofarabine and CAMPATH. Licensing Costs.Licensing costs decreased to $5.7 million in 2002 from
$10.3 million in 2001 or a decrease of $4.6 million or 45%. In 2002, licensing
costs consisted primarily of a license fee expense of $4.0 million related to
an exclusive, worldwide license from Knoll AG (Abbott Laboratories) for
ILX-651. In 2001, licensing costs consisted of a $6.0 million expense accrual,
also related to the exclusive worldwide license of ILX-651. Additionally in
2001, a payment of $1.1 million was made to Bioenvision upon our execution of a
co-development agreement for clofarabine. Selling, General and Administrative Costs. Selling,general and
administrative costs increased to $11.3 million in 2002, from approximately
$11.1 million in 2001. This increase of $0.2 million, or 2%, was due in part to
our transition out of the fee-for-service CRO business, and the corresponding
transition of our internal resources to focus on new business opportunities,
build strategic relationships and develop our proprietary product candidates.
The costs associated with these management and business development activities
were previously included in direct costs of research services and are now
reflected in general and administrative costs. Direct Cost of Research Services. Direct costs of research services
expense decreased to $5.9 million in 2002, from $19.5 million in 2001. This
decrease of $13.6 million, or 70%, is consistent with our aforementioned
transition out of the fee-for-service CRO business. Depreciation and Amortization.Depreciation and amortization increased to
$7.4 million in 2002 from $2.4 million in 2001, an increase of $5.0 million.
This increase was primarily the result of the amortization of the completed
technology asset and trademark, which we obtained through the acquisition of
Millenniums interest in the Partnership on December 31, 2001. In-process Research and Development.In-process research and development
was $86.1 million in 2001, due to the acquisitions of Symphar in February 2001
and Millenniums interest in the Partnership in December 2001. The in-process
research and development charge associated with the Symphar acquisition was
$26.1 million, and the charge related to the acquisition of the 50% interest in
the Partnership was $60.0 million. 7




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A Interest Income and Other, Net Interest income and other decreased to $7.1 million in 2002, from
approximately $10.0 million in 2001, a decrease of $2.9 million, or 29%.
Included in interest income and other in 2001 is the accrual of a non-cash loss
on the impairment of a held-to-maturity marketable security of $435,000. In
2002, this investment was sold and we recorded a $435,000 gain. The decrease of
$2.9 million is primarily attributable to a decline in interest rate returns
throughout 2002, which offset the gain on the sale of our held-to-maturity
marketable security. Interest Expense Interest expense of $6.7 million relates to the imputed interest on the
note to Millennium for our purchase of their interest in the Partnership. This
transaction closed on December 31, 2001, and as such, a comparable amount does
not exist for 2001. Equity in Income of Joint Venture Equity in income of joint venture was income of $3.1 million in 2001. This
amount included our profit share of CAMPATH sales, which are now shown as
product profit and royalty revenue. We purchased Millenniums interest in the
Partnership on December 31, 2001 and, as a result, activity related to the
Partnership was included in the consolidated statement of operations of ILEX
Oncology Inc. as of January 1, 2002. Net Loss Net loss decreased $74.8 million in 2002, or 62%, to $46.2 million, from
$121.0 million in 2001. Net loss per share decreased $3.06 per share to $1.42
per share in 2002, from $4.48 per share in 2001. LIQUIDITY AND CAPITAL RESOURCES We have historically financed our operations primarily through the sale of
our capital stock, through development and licensing fee revenues provided by
our collaborative partners under our collaborative agreements and through
fee-for-service or participatory revenues pursuant to contracts with our CRO
clients. At December 31, 2003, we had cash, cash equivalents, restricted
investments and investments in marketable securities of $197.7 million and
working capital of $95.4 million. On August 4, 2003, we completed an underwritten public offering of our
common stock, pursuant to which we sold 5.5 million shares. In addition, the
Cancer Therapy and Research Center Endowment, an ILEX shareholder, offered and
sold 500,000 shares of our common stock. Proceeds, net of costs to us, from
this offering were approximately $87.4 million. The net proceeds from this
offering have been and will continue to be used to fund clinical trials of our
lead product candidates; for clinical and preclinical studies for our other
product candidates; for potential licenses and acquisitions of other businesses
or complementary products and technologies; and for working capital, capital
expenditures and other general corporate purposes. We expect our current funds will be adequate to cover all of our
obligations for at least the next two years. Until our business can generate
sufficient levels of cash from product sales, we expect to continue to finance
our operations through existing cash, revenue from collaborative relationships,
and proceeds from the sale of equity securities. We plan to continue our policy of investing available funds in government
securities, government agencies, government-sponsored enterprises and
investment-grade, interest-bearing securities, none of which mature in more
than eighteen months. We do not invest in derivative financial instruments, as
defined by Statement of Financial Accounting Standards No. 133 and 138. Our future expenditures and capital requirements will depend on numerous
factors, including but not limited to: the progress of our research and
development programs; the progress of our pre-clinical and clinical testing;
the magnitude and scope of these activities; the time and costs involved in
obtaining regulatory approvals; the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights; competing
technological and market developments; changes in or termination of existing
collaborative arrangements; the ability to establish, maintain and avoid
termination of collaborative arrangements and the purchase of capital equipment
and acquisitions of compounds, technologies or businesses. As of December 31,
2003, we did not have any material commitments for capital expenditures. 8




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A CONTRACTUAL OBLIGATIONS As previously discussed, we have a number of products in our pipeline. In
connection with these research and development efforts, we have entered into
agreements with certain development partners. The terms of these agreements
require us to make payments in either cash or stock if certain drug development
or time-based milestones are met. Most of the cash payments are payable in U.S.
dollars, while some are payable in euros. The future minimum payments required
to keep these licenses are set forth in the table below as minimum license
obligations. These include annual amounts due to a licensor and patent and
legal fees required to maintain our licenses. In addition, some of these
agreements require us to make payments based on certain sales milestones which
are not included in the table below. Total potential future commitments for the
next five years, exclusive of payments related to sales milestones, under these
agreements are estimated to be approximately $48.9 million based upon the
assumption that all development milestones are achieved for our product
pipeline. On October 29, 2001, we announced that we had entered into a definitive
Purchase and Sale agreement (Purchase Agreement) to purchase Millenniums 50%
equity interest in the Partnership. The acquisition closed on December 31,
2001. We estimated the purchase price at $127.6 million based on the net
present value of the required future cash payments discounted at 6.5%, our
estimated incremental borrowing rate on the date of purchase. The terms of the
agreement required an initial cash payment of $20.0 million and an additional
$120.0 million in scheduled payments over the following three years. As of
December 31, 2003, $40.0 million remains due to Millennium. At our option,
$10.0 million of this remainder may be paid in our common stock. We anticipate
$20.0 million of the maturities will be paid in the second or third quarter of
2004 with the remaining $20.0 million to be paid on December 31, 2004. In
addition, Millennium will be entitled to royalties based upon net U.S. CAMPATH
sales above specified levels beginning in 2005. Our sole supplier of CAMPATH is Boehringer Ingelheim Pharma KG (BI) in
Germany. The agreement with BI is payable in euros and contains a minimum
purchase quantity in kilograms, which equals approximately $4.5 million per
year through 2006, or a total of approximately $13.5 million, to avoid a
contractual surcharge. The minimum purchase quantity of $4.5 million per year
is calculated based on the current exchange rate. We believe that the minimum
purchase quantity will be satisfied. We have several noncancelable operating leases for office space, equipment
and the cGMP facility. One of our operating leases is with CTRC Research
Foundation, a related party. Total future commitments under these leases are
$11.6 million. Our contractual obligations are due as set forth in the following table: Payments due by period ($ in thousands)Contractual Obligations
    
    Total
    
    Less than 1 year
    
    1 - 3 years
    
    3 -5 years
    
    More than 5 yearsMinimum License
Obligations
    
    $
    1,750
    
    
    $
    450
    
    
    $
    500
    
    
    $
    400
    
    
    $
    400Debt Obligations
    
    
    40,000
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations
    
    
    13,500
    
    
    
    4,500
    
    
    
    9,000
    
    
    
    
    
    
    
    Operating Leases
    
    
    11,644
    
    
    
    2,568
    
    
    
    4,565
    
    
    
    3,510
    
    
    
    1,001Total
    
    $
    66,894
    
    
    $
    47,518
    
    
    $
    14,065
    
    
    $
    3,910
    
    
    $
    1,401
 ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued
interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
and in December 2003 issued a revised interpretation (FIN 46R). FIN 46 and FIN
46R address the accounting for, and disclosure of, investments in variable
interest entities and require that the assets, liabilities and results of the
activity of variable interest entities be consolidated into the financial
statements of the company that has a controlling financial interest. It also
provides a framework for determining whether a variable interest entity should
be consolidated based on voting interest or significant financial support. We
have evaluated FIN 46 and FIN 46R and determined that we do not have any
variable interest entities requiring consolidation. 
 ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES The report of our Independent Auditors, Consolidated Financial Statements
and Notes to Consolidated Financial Statements appears herein commencing on
page F-1. 9




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 PART IV. 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)
    
    
    1.
    
    
    Financial StatementsIndex to Financial Statements appears on Page F-1.(b)
    
    
    Reports on Form 8-K
 Report dated October 22, 2003, reporting Item 12 Results of Operations
and Financial Condition. The report included a press release announcing our
financial results for the third quarter of 2003. (c) Exhibits ExhibitNumber
    
    Identification of Exhibit2.1
    
    Purchase and Sale Agreement dated October 29, 2001 by and among ILEX Oncology, Inc., ILEX Acquisitions, Inc., Millennium
Pharmaceuticals, Inc, and mHoldings Trust (Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q filed November 15, 2001)3.1
    
    Amended and Restated Certificate of Incorporation of the Company filed May 31, 2000 (Incorporated herein by reference to
Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q filed August 8, 2000)3.2
    
    Bylaws of the Company, as amended (Incorporated herein by reference to Exhibit 3.2 of the Companys Registration Statement
No. 333-17769 on Form S-1 filed December 12, 1996, as amended)4.1
    
    Specimen of certificate representing Common Stock, $.01 par value, of the Company (Incorporated herein by reference to
Exhibit 4.1 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)4.2
    
    Rights Agreement dated April 10, 2001, by and between ILEX Oncology, Inc. and American Stock Transfer & Trust Co. which
includes as Exhibit A the Form of Certificate of Designations of Series I Preferred Stock, as Exhibit B the Form of Rights
Certificate and as Exhibit C the Summary of Rights to Purchase Common Stock (Incorporated herein by reference to Exhibit
4.1 to the Companys Form 8-K filed April 11, 2001)4.3*
    
    First Amendment to Rights Agreement dated February 26, 2004, by and between ILEX Oncology, Inc. and American Stock Transfer
& Trust Co.10.1
    
    Services Agreement dated November 18, 1994 between CTRC Research Foundation and the Company (Incorporated herein by
reference to Exhibit 10.6 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
amended)10.2
    
    Covenant Not To Sue dated September 1995 between CTRC Research Foundation and the Company (Incorporated herein by reference
to Exhibit 10.7 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)10.3
    
    Commercial Industrial Sublease Agreement between TRTF/CTRCRF Building Corporation and the Company (Incorporated herein by
reference to Exhibit 10.11 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
amended)10.4*
    
    1995 Stock Option Plan for the Company, as amended through February 25, 200410.5
    
    Second Amended and Restated 1996 Non-Employee Director Stock Option Plan for the Company (Incorporated herein by reference
to Exhibit 10.7 of the Companys Annual Report on Form 10-K filed April 2, 2001)10.6
    
    Form of Non-Employee Director Stock Option Agreement for the Company (Incorporated herein by reference to Exhibit 10.49 to
the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)
 10




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A ExhibitNumber
    
    Identification of Exhibit10.7*
    
    2000 Employee Stock Compensation Plan for the Company, as amended through February 25, 200410.8
    
    2000 Employee Stock Purchase Plan for the Company, as amended (Incorporated herein by reference to Exhibit 10.10 of the
Companys Annual Report on Form 10-K filed April 2, 2001)10.9
    
    Form of Pledge Agreement between Cancer Therapy and Research Center Endowment and each of Gary V. Woods and Ruskin C.
Norman, M.D. (Incorporated herein by reference to Exhibit 10.55 to the Companys Registration Statement No. 333-17769 on
Form S-1 filed December 12, 1996, as amended)10.10
    
    Office Building Lease Agreement dated April 8, 1998, between the Company and N.W.A. Limited Partnership (Incorporated
herein by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q filed August 14, 1998)10.11
    
    Distribution and Development Agreement between Millennium & ILEX Partners, L.P. (now ILEX Pharmaceuticals, L.P.) and
Schering AG dated August 24, 1999 (incorporated herein by reference to Exhibit 99.1 to the Companys Current Report on Form
8-K/A filed September 21, 1999)10.12
    
    Letter agreement dated September 9, 1999, between the Company and Al J. Jecminek (Incorporated herein by reference to
Exhibit 10.41 to the Companys Annual Report on Form 10-K for the year ended December 31, 1999)10.13
    
    Office Lease Agreement dated July 14, 2000, between Orion Fountainhead Two Partners, Ltd., and ILEX Oncology, Inc.
(Incorporated herein by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q filed November 14, 2000)10.14
    
    Supply Agreement dated as of June 4, 1999 between Millennium & ILEX Partners, L.P. (formerly L&I Partners, L.P.) and
Boehringer Ingelheim Pharma KG. (Incorporated herein by reference to Exhibit 10.25 to the Millennium Pharmaceuticals, Inc.
10-K for the fiscal year ending December 31, 1999)10.15
    
    License Agreement, dated May 2, 1997, between Millennium & ILEX Partners, L.P. (formerly L&I Partners, L.P.) and Millennium
Pharmaceuticals, Inc (as successor to LeukoSite, Inc.) (Incorporated by reference to Exhibit 10.17(b) to LeukoSite, Inc.s
Registration Statement on Form S-1 (No. 333-30213) filed June 27, 1997)10.16
    
    2001 UK Employee Stock Compensation Plan (Incorporated herein by reference to Exhibit 10.27 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2001)10.17
    
    Employment agreement dated January 1, 2002, between the Company and Jeffrey H. Buchalter (Incorporated herein by reference
to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q filed August 13, 2002)10.18*
    
    Consulting Services Agreement dated January 1, 2003, between the Company and Daniel D. Von Hoff, M.D.11.1*
    
    Computation of Earnings Per Share14.1*
    
    ILEX Oncology Inc. Code of Ethics for Senior Financial Officers21.1
    
    Subsidiaries of the Company
 Place of
    
    Names Under WhichName
    
    Incorporation
    
    Doing BusinessILEX Oncology Services, Inc.
    
    Delaware
    
    ILEX Oncology Services, Inc.ILEX Products, Inc.
    
    Delaware
    
    ILEX Products, Inc.ILEX Services Limited
    
    United Kingdom
    
    ILEX Services LimitedILEX Oncology Research Sarl
    
    Geneva, Switzerland
    
    ILEX Oncology Research SarlILEX Acquisitions, Inc.
    
    Delaware
    
    ILEX Acquisitions, Inc.ILEX Pharmaceuticals, L.P.
    
    Delaware
    
    ILEX Pharmaceuticals, L.P.ILEX Pharmaceuticals, LTD.
    
    United Kingdom
    
    ILEX Pharmaceuticals, LTD.ILEX Pharmaceuticals, L.L.C.
    
    Delaware
    
    ILEX Pharmaceuticals, L.L.C.
 11




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 23.1**
    
    Consent of Ernst & Young LLP23.2
    
    Information regarding consent of Arthur Andersen LLP (Incorporated herein by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2002 filed March
14, 2003)31.1**
    
    Certification of President and Chief Executive Officer pursuant to Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2**
    
    Certification of Senior Vice President and Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1**
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2**
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
  *
    
    Filed as an Exhibit to the Companys Form 10-K filed on March 12, 2004.**
    
    Filed herewith.
    
    Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately with
the Securities and Exchange Commission. 12




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 Signatures Pursuant to the requirements of Section 13 or 15(d) 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. Date: May 3, 2004 By:
    
    /s/ Jeffrey H. BuchalterJeffrey H. BuchalterPresident and Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ Mark P. MellinMark P. MellinSenior Vice President and Chief Financial Officer(Chief Financial and Accounting Officer)
 Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated. Date: May 3, 2004 Signature
    
    Title/s/ Joy A. AmundsonJoy A. Amundson
    
    Director, Chairman of the Board/s/ Joseph S. Bailes, M.D.Joseph S. Bailes, M.D.
    
    Director/s/ Jeffrey H. BuchalterJeffrey H. Buchalter
    
    Director/s/ Jason S. Fisherman, M.D.Jason S. Fisherman, M.D.
    
    Director/s/ Richard L. LoveRichard L. Love
    
    Director/s/ Victor P. MicatiVictor P. Micati
    
    Director/s/ Daniel D. Von Hoff, M.D.Daniel D. Von Hoff, M.D.
    
    Director/s/ Mark E. Watson, Jr.Mark E. Watson, Jr.
    
    Director/s/ Gary V. WoodsGary V. Woods
    
    Director
 13




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Auditors
    
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    
    F-4Consolidated Statements of Operations  For the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-6Consolidated Statements of Stockholders Equity and Comprehensive Income  For the Years
Ended December 31, 2003, 2002 and 2001
    
    
    F-7Consolidated Statements of Cash Flows  For the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-9
 F-1




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 Report of Independent Auditors To the Board of Directors and Stockholders of ILEX Oncology, Inc. and
Subsidiaries: We have audited the accompanying consolidated balance sheets of ILEX Oncology
Inc. and subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statements of operations, stockholders equity and comprehensive
income, and cash flows for the years then ended. These financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements of ILEX Oncology Inc. and subsidiaries as of
December 31, 2001, and for the year then ended were audited by other auditors
who have ceased operations and whose report dated February 25, 2002 expressed
an unqualified opinion on those statements before the reclassification
adjustments and conforming disclosures described in Note 2. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ILEX Oncology,
Inc. and subsidiaries at December 31, 2003 and 2002 and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the consolidated financial statements, in 2002 the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. As discussed above, the consolidated financial statements of ILEX Oncology Inc.
and subsidiaries as of December 31, 2001, and for the year then ended were
audited by other auditors who have ceased operations. As described in Note 2,
these financial statements have been revised. We audited the reclassification
adjustments and conforming disclosures described in Note 2 that were applied to
revise the 2001 financial statements. In our opinion, such reclassification
adjustments and conforming disclosures are appropriate and have been properly
applied. However, we were not engaged to audit, review, or apply any procedures
to the 2001 financial statements of the Company other than with respect to such
reclassification adjustments and conforming disclosures and, accordingly, we do
not express an opinion or any other form of assurance on the 2001 financial
statements taken as a whole. /s/ Ernst & Young LLP
 San Antonio, Texas
January 23, 2004,,
except for Note 19, as to which the date is
February 26, 2004 F-2




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To ILEX Oncology, Inc.: We have audited the accompanying consolidated balance sheets of ILEX Oncology,
Inc. (a Delaware corporation), and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders
equity and comprehensive income and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ILEX Oncology, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. /s/ ARTHUR ANDERSEN LLP
 San Antonio, Texas
February 25, 2002 THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH ILEX ONCOLOGY, INC.S FILING ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH THIS FILING ON FORM 10-K. SEE EXHIBIT 23.2 FOR FURTHER
DISCUSSION. F-3




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 CONSOLIDATED BALANCE SHEETS
(in thousands) December 31ASSETS
    
    2003
    
    2002Current assets:Cash and cash equivalents
    
    $
    63,154
    
    
    $
    29,679Investments in marketable securities
    
    
    75,791
    
    
    
    123,591Restricted investments
    
    
    816
    
    
    
    976Accounts receivable, net of allowance
for doubtful accounts of $5 and $30 in
2003 and 2002, respectively
    
    
    166
    
    
    
    871Accounts receivable  Schering AG
    
    
    8,363
    
    
    
    4,701Other receivables
    
    
    2,152
    
    
    
    3,654Prepaid expenses and other
    
    
    2,433
    
    
    
    2,273Total current assets
    
    
    152,875
    
    
    
    165,745Investments in marketable securities
    
    
    56,209
    
    
    
    34,737Restricted investments
    
    
    1,691
    
    
    
    2,017Completed technology asset, net of
accumulated amortization of $9,257 and
$4,629 in 2003 and 2002, respectively
    
    
    55,543
    
    
    
    60,171Other intangible assets, net of
accumulated amortization of $517 and
$200 in 2003 and 2002, respectively
    
    
    4,283
    
    
    
    2,600Goodwill
    
    
    
    
    
    
    213Other assets
    
    
    689
    
    
    
    283Property and equipment, at cost, net of
accumulated depreciation of $10,302 and
$7,950 in 2003 and 2002, respectively
    
    
    3,805
    
    
    
    5,140Total assets
    
    $
    275,095
    
    
    $
    270,906
 The accompanying notes are an integral part of these consolidated financial statements. F-4




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share amounts) December 31LIABILITIES AND STOCKHOLDERS EQUITY
    
    2003
    
    2002Current liabilities:Accounts payable-Related parties
    
    $
    
    
    
    $
    136Other
    
    
    11,477
    
    
    
    8,214Accrued liabilities-Related parties
    
    
    564
    
    
    
    455Other
    
    
    6,646
    
    
    
    6,378Deferred revenue
    
    
    385
    
    
    
    879Advances from Schering AG
    
    
    
    
    
    
    2,577Note payable
    
    
    38,390
    
    
    
    38,099Total current liabilities
    
    
    57,462
    
    
    
    56,738Deferred revenue
    
    
    1,077
    
    
    
    Note payable
    
    
    
    
    
    
    36,155Other non-current liabilities
    
    
    742
    
    
    
    771Total liabilities
    
    
    59,281
    
    
    
    93,664Commitments and contingencies (see Note 16)Stockholders equity:Convertible preferred stock, $0.01 par value;
20,000,000 shares authorized; no shares issued
or outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value; 100,000,000
shares authorized; 39,046,917 and 32,546,890
shares issued and outstanding in 2003 and 2002,
respectively
    
    
    390
    
    
    
    326Additional paid-in capital
    
    
    560,632
    
    
    
    460,014Deferred compensation
    
    
    (359
    )
    
    
    Accumulated deficit
    
    
    (345,544
    )
    
    
    (283,430
    )Accumulated other comprehensive income
    
    
    695
    
    
    
    332Total stockholders equity
    
    
    215,814
    
    
    
    177,242Total liabilities and stockholders equity
    
    $
    275,095
    
    
    $
    270,906
 The accompanying notes are an integral part of these consolidated financial statements. F-5




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts) Years Ended December 312003
    
    2002
    
    2001Revenue:Product profit and royalty
    
    $
    23,315
    
    
    $
    10,843
    
    
    $
    Product development
    
    
    6,307
    
    
    
    9,786
    
    
    
    3,994Outlicensing revenue
    
    
    2,773
    
    
    
    634
    
    
    
    Contract research services
    
    
    1,762
    
    
    
    9,400
    
    
    
    25,178Other
    
    
    632
    
    
    
    238
    
    
    
    Total revenue
    
    
    34,789
    
    
    
    30,901
    
    
    
    29,172Operating expenses:Research and development costs
    
    
    49,026
    
    
    
    46,928
    
    
    
    33,798Licensing costs
    
    
    8,444
    
    
    
    5,657
    
    
    
    10,281Selling, general and administrative
    
    
    13,998
    
    
    
    11,326
    
    
    
    11,052Direct costs of research services
    
    
    1,341
    
    
    
    5,897
    
    
    
    19,535Depreciation & amortization
    
    
    7,542
    
    
    
    7,390
    
    
    
    2,415Settlement charge
    
    
    16,500
    
    
    
    
    
    
    
    Impairment charge
    
    
    213
    
    
    
    
    
    
    
    In-process research and development
    
    
    
    
    
    
    
    
    
    
    86,112Total operating expenses
    
    
    97,064
    
    
    
    77,198
    
    
    
    163,193Operating loss:
    
    
    (62,275
    )
    
    
    (46,297
    )
    
    
    (134,021
    )Other income (expense):Interest income and other, net
    
    
    4,322
    
    
    
    7,084
    
    
    
    9,995Interest expense
    
    
    (4,137
    )
    
    
    (6,654
    )
    
    
    Equity in income of joint venture
    
    
    
    
    
    
    
    
    
    
    3,094Loss before income taxes:
    
    
    (62,090
    )
    
    
    (45,867
    )
    
    
    (120,932
    )Provision for foreign income taxes
    
    
    (24
    )
    
    
    (289
    )
    
    
    (22
    )Net loss
    
    $
    (62,114
    )
    
    $
    (46,156
    )
    
    $
    (120,954
    )Basic and diluted net loss per share
    
    $
    (1.76
    )
    
    $
    (1.42
    )
    
    $
    (4.48
    )Weighted average number of shares of common stock outstanding
    
    
    35,258
    
    
    
    32,476
    
    
    
    27,011
 The accompanying notes are an integral part of these consolidated financial statements. F-6




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(in thousands, except shares) Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated$0.01
    
    Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherPar
    
    Paid-In
    
    Deferred
    
    Treasury
    
    Accumulated
    
    ComprehensiveShares
    
    Value
    
    Capital
    
    Compensation
    
    Stock
    
    Deficit
    
    Income (Loss)
    
    TotalBALANCES, December 31, 2000
    
    
    25,776,243
    
    
    $
    258
    
    
    $
    312,687
    
    
    $
    
    
    
    $
    (517
    )
    
    $
    (116,320
    )
    
    $
    (103
    )
    
    $
    196,005Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120,954
    )
    
    
    
    
    
    
    (120,954
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89
    )
    
    
    (89
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (121,043
    )Issuance of common shares
for acquisition of company
    
    
    521,121
    
    
    
    5
    
    
    
    13,902
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,907Issuance of common shares
for employee stock purchase
plan
    
    
    23,148
    
    
    
    
    
    
    
    491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    491Exercise of stock options
and warrants
    
    
    246,317
    
    
    
    2
    
    
    
    2,494
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,496Non-cash compensation expense
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266Issuance of common shares in
secondary offering, net of
issuance costs
    
    
    5,750,000
    
    
    
    58
    
    
    
    128,331
    
    
    
    
    
    
    
    517
    
    
    
    
    
    
    
    
    
    
    
    128,906BALANCES, December 31, 2001
    
    
    32,316,829
    
    
    
    323
    
    
    
    458,171
    
    
    
    
    
    
    
    
    
    
    
    (237,274
    )
    
    
    (192
    )
    
    
    221,028Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,156
    )
    
    
    
    
    
    
    (46,156
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    524Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,632
    )Issuance of common shares
for employee stock purchase
plan
    
    
    30,576
    
    
    
    1
    
    
    
    270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271Exercise of stock options
    
    
    199,485
    
    
    
    2
    
    
    
    1,573
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,575BALANCES, December 31, 2002
    
    
    32,546,890
    
    
    
    326
    
    
    
    460,014
    
    
    
    
    
    
    
    
    
    
    
    (283,430
    )
    
    
    332
    
    
    
    177,242Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,114
    )
    
    
    
    
    
    
    (62,114
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363
    
    
    
    363Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,751
    )Issuance of common shares in
secondary offering, net of
issuance costs
    
    
    5,500,000
    
    
    
    55
    
    
    
    87,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,420Exercise of stock options
    
    
    230,067
    
    
    
    2
    
    
    
    1,910
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,912Issuance of common shares
for employee stock purchase
plan
    
    
    33,708
    
    
    
    
    
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294Issuance of restricted stock
    
    
    150,000
    
    
    
    1
    
    
    
    1,055
    
    
    
    (704
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345Issuance of common stock to
Millennium Pharmaceuticals,
Inc.
    
    
    586,252
    
    
    
    6
    
    
    
    9,994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000BALANCES, December 31, 2003
    
    
    39,046,917
    
    
    $
    390
    
    
    $
    560,632
    
    
    $
    (359
    )
    
    $
    
    
    
    $
    (345,544
    )
    
    $
    695
    
    
    $
    215,814
 The accompanying notes are an integral part of these consolidated financial statements. F-7




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 312003
    
    2002
    
    2001Cash flows from operating activities:Net loss
    
    $
    (62,114
    )
    
    $
    (46,156
    )
    
    $
    (120,954
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    7,542
    
    
    
    7,390
    
    
    
    2,415In-process research and development
    
    
    
    
    
    
    
    
    
    
    86,112Net activity of research and development partnership
    
    
    
    
    
    
    
    
    
    
    (3,955
    )Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    (73
    )Impairment charge
    
    
    213
    
    
    
    
    
    
    
    Interest expense paid in stock
    
    
    929
    
    
    
    
    
    
    
    Non-cash compensation expense
    
    
    697
    
    
    
    
    
    
    
    266Reversal of bad debt provision
    
    
    (27
    )
    
    
    (134
    )
    
    
    (180
    )(Gain) Loss on investment in marketable securities
    
    
    (121
    )
    
    
    (435
    )
    
    
    435Loss on disposal of property and equipment
    
    
    38
    
    
    
    67
    
    
    
    173Changes in operating assets and liabilities:(Increase) decrease in receivables, net
    
    
    (1,428
    )
    
    
    5,070
    
    
    
    3,107Increase in prepaid expenses and other
    
    
    (160
    )
    
    
    (204
    )
    
    
    (640
    )(Increase) decrease in other non-current assets
    
    
    (406
    )
    
    
    226
    
    
    
    (261
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    964
    
    
    
    (14,214
    )
    
    
    7,704Increase (decrease) in deferred revenue
    
    
    583
    
    
    
    (2,761
    )
    
    
    (2,085
    )Increase in interest on note payable
    
    
    17
    
    
    
    4,324
    
    
    
    (Decrease) increase in other non-current liabilities
    
    
    (29
    )
    
    
    (3,816
    )
    
    
    281Net cash used in operating activities
    
    
    (53,302
    )
    
    
    (50,643
    )
    
    
    (27,655
    )Cash flows from investing activities:Net activity of marketable securities transactions
    
    
    26,449
    
    
    
    31,725
    
    
    
    (10,180
    )Net activity in restricted investments
    
    
    486
    
    
    
    1,117
    
    
    
    690Purchase of property and equipment
    
    
    (1,284
    )
    
    
    (1,680
    )
    
    
    (1,992
    )Advances to joint venture
    
    
    
    
    
    
    
    
    
    
    (3,369
    )License fees
    
    
    (2,000
    )
    
    
    
    
    
    
    Proceeds from sale of property and equipment
    
    
    11
    
    
    
    124
    
    
    
    59Acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (22,875
    )Net cash provided by (used in) investing activities
    
    
    23,662
    
    
    
    31,286
    
    
    
    (37,667
    )Cash flows from financing activities:Issuance of common stock for cash, net of issuance costs
    
    
    87,420
    
    
    
    
    
    
    
    128,906Exercise of stock options and warrants
    
    
    1,912
    
    
    
    1,575
    
    
    
    2,496Issuance of common stock for employee stock purchase plan
    
    
    294
    
    
    
    271
    
    
    
    491Principal payments for capital lease obligations
    
    
    (37
    )
    
    
    (78
    )
    
    
    (78
    )Principal payment on note payable
    
    
    (26,809
    )
    
    
    (37,670
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    62,780
    
    
    
    (35,902
    )
    
    
    131,815Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    335
    
    
    
    420
    
    
    
    (74
    )Net increase (decrease) in cash and cash equivalents
    
    $
    33,475
    
    
    $
    (54,839
    )
    
    $
    66,419Cash and cash equivalents, beginning of year
    
    
    29,679
    
    
    
    84,518
    
    
    
    18,099Cash and cash equivalents, end of year
    
    $
    63,154
    
    
    $
    29,679
    
    
    $
    84,518
 The accompanying notes are an integral part of these consolidated financial statements. F-8




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share information, per share information or as
otherwise indicated) 1. ORGANIZATION AND OPERATIONS ILEX Oncology, Inc. (ILEX) was incorporated in December 1993 under the laws of
the State of Delaware and is a biopharmaceutical company that is focused on
oncology. ILEX operates through its subsidiaries, ILEX Products, Inc. (ILEX
Products) and ILEX Oncology Services, Inc. (ILEX Services) and its affiliate
ILEX Pharmaceuticals LP (the Partnership). ILEX Products is focused in the
areas of identification, development, manufacturing and regulatory approval of
cancer therapeutics and is building a product platform concentrated primarily
on oncology. ILEX Services manages the clinical trials for oncology products
being developed by other companies. In 2001, we announced our intention to
transition out of the fee-for-service contract research organization (CRO)
business conducted by ILEX Services. The Partnership owns the rights to CAMPATH
®, our marketed product. In February 2001, we purchased Symphar S.A. (Symphar), now ILEX Oncology
Research Sarl (Research Sarl), a research organization located in Geneva,
Switzerland. Additionally, in December of 2001, we acquired Millennium
Pharmaceuticals, Inc.s (Millennium) 50% equity interest in the Partnership
formerly known as Millennium & ILEX Partners, L.P. We now own 100% of the
Partnership. See Note 6 for further details regarding these acquisitions. The accompanying consolidated financial statements include the accounts of ILEX
and its subsidiaries (collectively, we or us). All significant intercompany
transactions and accounts have been eliminated in consolidation. CAMPATH was developed within the Partnership. In August 1999, the Partnership
granted Schering AG (Schering) exclusive distribution and marketing rights to
CAMPATH in the United States, Europe and the rest of the world, other than
Japan and the Asian Pacific Basin. CAMPATH was approved for marketing in the
United States (U.S.) by the Food and Drug Administration (FDA) in May 2001. In
February 2003, Schering AG obtained marketing and distribution rights to
CAMPATH in Japan and the Asian Pacific Basin from ILEX. The European Commission
(EU) issued marketing authorization for MABCAMPATH ®, the trade name for
CAMPATH in Europe, in July 2001. Under EU and authorizations in other
countries, the Partnership has the right to market MABCAMPATH in the United
Kingdom (U.K.) and 32 other non-U.S. countries. Schering AG began selling
MABCAMPATH in Europe in August 2001. Berlex Laboratories, Inc., (Berlex) the
U.S. affiliate of Schering AG, is marketing CAMPATH in the United States.
Commercial launch of CAMPATH began in the United States in May 2001. Additionally, we have other drugs in clinical development and several product
candidates in late preclinical research. All product rights are either acquired
or in-licensed. We have not generated any revenues from product sales of these
other drugs to date, and there can be no assurance that revenues from product
sales will be achieved. We have incurred net losses to date and our ability to
achieve a profitable level of operations in the future will depend in large
part on the ability to complete development of our compounds; obtain regulatory
approvals for such compounds; commercialize these potential products through
marketing agreements with other companies or, if we choose, market such
compounds independently; successfully manufacture such compounds; and achieve
market acceptance of such compounds. There can be no assurance that we will be
successful in developing such compounds, obtaining such approvals, bringing
such compounds to market, developing sales, marketing or distribution
capabilities, manufacturing such products or generating market acceptance. We expect that our current funds will be adequate to cover all of our
obligations for at least the next two years. Until the business can generate
sufficient levels of cash from product sales, we expect to continue to finance
our operations through existing cash, revenues from collaborative relationships
and proceeds from the sale of equity securities. F-9




---



##### Table of Contents



ILEX ONCOLOGY, INC.2003 ANNUAL REPORT ON FORM 10-K/A 2. SIGNIFICANT ACCOUNTING POLICIES Reclassifications and Conforming Disclosures 2001 For the years ended December 31, 2003 and 2002, reimbursable out-of-pocket
costs incurred related to CRO contracts were included in direct costs of
research services and contract research service revenues when incurred in
accordance with the Emerging Issues Task Forces (EITFs) Issue 01-14,
Income Statement Characterization of Reimbursements Received for Out of
Pocket Expenses Incurred.Corresponding amounts for the year ended December
31, 2001, as set forth in the table below, were reclassified to conform with
such presentation. Year EndedDecember 31,2001Increase in contract research services revenues
    
    $
    4,528Increase in direct cost of research services
    
    
    (4,528
    )Impact on net loss
    
    $
    
 Depreciation has been reclassified to be presented separately on the face of
the 2001 statement of operations. Depreciation expense was included in the
selling, general and administrative line item in the 2001 statement of
operations. Reclassifications were made to the 2001 statement of cash flows to conform to
the 2003 and 2002 presentations. As disclosed in Footnote 15, certain conforming disclosures of 2001 amounts
regarding income taxes have been provided. 2002 Certain 2002 amounts have been reclassified to conform to the 2003
presentation. These reclassifications are deemed immaterial to the overall
presentation of our consolidated financial statements and therefore have not
been shown in a tabular format. Revenue Recognition Product profit and royalty  These revenues represent our profit share
resulting from net sales of CAMPATH in the U.S. and the royalties earned from
sales of CAMPATH in the rest of world. Our profit share from net U.S. sales
is calculated after deducting the manufacturing, marketing, selling and
distribution expenses incurred by Berlex. We recognize our product profit and
royalty revenue resulting from CAMPATH sales when there is persuasive
evidence that a sales arrangement exists between Schering AG or Berlex and a
customer, shipment has occurred, the price is fixed and determinable and
collectibility is reasonably assured. Allowances are established for
estimated uncollectible amounts, product returns and discounts. Product development  These revenues represent Schering AGs contribution to
our research and development costs incurred for CAMPATH in B-cell chronic
lymphocytic leukemia (CLL), multiple sclerosis (MS), non-Hodgkins lymphoma
(NHL) and solid organ transplantation. Revenue under research and development
cost reimbursement contracts is recognized as the related costs are incurred.
Advance payments received in excess of amounts earned are classified as
deferred revenue until earned. Outlicensing revenue -Outlicensing revenue is earned and recognized based on
the performance requirements of the respective outlicensing agreements.
Non-refundable license fees for which no further performance obligations
exist, and no continuing involvement by us is required, are recognized on the
earlier of when the payments are received or when collection is assured.
Revenue from non-refundable upfront license fees where we continue
involvement through development collaboration or have an obligation to supply
product is recognized ratably over the applicable development period or
patent life. Revenue associated with performance milestones is recognized
based upon the achievement of the milestones, as defined in the respective
agreements. Contract research services  Revenues from contract research services are
related to both fixed-price and hourly-based customer contracts and are
recognized on a percentage-of-completion basis or as such services are
performed. Reimbursable out-of-pocket costs incurred related to such
contracts are included in direct costs of research services and contract
research service revenues when incurred. Cash and Cash Equivalents. We consider all highly liquid investments with a
maturity of three months or less when purchased to be cash and cash
equivalents. Restricted Investments.In connection with the lease of our corporate
headquarters, we maintain a letter of credit, with the lessor as beneficiary,
in the amount of approximately $1.9 million. The loan is 105% collateralized
with $2.0 million in cash. The letter of F-10




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A credit is reduced by approximately $324.0 each year. The collateral is included
in the current and noncurrent portions of restricted investments on our
consolidated balance sheets. Also included in the current portion of restricted
investments is our guarantee of a line of credit for a site management
organization. We maintained approximately $492.0 in securities as collateral
for this guarantee as of December 31, 2003 (see Note 16). Current Assets and Current Liabilities.The carrying value of current assets
and current liabilities, excluding investments in marketable securities,
approximates their fair value. Investments in Marketable Securities.With the exception of securities held in
connection with the Executive Deferred Compensation Plan (EDCP), which are
classified as trading securities, all of our investments are held-to-maturity.
Securities are categorized as held-to-maturity when we have the positive intent
and ability to hold these securities to maturity. Held-to-maturity securities
are carried at amortized cost including adjustments for amortization of
premiums and accretion of discounts. Securities classified as trading in
connection with the EDCP are carried at current market value. Marketable
securities with an original maturity of less than one year are classified on
the balance sheet as current assets, while securities with a maturity of
greater than one year are classified as non-current assets. The fair value of
marketable securities is based on currently published market quotations (see
Note 3). Intangible Assets and Goodwill.In connection with our December 31, 2001
acquisition of Millenniums 50% equity interest in the Partnership, we have
recorded a completed technology asset that is classified as an intangible asset
in our consolidated balance sheets in the amount of $64.8 million and a
trademark that is classified as an intangible asset in our consolidate balance
sheets in the amount of $2.8 million. These intangible assets are being
amortized under the straight-line method over 14 years. As of December 31,
2003, we have recorded accumulated amortization of $9.7 million related to
these assets and there is no significant residual value. We recorded
amortization expense of $4.8 million related to these assets during the year
ended December 31, 2003. In December 2001, Genentech, Inc. (Genentech) announced that it was granted a
patent relating to fundamental methods and compositions for the production of
monoclonal antibodies using recombinant DNA technology as a result of a
favorable decision in a patent interference proceeding. This decision entitled
Genentech to priority over the patent held by the Celltech Group PLC, who had
first received the patent in 1989. In March 2003, we finalized a license from
Genentech covering the production of monoclonal antibodies, such as CAMPATH,
directed at the CD52 cell surface target. Accordingly, we have recorded an
intangible asset of $2.0 million associated with the license grant fee paid to
Genentech in April 2003, which is being amortized under the straight-line
method over approximately 13 years. We will also pay milestones and royalties
based upon net U.S. sales levels. During the year ended December 31, 2003, we
recorded amortization expense and total accumulated amortization of $116.9
related to this asset and there is no significant residual value. The following table shows the estimated amortization expense, in total for the
completed technology, trademark and Genentech license grant, to be incurred for
each of the next five years: Year ended
    
    Estimated amortizationDecember 31,
    
    expense2004
    
    $
    4,9842005
    
    
    4,9842006
    
    
    4,9842007
    
    
    4,9842008
    
    
    4,984
 We perform an annual impairment test of our intangible assets. As of December
31, 2003, we believe that these amounts are recoverable. F-11




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard Number 142 (SFAS No. 142), Goodwill and Other
Intangible Assets.According to this statement, goodwill and intangible assets
with indefinite lives are no longer subject to amortization, but rather an
assessment of impairment must be made at least annually. This statement was
effective for fiscal years beginning after December 15, 2001. Under the
provisions of SFAS No. 142, the value of our goodwill recorded in connection
with our acquisition of Symphar and previously referred to as the assembled
workforce, was no longer subject to amortization. The following table shows the
pro forma effect of the adoption of SFAS No. 142 on our net loss for the year
ended December 31, 2001 as if the adoption had occurred on January 1, 2001: Year EndedDecember 31, 2001Net loss, as reported
    
    $
    (120,954
    )Amortization
    
    
    87Pro forma net loss
    
    $
    (120,867
    )Basic and diluted pro forma net loss per share
    
    $
    (4.47
    )
 Our goodwill was reviewed as of September 30, 2003 and we determined that it
had been impaired due to recent research focus changes and personnel changes.
We recorded an impairment charge of $213.0 in the third quarter of 2003. Property and Equipment.Property and equipment are reported at cost and
depreciated over the estimated useful lives of the individual assets using the
straight-line method (see Note 5). Leasehold improvements are amortized over
the lesser of the life of the lease or the useful life of the related property.
Expenditures for maintenance and repairs are charged to expense as incurred.
The estimated lives used in computing depreciation and amortization are as
follows: Office equipment and furniture
    
    3 - 10 yearsLab equipment
    
    5 - 10 yearsLeasehold improvements
    
    1 - 15 yearsLeased equipment
    
    2 - 3 years
 Deferred Revenue.Deferred revenue includes advances for services not yet
rendered under contract research service agreements and billings in excess of
revenue recognized. Also included in deferred revenue is a portion of the
payment received from Schering AG for the exclusive development, marketing and
distribution rights to CAMPATH in Japan, China and other Asian countries (see
Note 12). Credit Risk, Major Customer and Supplier.We place a portion of our cash and
cash equivalents in money market accounts with high quality financial
institutions. At times, such amounts may be in excess of the Federal Deposit
Insurance Corporations insurance limit as well as the Securities Investor
Protection Corporations limit. Our accounts receivable are primarily from
pharmaceutical and biotechnology companies. Based on our evaluation of the
collectibility of these accounts receivable, an allowance for doubtful accounts
of $5.0 was necessary at December 31, 2003 and an allowance for doubtful
accounts of $30.1 was necessary at December 31, 2002. We believe the exposure
to credit risk related to the remaining accounts receivable is minimal. Our top five CRO customers accounted for 5% of total revenue for the year ended
December 31, 2003, 23% of total revenue for the year ended December 31, 2002
and 50% of total revenue for the year ended December 31, 2001. The following
table represents revenue from significant CRO customers in excess of 10%: December 31, 2003
    
    December 31, 2002
    
    December 31, 2001
    
    $
    3,037
    
    
    
    10
    %
    
    $
    4,141
    
    
    
    14
    %3,376
    
    
    
    12
    %3,361
    
    
    
    12
    %
 We also record product, profit and royalty revenue, which is our profit share
resulting from net sales of CAMPATH in the U.S. and the royalties earned from
sales of CAMPATH in the rest of the world. Schering AG sells CAMPATH to
numerous customers. We receive our proceeds from these sales directly from
Schering AG. All of our product development revenue recorded on our statement
of operations is from Schering AG. Additionally, our sole supplier of CAMPATH
is Boehringer Ingelheim Pharma KG (BI) in Germany. Depreciation and Amortization.In connection with the acquisition of
Millenniums interest in the Partnership, we recorded intangible assets of
$67.6 million as of December 31, 2001. These intangible assets have been
amortized throughout the year ended December 31, 2003 based on the remaining
CAMPATH patent life. In connection with the license grant from Genentech, we
have F-12




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A recorded an intangible asset of $2.0 million as of April 30, 2003. This
intangible asset has also been amortized based on the remaining CAMPATH patent
life. Use of Estimates.The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from those
estimates. Interest income and other, net.Included in 2001 interest income and other, net
is $435.0 related to the accrual of a non-cash loss on the impairment of a held
to maturity marketable security. In 2002, we sold this investment and recorded
a gain of $435.0, as the market value of the security had recovered. The gain
is included in interest income and other, net on our 2002 consolidated
statement of operations as of December 31, 2002. Included in 2003 interest
income and other is approximately $121.0 related to a gain on the EDCP
securities. Interest Expense. Interest expense relates to the imputed interest on the note
to Millennium for our purchase of their interest in the Partnership. We
recorded interest expense of $4.1 million for the year ended December 31, 2003,
$6.7 million for the year ended December 31, 2002 and $0 for the year ended
December 31, 2001. Income Taxes.We account for income taxes using the liability method. Under the
liability method, deferred income taxes are recognized for the future tax
consequences attributable to the difference between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. We have incurred losses
since inception for both book and tax purposes. The tax provisions recorded in
2003, 2002 and 2001 relate to amounts accrued for our wholly owned subsidiaries
which operate in the U.K. and Switzerland. Stock-Based Compensation.We use the intrinsic value method in accounting for
our stock option plans. With the exception of the restricted stock grant (see
Note 8), no compensation costs have been recognized in the financial statements
for these plans. Had compensation cost for our stock-based employee
compensation plans been determined based upon a fair value method consistent
with SFAS No. 123, our net loss and loss per share would have been increased to
the pro forma amounts indicated below: December 31,2003
    
    2002
    
    2001Net loss
    
    As reported
    
    $
    (62,114
    )
    
    $
    (46,156
    )
    
    $
    (120,954
    )Fair value compensation cost
    
    
    (8,921
    )
    
    
    (8,168
    )
    
    
    (8,024
    )Stock grant compensation cost
included in reported loss
    
    
    697
    
    
    
    
    
    
    
    Pro forma
    
    $
    (70,338
    )
    
    $
    (54,324
    )
    
    $
    (128,978
    )Loss per share basic
and diluted
    
    As reported
    
    $
    (1.76
    )
    
    $
    (1.42
    )
    
    $
    (4.48
    )Fair value compensation cost
    
    
    (0.25
    )
    
    
    (0.25
    )
    
    
    (0.30
    )Stock grant compensation cost
included in reported loss
    
    
    0.02
    
    
    
    
    
    
    
    Pro forma
    
    $
    (1.99
    )
    
    $
    (1.67
    )
    
    $
    (4.78
    )
 Statement of Cash Flows.Noncash financing and investing activities for the
years ended December 31, 2003, 2002 and 2001, include the following: 2003
    
    2002
    
    2001Payment of principal portion of note payable in
shares of our Common Stock
    
    $
    9,071
    
    
    $
    
    
    
    $
    Issuance of common stock for acquisitions
    
    
    
    
    
    
    
    
    
    
    13,907Assets acquired in acquisitions
    
    
    
    
    
    
    
    
    
    
    72,449Liabilities assumed in acquisitions
    
    
    
    
    
    
    
    
    
    
    14,179Liability incurred in connection with acquisition
    
    
    
    
    
    
    
    
    
    
    107,600
 F-13




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A Supplemental disclosures of cash flow information for the years ended December
31, 2003, 2002 and 2001, include the following: 2003
    
    2002
    
    2001Cash paid during the year for-Interest
    
    $
    3,192
    
    
    $
    2,340
    
    
    $
    17Foreign income taxes
    
    
    195
    
    
    
    70
    
    
    
    93
 Foreign Currency Translation.We have wholly owned subsidiaries based in the
U.K and Switzerland. The financial statements of these subsidiaries were
prepared in British pounds and Swiss francs, respectively, and translated to
U.S. dollars based on the current exchange rate at the end of the period for
the assets and liabilities and a monthly average rate for the period in the
statements of operations. Such translation adjustments are included in other
comprehensive income or loss. Gains or losses on foreign currency transactions
are included in interest income and other. Net Loss Per Share.Basic net loss per share was computed by dividing net loss
by the weighted average number of shares of common stock outstanding during the
year. Diluted net loss per share is equal to basic net loss per share, as the
effect of all common stock equivalents is antidilutive. Business Segments.SFAS No. 131 Disclosure about Segments of an Enterprise and
Related Information establishes standards for the way publicly traded business
enterprises report information about operating segments in annual financial
statements. SFAS No. 131 also establishes standards for related disclosures
about products, services, geographic areas and major customers. In February
2001, we announced our intent to transition out of the fee-for-service CRO
business, operated by ILEX Services, and focus our in-house drug development
capabilities on our own proprietary products, including those being jointly
developed with partners. As a result of our transition out of the
fee-for-service CRO business, and subsequent transition of certain ILEX
Services employees to our own products, we no longer operate in two distinct
segments. Accounting Pronouncements.In January 2003, the Financial Accounting Standards
Board (FASB) issued interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entitiesand in December 2003 the FASB issued a revised
interpretation (FIN 46R). FIN 46 and FIN 46R address the accounting for, and
disclosure of , investments in variable interest entities and require that the
assets, liabilities and results of the activity of variable interest entities
be consolidated into the financial statements of the company that has a
controlling financial interest. FIN 46 and FIN 46R provide a framework for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support. We have evaluated FIN 46 and
FIN 46R and determined that we do not have any variable interest entities
requiring consolidation. 3. INVESTMENTS IN MARKETABLE SECURITIES Securities held-to-maturity at December 31, 2003 are carried at book value
and are summarized as follows: Gross Unrealized
    
    Gross UnrealizedBook Value
    
    Gains
    
    Losses
    
    Fair ValueGovernment/Agency securities:One year or less
    
    $
    28,312
    
    
    $
    2
    
    
    $
    (3
    )
    
    $
    28,311> 1 year and less than 2 years
    
    
    42,710
    
    
    
    25
    
    
    
    (8
    )
    
    
    42,727Corporate securities:One year or less
    
    
    46,584
    
    
    
    130
    
    
    
    (70
    )
    
    
    46,644> 1 year and less than 2 years
    
    
    13,499
    
    
    
    
    
    
    
    (19
    )
    
    
    13,480Total securities held-to-maturity at
December 31, 2003
    
    $
    131,105
    
    
    $
    157
    
    
    $
    (100
    )
    
    $
    131,162
 Included in investments in marketable securities on our consolidated balance
sheet as of December 31, 2003 are securities accounted for as trading
securities that are reflected at the December 31, 2003 current market value of
$895.0. These securities are recorded in connection with our EDCP (see Note
13). We recorded approximately $121.0 as unrealized gains on such securities
and this amount is included in interest income and other in our consolidated
statement of operations for the year ended December 31, 2003. We have also
recorded a corresponding expense of approximately $121.0 in our consolidated
statement of operations. F-14




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A Securities held-to-maturity at December 31, 2002 are summarized as follows: Gross Unrealized
    
    Gross UnrealizedBook Value
    
    Gains
    
    Losses
    
    Fair ValueAsset-backed securities:One year or less
    
    $
    26,093
    
    
    $
    291
    
    
    $
    
    
    
    $
    26,384Government/Agency securities:One year or less
    
    
    2,000
    
    
    
    41
    
    
    
    
    
    
    
    2,041> 1 year and less than 2 years
    
    
    8,000
    
    
    
    36
    
    
    
    
    
    
    
    8,036Municipal bonds:One year or less
    
    
    1,450
    
    
    
    4
    
    
    
    
    
    
    
    1,454Corporate securities:One year or less
    
    
    94,048
    
    
    
    762
    
    
    
    (59
    )
    
    
    94,751> 1 year and less than 2 years
    
    
    26,737
    
    
    
    440
    
    
    
    
    
    
    
    27,177Total securities held-to-maturity at
December 31, 2002
    
    $
    158,328
    
    
    $
    1,574
    
    
    $
    (59
    )
    
    $
    159,843
 During 2002, we received cash proceeds of approximately $8.2 million from the
sale of five securities, classified as held-to-maturity securities, prior to
their stated maturities resulting in a net gain of $14.8. The gain on the sale
of these investments is included in interest income and other, net on our
consolidated statement of operations for the year ended December 31, 2002. The
decision to sell these securities was based upon the decline in the securities
credit ratings. Due to that decline, the securities no longer conformed to our
investment policy. We did not sell any securities prior to their stated
maturities during 2003. We have no securities with maturity dates greater than
eighteen months. 4. ILEX PHARMACEUTICALS, L.P. In May 1997, we entered into a distribution agreement with LeukoSite, Inc., now
Millennium, for an equally owned joint venture, L&I Partners, L.P., for
research collaboration endeavors. In March 2000, the joint venture changed its
name to Millennium & ILEX Partners, L.P. We entered in to an agreement to
purchase Millenniums interest in the Partnership on October 29, 2001 and the
transaction was completed on December 31, 2001 (see Note 6). Accordingly, the
balance sheet of the Partnership has been consolidated as of December 31, 2001.
Prior to December 31, 2001, we accounted for our investment in the Partnership
using the equity method of accounting. In August 1999, the Partnership entered into a distribution agreement, which
granted Schering AG exclusive marketing and distribution rights to CAMPATH in
the U.S., Europe and the rest of the world except Japan and the Asian Pacific
Basin, where ILEX had retained rights. In accordance with the distribution
agreement, Schering AG advanced $30.0 million to the Partnership for these
rights and for the achievement of certain regulatory milestones. In January
2003, Schering AG obtained the marketing and distribution rights to CAMPATH in
Japan and the Asian Pacific Basin from us. The $30.0 million was initially recorded as a liability on the Partnerships
balance sheet described as Advances from Schering AG. In accordance with the
distribution agreement, and through the first quarter of 2003, the Partnership
recorded development revenues and reduced the advance balance for qualified
development expenses which it incurred. As of the first quarter of 2003, the
entire advance balance from Schering had been depleted. Schering AG continues
to fund a portion of the CAMPATH development costs and these proceeds are
recorded as product development revenue on our statement of operations. The following is summarized financial information for the Partnership before
its consolidation with us: Summarized Income Statement Information 2001Revenue
    
    $
    18,072Operating expenses
    
    
    11,414Operating income (loss)
    
    
    6,658Net income (loss)
    
    $
    6,188
 5. PROPERTY AND EQUIPMENT During 2003, we disposed of certain office furniture and equipment with a cost
of $386.6, and a net book value of approximately $51.4. During 2002, we
disposed of certain office furniture and equipment with a cost of $482.0 and a
net book value of approximately $128.0. Net loss for the year ended December
31, 2003, includes a loss of $38.0; net loss for the year ended F-15




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A December 31, 2002 includes a loss of $67.0 and net loss for the year ended
December 31, 2001 includes a loss of $173.0. These losses resulted from the
disposition of furniture and equipment and have been included in our operating
expenses. Depreciation expense for the year ended December 31, 2003 was $2.6
million; depreciation expense for the year ended December 31, 2002 was $2.6
million and depreciation expense for the year ended December 31, 2001 was $2.4
million. Property and equipment are composed of the following: December 31,2003
    
    2002Office equipment and furniture
    
    $
    8,806
    
    
    $
    8,455Lab equipment
    
    
    3,579
    
    
    
    3,145Leased equipment
    
    
    216
    
    
    
    216Leasehold improvements
    
    
    1,506
    
    
    
    1,27414,107
    
    
    
    13,090Accumulated depreciation and amortization
    
    
    (10,302
    )
    
    
    (7,950
    )Net property and equipment
    
    $
    3,805
    
    
    $
    5,140
 6. MERGERS AND ACQUISITIONS The Partnership As previously discussed, we closed our acquisition of Millenniums 50% equity
interest $40.0 million in the Partnership on December 31, 2001. The terms of
the agreement included an initial cash payment of $20.0 million and an
additional $120.0 million in scheduled payments. The first payment of $40.0
million was made in cash on December 31, 2002. In 2003, $30.0 million of the
$40.0 million scheduled payment was made in cash and $10.0 million of the
scheduled payment was made in our common stock. The remaining $40.0 million is
due in 2004, $10.0 million of which may again be paid with our common stock,
subject to certain terms and conditions and at our option. In 2004, $20.0
million of the $40.0 million annual payment is due 45 days after the end of the
calendar quarter in which net U.S. CAMPATH sales exceed a specified level. In
addition to the scheduled payments, Millennium will be entitled to royalty
payments based on net U.S. CAMPATH sales above specified levels beginning in
2005. At closing, we estimated the purchase price at $127.6 million based on
the net present value of the cash payments discounted at approximately 6.5%,
our estimated incremental borrowing rate. The purchase price was allocated to
the assets purchased and in-process research and development costs based upon
their respective fair values. The purchase price was allocated as follows: Completed technology asset
    
    $
    64,800Trademark
    
    
    2,800In-process research and development
    
    
    60,000Total purchase price
    
    $
    127,600
 The purchase price was arrived at through negotiations between Millennium and
us and was based on a variety of factors, including but not limited to the
prospect for commercializing certain of the assets of the Partnership. We recorded a completed technology asset in the amount of $64.8 million and a
trademark asset in the amount of $2.8 million. These intangible assets are
being amortized over 14 years. Additionally, in connection with the purchase,
we consolidated approximately $14.0 million of assets and liabilities of the
Partnership. Additionally, in connection with the purchase price allocation, $60.0 million
was expensed as a charge for the purchase of in-process research and
development. We allocated values to the in-process research and development
based on an independent appraisal of the research and development projects. The
income approach was utilized to develop values for our completed technology and
know-how, in-process research and development and trademark. In assessing the
qualification of the acquired assets as in-process research and development,
the developmental projects were evaluated in the context of SFAS No. 2 and SFAS
No. 86. The evaluation consisted of a specific review of the efforts, including
the overall objectives of the project, progress toward the objectives and the
uniqueness of the developments of these objectives. Further, each in-process research and development project was reviewed to
determine if technological feasibility had been achieved. The acquired
in-process research and development was confined to new products and
technologies under development that were intended to address emerging market
needs and requirements. No routine efforts to incrementally refine or enhance
existing products or production activities were included in the acquired
in-process research and development. It was determined that the in-process
technologies could only be used for specific and intended purposes. Due to the
specialized nature of the CAMPATH clinical trial programs, management
anticipated no alternative future value from these efforts if the projects were
not completed as planned. F-16




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A As of the acquisition date, we had initiated several research and development
programs including post-marketing CLL trials to obtain a first line treatment
label, as well as clinical studies related to potential new markets such as
NHL, MS and transplant indications. Projected revenues for in-process R&D cash
flows were based on forecasts provided by us and Schering AG management.
Revenues for non-CLL indications were estimated to begin anywhere from
2002-2004. Revenues were expected to peak in 2010-11 and decline thereafter.
Approximate market share ranges for the respective indications were:
CLL:10-24%; NHL:1-12%; MS: 1-20%; and transplant indications: 5-25%. Costs of
revenue and selling, general and administrative expenses were estimated as a
percentage of revenue. Research and development expense was segregated into (a)
maintenance R&D and (b) development or cost-to-complete R&D. Maintenance
research and development was provided as a part of managements forecast, which
was estimated at $500.0 for 2001 with annual increases of 5%. These expenses
were charged to the in-process R&D cash flows based on their respective share
of overall revenue. Development R&D expense was also projected by management
for each indication. For the purposes of the independent appraisal, only the economics related to
the lead indications for CAMPATH were considered. These indications are CLL,
NHL, MS and transplant indications. CLL represents approximately 37% of the in-process research and development
value and approximately 77% of the completed technology asset based on discount
rates of 25% for both in-process research and development and the completed
technology asset. CLL is characterized by the abnormal accumulation of a
specific type of leukocyte, eventually leading to bone marrow dysfunction and
enlargement of the lymph nodes, liver and spleen. Our current FDA approval is
for third-line treatment of CLL. Preliminary research indicates that it may be
effective as a second-line or even primary agent for the disease. Based on
managements forecast, the breakdown of CLL patient treatments approximates the
following: third-line treatments (15%), second-line treatments (35%) and
first-line treatments (50%). The approximate CLL market size in the U.S. was
estimated at over $300.0 million in 2001 and was expected to grow to nearly
$400.0 million in 2005. As of the date of the acquisition, the project was
expected to generate net cash inflows no sooner than 2003 and we expected to
spend an additional $19.0 million to complete the ongoing development related
to the in-process research and development. Additionally, as of the date of the
acquisition, we had not abandoned, nor had any plans to abandon the CAMPATH
clinical trial programs related to first-line CLL treatments. NHL represents approximately 43% of the in-process research and development
value and 23% of the completed technology asset based on discount rates of
27.5% and 25%, respectively. NHL is a term that describes a collection of
lymphomas, or malignant tumors that develop in the lymphatic system, with
different natural courses, responses to treatment and overall survival rates.
Based on management forecast data, the approximate market size in the U.S. was
estimated at over $1.3 billion in 2001 and at nearly $1.6 billion in 2005. As
of the date of the acquisition, the project was expected to generate net cash
inflows no sooner than 2005 and we expected to spend an additional $20.0 to
$22.0 million in research and development to complete ongoing development
related to the in-process research and development. As of the date of the
acquisition, we had not abandoned, nor had any plans to abandon proposed
CAMPATH clinical trial programs related to the NHL indication. MS represents approximately 17% of the in-process research and development
value based on a discount rate of 30%. MS is signified by multiple areas of
inflammation and scarring of the myelin in the brain and spinal cord. Myelin is
the tissue that covers and protects nerve fibers. When this occurs, nerve
communication is disrupted. The necessity for early treatment is becoming
increasingly clearer, as such treatment appears to delay disability, presumably
by decreasing the injury to the nervous system by MS. Based on management
forecast data, the approximate MS treatment market size in the U.S. was
estimated at over $650.0 million in 2001, increasing to over $750.0 million in
2005. As of the acquisition date, this project was expected to generate net
cash inflows no sooner than 2004 and we expected to spend an additional $17.0
million in research and development to complete ongoing development.
Additionally, as of the date of the acquisition, we had not abandoned, nor had
any plans to abandon proposed CAMPATH clinical trial programs related to the MS
indication. Transplant indications represented approximately 3% of the in-process research
and development value based on a discount rate of 40%. As of the acquisition
date, this project was expected to generate net cash inflows no sooner than
2003 and we expected to spend an additional amount of $100.0 to $300.0, to
complete ongoing development related to the in-process research and
development. Additionally, as of the date of the acquisition, we had not
abandoned, nor had any intentions to abandon proposed CAMPATH clinical trial
programs related to transplant indications. A charge was assessed against the oncology projects (CLL and NHL) in-process
research and development cash flows to reflect the leverage of clinical trial
experience gained during the development and approval process for our current
CAMPATH label. Based on a standard rate calculation and review of comparable
industry data, a core charge of 3% was utilized. Other charges decreasing the
in-process research and development cash flows included the following: (i)
Schering AGs profit share interest; (ii) return on working capital and fixed
assets and (iii) return on the trademark intangible asset. According to
industry analyst reports, pharmaceutical product life cycles are generally
segmented into three categories based on several characteristics: short
(product revenue peaks 5-7 years post-launch), medium (revenue peaks 8-10 years
post-launch), and long (revenue peaks 12-15 years post- F-17




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A launch). The analysis utilized a medium life cycle assessing the value of our
in-process research and development. Without successfully completing the
in-process research and development projects, we would be unable to realize
product revenue for additional indications. Our completed technology resides in our right to manufacture and market CAMPATH
specifically for patients with B-cell chronic lymphocytic leukemia who have
been treated with alkylating agents and have failed fludarabine therapy. The
current CAMPATH label is considered a third-line treatment for CLL. Since 1999
and through the date of the acquisition, we had spent over $18.0 million on
CAMPATH development efforts related to the approved indication. Projected
revenue for the completed technology cash flows were based on forecasts
provided by our management. The forecast for the U.S. market was a bottoms-up
approach beginning with the incidence of CLL. The forecast for the non-U.S.
market was provided to ILEX from Schering AG. Cost of revenue and selling,
general and administrative expenses were projected as a percentage of revenue.
These expenses were charged to the completed technology cash flows based on
their respective share of overall revenue. Other charges decreasing the
completed technology cash flows included: Schering AGs profit share interest,
return on working capital and fixed assets, and return on the trademark
intangible asset. The discount rate of 20% was used to reflect the lower level
of risk inherent in the approved CAMPATH label. The projected financial data
used in the analysis included only cash flows attributable to the acquired
Partnership assets. Our trademark value is attributable to CAMPATH and variations thereof,
including MABCAMPATH that is utilized in the European market. The analysis
utilized the relief from royalty method in determining the value of the CAMPATH
trademark. In applying this method, a hypothetical royalty expense is
calculated by applying a reasonable royalty rate to expected revenues.
Management anticipates using the CAMPATH trademark for oncology-related
indications. Non-oncology revenue streams will likely have different branding
and marketing. The trademark analysis considered only the CLL and NHL projected
revenues as a base for the royalty calculation. The analysis considered several
different royalty rate indications in estimating a royalty rate that reflected
the CAMPATH brands relative characteristics. In addition, an industry accepted
general rule for assessing intangible value was considered. This rule indicates
that 25% of operating income is an appropriate royalty rate for key
intellectual property. After consideration of each indication, a pre-tax
royalty of 1% was selected for the trademark analysis. A discount rate similar
to that of the overall Company was considered appropriate for this analysis. As of December 31, 2003, we had no plans to abandon any of the projects
associated with the above indications. We believe that the foregoing
assumptions used in the purchase price allocation were reasonable at the time
of acquisition. No assurance can be given, however, that the underlying
assumptions used to estimate revenue, development costs or profitability or the
events associated with such projects will transpire as estimated. For these
reasons, actual results may vary from projected results. The most significant
and uncertain assumptions relating to the in-process projects relate to the
projected timing of completion and revenues attributable to each project. Symphar On February 13, 2001, we acquired Symphar, a research firm located in Geneva,
Switzerland. The acquisition has been accounted for using the purchase method
of accounting. Under the terms of the agreement, we acquired Symphar for
approximately $28.9 million, which included cash of $15.0 million and 521,121
shares of our common stock. The value of the common stock issued in connection
with this merger was calculated using a fair value of $26.6875 per share. This
per share fair value represents the closing price of our common stock on the
day the merger was announced. The Symphar purchase price was allocated to the assets purchased, liabilities
assumed, goodwill and in-process research and development expense based upon
their respective fair values as follows: Current assets
    
    $
    2,744Property and equipment
    
    
    215Goodwill
    
    
    300Current liabilities
    
    
    (464
    )In-process research and development
    
    
    26,112Total purchase price
    
    $
    28,907
 The cash portion of the purchase price came from our working capital. The
amount paid by us was arrived at through negotiations between the shareholders
of Symphar and us and was based on a variety of factors, including but not
limited to, the prospect for commercializing certain of the assets of Symphar
and the nature of the research-based pharmaceutical industry. The entity now
operates under the name ILEX Oncology Research Sarl (Research Sarl). F-18




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A Of the $15.0 million cash payment, we placed $4.5 million in escrow as a
reserve for possible indemnification against certain future claims. As of
December 31, 2002, the entire $4.5 million had been released from escrow.
Additionally, under the terms of the agreement, $5.0 million of the purchase
price was held as a contingent payment. The additional contingent payment was
earned in December 2001 and, accordingly, we recorded an additional $5.0
million in-process research and development expense, which is included in the
total purchase price of approximately $28.9 million. The agreement also
specified that, subject to the viability of performance, we agreed to fund a
minimum operating and capital budget between $4.0 to $5.0 million annually for
each of the three years following the acquisition. We recorded goodwill in the amount of $300.0 related to an assembled work
force. This asset was amortized throughout 2001 based on an estimated useful
life of three years. In accordance with SFAS No. 142, we ceased amortization on
January 1, 2002 and, as a result of a review of the goodwill as of September
30, 2003, we recorded an impairment charge of $213.0 due to recent research
focus changes and personnel changes. In accordance with purchase accounting, we
have included the results of operations for Research Sarl from the date of
acquisition. In connection with the purchase price allocation, $26.1 million was expensed as
a charge for the purchase of in-process research and development. We allocated
values to the in-process research and development based on an independent
appraisal of the research and development projects. The income approach was the
primary technique utilized in valuing the purchased research and development
projects. The value assigned was limited to significant research projects for
which technological feasibility had not been established, including
development, testing and regulatory activities associated with the introduction
of Research Sarls projected product launches. The value assigned to purchased
in-process technology was determined by estimating the costs to develop the
purchased in-process technology into commercially viable products, estimating
the resulting net cash flows from the projects and discounting the net cash
flows to their present value. Due to the complexity of the acquired research
and development, the technologies under development could, once completed, only
be economically used for their specific and intended purposes in the targeted
disease segments. If we were to fail in our efforts to commercialize these
developmental drug candidates, no alternative economic value is envisioned. The
assembled work force was valued using the cost approach. Under this approach,
the work force is valued by calculating the savings realized by us through
obtaining a pre-existing, trained and fully efficient operations and
administrative team rather than incurring the costs to assemble and train an
equivalent workforce. The independent appraisal also considered the fact that the existing know-how
diminishes in value over time as new technologies are completed and changes in
market conditions render current products and methodologies obsolete. The
assumptions underlying the cash flow projections used were derived primarily
from investment banking reports, historical results, company records and
discussions with management. The revenue projection used to value the in-process research and development
was based on estimates of relevant market sizes and growth factors, expected
trends in technology and the nature and expected timing of new product
introductions by us and competitors. Future royalty revenue estimates were
aggregated for the APOMINE cancer indications and Lp(a) inhibitor based on
managements estimate of the following: (i) addressable number of patients in
the U.S. market, (ii) market penetration, (iii) average sales price, (iv)
estimate of remaining worldwide market and (v) the Companys projected royalty
rate received from its partner. The discount rate selected for the in-process
technology was 30% for both APOMINE and Lp(a). Due to the aggressive nature of
managements forecast and the high level of risk associated with the Company
achieving the projected cash flows, the discount rate was calculated using
venture capital-type rates of return. The rate was determined based on analysis
of three venture capital studies utilizing rates appropriate to start-up type
companies. For the purposes of the independent appraisal, only the economics related to
Research Sarls lead drug candidates, APOMINE and Lp(a) were considered. It was
determined that forecasting cash flows for Research Sarls other developmental
projects was not feasible at the time of acquisition due to their early stage
of development. At the time of acquisition, management estimated that
approximately $14.0 million to $15.0 million had been spent on APOMINE and
Lp(a), and an additional $17.0 million to $20.0 million was expected to be
incurred to complete clinical testing and gain marketing approval. APOMINE, targeted at oncology as well as osteoporosis, represented
approximately 45% of the in-process research and development value. As of the
date of the acquisition, the project was expected to be completed and
commercially available in the U.S. no sooner than 2007 for its first cancer
indication. Management believes that we may be able to license APOMINE and
related compounds to a pharmaceutical company or marketing partner for the
osteoporosis indication upon acquisition of the necessary clinical data in
2005. Accordingly, as of December 31, 2003, we continue to pursue and invest
resources in the clinical development of APOMINE for osteoporosis, however we
have determined that we will no longer pursue our development of APOMINE in
cancer. Lp(a), an inhibitor that may lead to a reduction in coronary heart disease,
represented approximately 55% of the in-process research and development value.
As of the date of the acquisition, the Lp(a) project was expected to be
completed and F-19




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A commercially available in the U.S. no sooner than 2007, with an estimated cost
to complete of approximately $5.0 million to $6.0 million. In the second
quarter of 2003, we signed an agreement with QuatRx Pharmaceuticals, Co.
granting them an exclusive worldwide license to certain cardiovascular research
platforms associated with Lp(a) (see Note 11). We believe that the foregoing assumptions used in the purchase price allocation
were reasonable at the time of the acquisition. No assurance can be given,
however, that the underlying assumptions used to estimate revenue, development
costs or profitability or the events associated with such projects will
transpire as estimated. For these reasons, actual results may vary from
projected results. The most significant and uncertain assumptions relating to
the in-process projects relate to the projected timing of completion and
revenues attributable to each project. The following table reflects unaudited pro forma combined results of operations
of ILEX and Research Sarl, as if the acquisition had occurred on January 1,
2001. Included in pro forma results is amortization of the goodwill of $100.0
for the year ended December 31, 2001. Also included in the pro forma results is
$26.1 million recorded as in-process research and development for the year
ended December 31, 2001. Such pro forma information is presented for
informational purposes only and is not necessarily indicative of the
consolidated results that would have been achieved had the acquisition actually
been consummated at January 1, 2001. Year EndedDecember 31,2001Total revenue
    
    $
    29,567Net loss
    
    
    (120,967
    )Basic and diluted net loss per share
    
    $
    (4.47
    )
 7. SETTLEMENT CHARGE In April 2003, our subsidiary, ILEX Services settled a dispute with a former
contract research organization (CRO) customer. As a result of this settlement,
ILEX Services paid the former CRO customer $20.0 million in the second quarter
of 2003. We recorded a settlement charge in the first quarter of 2003 of $16.5
million, which is net of insurance reimbursement of $3.5 million, related to
the settlement of this dispute. 8. STOCKHOLDERS EQUITY On August 4, 2003, we completed an underwritten public offering of our common
stock, pursuant to which we sold 5.5 million shares. In addition, the Cancer
Therapy and Research Center Endowment, an ILEX shareholder, offered and sold
500,000 shares of our common stock. Proceeds, net of costs to us, from this
offering were approximately $87.4 million. The net proceeds from this offering
will be used to fund clinical trials of our lead product candidates; for
clinical and preclinical studies for our other product candidates; for
potential licenses and acquisitions of other businesses or complementary
products and technologies; and for working capital, capital expenditures and
other general corporate purposes. In March 2003, we granted 150,000 shares of restricted stock to one of our
officers. In accordance with the restricted stock agreement, 50,000 shares
vested immediately and the remaining 100,000 shares vest at a rate of 33% per
year over the following three years. The fair market value of the restricted
stock on the grant date was approximately $1.1 million. As of December 31,
2003, approximately $697.0 has been recognized as compensation expense in our
consolidated statement of operations and the remaining $359.0 is included in
deferred compensation in our consolidated balance sheet. In November 2001, we completed an underwritten public offering of our common
stock pursuant to which we sold 5.75 million shares. The number of shares sold
included the underwriters exercise of their overallotment option. Proceeds,
net of offering costs, to us from this offering were approximately $128.9
million, which includes the reissuance of our 39,000 treasury shares. On March 30, 2001, our Board of Directors declared a dividend of one Preferred
Share purchase right (Right) for each outstanding share of our common stock,
par value $.01 per share (the Common Shares), and authorized the issuance of
one Right for each Common Share which shall become outstanding between April
20, 2001, the Record Date and the earlier of the Distribution Date (as defined
in the Rights Agreement (Rights Agreement), filed with the Securities and
Exchange Commission as an exhibit to a Current Report on Form 8-K dated April
1, 2001, and the first amendment to the Rights Agreement filed herewith) or the
final expiration date of the Rights. The dividend was payable on, April 20,
2001, to the stockholders of record on that date. Each Right entitles the
registered holder to purchase from us one one-thousandth interest in one share
of our Series I Preferred Stock, par value $.01 per share (the Preferred
Shares), at a price of $120 per one one-thousandth interest in a Preferred
Share (the Purchase Price), subject to adjustment. The Rights will become
exercisable ten days after (i) an Acquiring Person accumulates beneficial
ownership F-20




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A of 20% or more of our common stock or (ii) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in an Acquiring Person accumulating 20% or
more of the common stock. In the event that we are, in effect, acquired by an
Acquiring Person in a merger or other business combination transaction or 50%
or more of our consolidated assets or earning power is sold to an Acquiring
Person, proper provision will be made so that each holder of a Right will
thereafter generally have the right to receive, upon the exercise thereof at
the then current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have
a market value of two times the then current Purchase Price of the Right. The
description and terms of the Rights are set forth in a Rights Agreement between
us and American Stock Transfer & Trust Co., as Rights Agent. The plan was not
adopted in response to any unsolicited offer or takeover attempt. 9. STOCK OPTIONS AND STOCK PURCHASE WARRANTS SFAS No. 123, Accounting for Stock-Based Compensation defines a fair value
based method of accounting for employee stock options or similar equity
instruments and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. Under the fair value based
method, compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period of the award, which is
usually the vesting period. However, SFAS No. 123 also allows entities to
continue to measure compensation costs for employee stock compensation plans
using the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). We have adopted SFAS No. 123 and have elected to remain with the
accounting prescribed by APB 25. We have made the required disclosures
prescribed by SFAS No. 123. During 2001, we adopted the 2001 UK Stock Option Plan (the UK Plan). Under the
UK Plan, stock options may be granted to our key employees and directors. The
UK Plan is part of the 2000 Employee Stock Compensation Plan (2000 Plan).
Shares granted under the UK Plan are granted from the total shares available
for grant under the 2000 Plan. Stock options vest pursuant to the individual
stock option agreements, usually 25% per year beginning one year from the date
of grant, with unexercised options expiring ten years from the date of grant.
Pursuant to the UK Plan, as of December 31, 2003, options allowing the purchase
of 7,400 shares have been granted; options covering 5,280 shares have been
forfeited and all options remain unexercised. During 1995, we adopted a stock option plan (the 1995 Plan). Under the 1995
Plan, stock options may be granted to our key employees and consultants as
approved by a committee of our board of directors. Originally, we had reserved
1,141,807 shares of common stock for issuance in accordance with the 1995 Plan.
In May 1998, our shareholders approved an increase in the number of authorized
shares of common stock reserved for issuance under the 1995 Plan to 1.8
million. Stock options vest pursuant to the individual stock option agreements,
usually 25% per year beginning one year from the date of grant, with
unexercised options expiring ten years from the date of grant. As of December
31, 2003, 5,705 shares were available for grant under the 1995 Plan. In October 1996, we adopted a nonemployee directors stock option plan (the
1996 Plan). The total number of options that may be granted under the 1996 Plan
is 225,000. Under the 1996 Plan, each nonemployee director is granted an option
for up to 17,500 shares of common stock upon appointment to the board. As of
December 31, 2003, nonemployee directors had been granted a total of 154,896
options upon appointment to the board which vest at 1/48 per month.
Additionally, each nonemployee director is eligible, based on their
participation in meetings of the board of directors and committees thereof, to
receive up to 6,000 stock options annually, which are fully vested at the time
of grant. As of December 31, 2003, nonemployee directors had been granted
81,000 of these options for participation. All options issued under the 1996
Plan expire ten years from the date of grant unless the nonemployee director
resigns or is not reelected. Currently, options are granted to directors under
the 2000 Plan. Our directors have been granted a total of 131,576 options under
the 2000 Plan. As of December 31, 2003, 17,768 shares were available for grant
under the 1996 Plan. In May 2000, shareholders approved a proposal to ratify the adoption of the
2000 Plan. The 2000 Plan authorizes a committee of the Board of Directors to
issue options intended to qualify as incentive stock options (ISOs) as
defined in Section 422 of the Internal Revenue Code of 1986 (the Code), stock
options that are not intended to conform to the requirements of Section 422 of
the Code (Non-ISOs), and restricted stock awards. Originally, we had reserved
3.0 million shares of common stock for issuance under the 2000 Plan. In 2002,
we increased the authorized number of shares of common stock reserved for
issuance under the 2000 Plan to 3.25 million, and in January 2003, the
authorized number of shares was increased to 4.25 million. Stock options vest
pursuant to the individual stock option agreements, usually 25% per year
beginning one year from the date of grant, with unexercised options expiring
ten years from the date of grant. As of December 31, 2003, 913,066 shares were
available for grant under the 2000 Plan. In connection with a prior private placement of convertible preferred stock, we
issued 355,913 warrants for the purchase of common stock at approximately $8.76
per share. As a result of an additional private placement in July 1999, the
exercise price of F-21




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A the warrants was adjusted to $8.71. In July 2001, all outstanding warrants
associated with this prior private placement were exercised. A summary of the status of our fixed stock option plans for the years ended
December 31, 2003, 2002 and 2001, and changes during these years on those dates
is presented below: December 31, 2003
    
    December 31, 2002
    
    December 31, 2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding,
beginning of year
    
    
    3,863,312
    
    
    $
    18.17
    
    
    
    3,153,343
    
    
    $
    22.99
    
    
    
    2,476,424
    
    
    $
    21.72Granted
    
    
    1,249,686
    
    
    
    17.47
    
    
    
    1,459,416
    
    
    
    9.37
    
    
    
    1,208,100
    
    
    
    24.91Exercised
    
    
    (230,067
    )
    
    
    8.32
    
    
    
    (199,485
    )
    
    
    7.83
    
    
    
    (212,772
    )
    
    
    11.09Forfeited
    
    
    (870,061
    )
    
    
    21.36
    
    
    
    (549,962
    )
    
    
    26.24
    
    
    
    (318,409
    )
    
    
    28.27Outstanding, end of
year
    
    
    4,012,870
    
    
    $
    17.94
    
    
    
    3,863,312
    
    
    $
    18.17
    
    
    
    3,153,343
    
    
    $
    22.99Options exercisable
at end of year
    
    
    1,457,442
    
    
    $
    20.71
    
    
    
    1,387,432
    
    
    $
    21.19
    
    
    
    1,111,908
    
    
    $
    18.24Weighted average
fair value of
options granted
during the year
    
    
    
    
    
    $
    9.99
    
    
    
    
    
    
    $
    5.67
    
    
    
    
    
    
    $
    14.96
 The following table summarizes the information about fixed stock options
outstanding at December 31, 2003: Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    NumberAverage
    
    Weighted
    
    Exercisable
    
    WeightedRemaining
    
    Average
    
    at
    
    AverageNumber
    
    Contractual
    
    Exercise
    
    December 31,
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life
    
    Price
    
    2003
    
    Price$3.50
    
    
    30,496
    
    
    
    1.8
    
    
    $
    3.50
    
    
    
    30,496
    
    
    $
    3.50$5.78 - $8.63
    
    
    1,088,157
    
    
    
    8.3
    
    
    
    6.88
    
    
    
    230,757
    
    
    
    6.97$9.44 - $13.79
    
    
    224,579
    
    
    
    6.8
    
    
    
    11.15
    
    
    
    164,079
    
    
    
    11.11$14.75 - $21.49
    
    
    1,326,984
    
    
    
    9.2
    
    
    
    18.98
    
    
    
    206,748
    
    
    
    17.84$22.73 - $34.06
    
    
    1,281,070
    
    
    
    7.4
    
    
    
    26.72
    
    
    
    779,177
    
    
    
    27.08$36.25 - $50.00
    
    
    61,584
    
    
    
    6.3
    
    
    
    40.11
    
    
    
    46,185
    
    
    
    40.11$3.50 - $50.00
    
    
    4,012,870
    
    
    
    8.1
    
    
    $
    17.94
    
    
    
    1,457,442
    
    
    $
    20.71
 Had compensation cost for our stock-based employee compensation plans been
determined based upon a fair value method consistent with SFAS No. 123, our net
loss and loss per share would have been increased to the pro forma amounts
indicated below: Years Ended December 31,2003
    
    2002
    
    2001Net loss
    
    As reported
    
    $
    (62,114
    )
    
    $
    (46,156
    )
    
    $
    (120,954
    )Fair value compensation cost
    
    
    (8,921
    )
    
    
    (8,168
    )
    
    
    (8,024
    )Stock grant compensation cost
included in reported loss
    
    
    697
    
    
    
    
    
    
    
    Pro forma
    
    $
    (70,338
    )
    
    $
    (54,324
    )
    
    $
    (128,978
    )Loss per share basic and diluted
    
    As reported
    
    $
    (1.76
    )
    
    $
    (1.42
    )
    
    $
    (4.48
    )Fair value compensation cost
    
    
    (0.25
    )
    
    
    (0.25
    )
    
    
    (0.30
    )Stock grant compensation cost included in reported loss
    
    
    0.02
    
    
    
    
    
    
    
    Pro forma
    
    $
    (1.99
    )
    
    $
    (1.67
    )
    
    $
    (4.78
    )
 For options granted in 2003, 2002 and 2001, the fair value of each option grant
was estimated on the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions: dividend yield of 0% for
all years; expected volatility of 77.3% in 2003, 80.0% in 2002 and 78.4% in
2001: risk free interest rate of 2.7% in 2003, 3.2% in 2002 and 4.0% in 2001.
The expected life of the options granted for 2003, 2002 and 2001 is 4.0 years. F-22




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A 10. RELATED-PARTY TRANSACTIONS CTRC Research Foundation, one of our stockholders, performs certain research
services for us. These services are provided at fair value. As described in
Note 14, we have a lease agreement with CTRC Research Foundation Building
Corporation, a joint venture comprised of CTRC Research Foundation and the
Texas Research Park Foundation, for the cGMP facility. Additionally, two
members of our Board of Directors are on the Board of Directors of CTRC. U.S. Oncology, Inc. provides clinical trial patients for trials conducted by us
on our own proprietary product pipeline and, in the past, on behalf of our CRO
sponsors. A member of our Board of Directors was the Executive Vice President,
Clinical Affairs at U.S. Oncology through January 1, 2004 and currently serves
as a policy advisor to U.S. Oncology. In May 2001, we entered into an agreement with the Arizona Board of Regents for
the University of Arizona for pancreatic cancer research. As of December 31,
2002, all amounts related to this research agreement had been expensed.
Additional amounts paid to the University of Arizona relate to payments to
investigators. A member of our Board of Directors is currently the Director of
the Arizona Health Science Centers Cancer Therapeutics Program and Professor
of Medicine at the University of Arizona Health Science Center in Tucson. In July 1997, we entered into a consulting agreement with Dr. Von Hoff, which
expired on December 31, 2002 and a new agreement was entered into in January
2003, which expires on December 31, 2004. Under the terms of the agreement, we
will pay Dr. Von Hoff an annual fee of $275.0 for services provided in
accordance with the agreement and reimbursement of out-of-pocket expenses
incurred in connection with the services provided. The related party subcontractors provide us with consulting services and
preclinical and clinical testing related to certain of our contracts. Such
costs may be included in either research and developments costs or direct costs
of research services in the accompanying consolidated financial statements. For the years ended December 31, 2003, 2002 and 2001, we incurred the following
related party expenses: Years Ended December 31,2003
    
    2002
    
    2001CTRC Research Foundation
    
    $
    350
    
    
    $
    504
    
    
    $
    159CTRC Research Foundation Building Corporation
    
    
    240
    
    
    
    240
    
    
    
    231Director of the Company
    
    
    280
    
    
    
    342
    
    
    
    403Stockholders
    
    
    
    
    
    
    
    
    
    
    291US Oncology
    
    
    758
    
    
    
    512
    
    
    
    (82
    )University of Arizona
    
    
    87
    
    
    
    856
    
    
    
    485$
    1,715
    
    
    $
    2,454
    
    
    $
    1,487
 At December 31, 2003 and 2002, the following subcontractor costs were payable
to related parties: December 31,2003
    
    2002CTRC Research Foundation
    
    $
    152
    
    
    $
    156University of Arizona
    
    
    21
    
    
    
    206US Oncology
    
    
    391
    
    
    
    93$
    564
    
    
    $
    455
 During 2001, we performed contract research services on behalf of the
Partnership at our standard billing rates. For the year ended December 31,
2001, we recorded associated revenues in the amount of $3.9 million. Subsequent
to the purchase of Millenniums interest in the Partnership, these services are
intercompany revenues which are eliminated. 11. LICENSING AGREEMENTS In December 2003 and in connection with our co-development agreement, we paid
Bioenvision $3.5 million, which was expensed, for the exclusive U.S. and
Canadian sublicense for clofarabine in oncology. Under the terms of the
agreement, an additional $4.0 million, payable in two payments, is owed upon
completing the submission of the New Drug Application (NDA) which has not yet
occurred. As a result, the $4.0 million has not been recorded as of December
31, 2003. F-23




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A In May 2003, we signed an agreement with QuatRx which granted them an
exclusive, worldwide license to certain lipid-focused research platforms. In
connection therewith, we received a payment of $2.5 million, which was
recognized as revenue in the third quarter of 2003, as the associated
technology transfer was completed during that period. We may also receive
payments upon the completion of certain milestones and royalties based on net
sales of a product developed from these research platforms. On April 19, 2002, we entered into a collaboration agreement with Abgenix, Inc.
(Abgenix) to identify and develop fully human monoclonal antibody candidates to
the MUC1 protein, a dominant oncogene significantly overexpressed on a wide
range of solid tumors. Abgenix will grant ILEX an exclusive license to
commercialize products comprising one or more antibodies derived from this
program. Under this agreement, we paid Abgenix $100.0 for a technology access
fee. Additionally, we may be required to make future payments in accordance
with the agreement if certain milestones are met. On December 19, 2001, we entered into an agreement with Paralex, Inc. (Paralex)
whereby we have granted to Paralex an exclusive license to all of ILEXs rights
to oxypurinol under an original license agreement between ILEX, GlaxoSmithKline
(GSK), and The Wellcome Foundation (TWF) for the treatment of symptomatic
hyperuricemia (gout) in patients who are intolerant of allopurinol. In 2002,
Paralex was purchased by Cardiome Pharma Corporation (Cardiome). Under the
agreement, ILEX granted Paralex, now Cardiome, an exclusive license to develop
and commercialize oxypurinol in all fields under data and technology owned by
us, subject only to the terms of the original license agreement with GSK and
TWF. Cardiome exercised its option to acquire ownership of the clinical trial
data package derived from the Phase II clinical study for the treatment of gout
patients who are intolerant to allopurinol. In the event oxypurinol is
commercialized, we will receive a milestone payment and a royalty from sales of
oxypurinol. Additionally, Cardiome is committed to purchasing a certain level
of supplies from us by year-end 2004. In July 2001, we entered into an agreement with the Dana-Farber Cancer
Institute at Harvard Medical School (DFCI) for an exclusive, worldwide license
for patent rights and technology relating to the MUC1 protein. The agreement
requires us to pay approximately $200.0 in past patent expenses and up to $1.0
million in license fees. As of December 31, 2003, we expensed the entire $1.2
million in license fees and past patent expenses in accordance with the
agreement. We may be required to make future payments in accordance with the
agreement if certain drug development milestones are met. In July 2000, we entered into an agreement with Knoll AG (Abbott Laboratories)
for an exclusive, worldwide license of ILX-651, a synthetic pentapeptide analog
of dolastatin. As of December 31, 2003, we had paid $16.1 million in license
fees. These fees have all been expensed. We may be required to pay future
license maintenance fees in either cash or unrestricted stock in accordance
with the agreement if certain drug development and time-based milestones are
met. 12. DEVELOPMENT AND DISTRIBUTION AGREEMENT In January 2003, Schering AG obtained from us the exclusive development,
marketing and distribution rights to CAMPATH in Japan, China and the Asian
Pacific Basin. We received an upfront payment and incurred an associated fee of
50% of such payment to the licensor, both of which are being recognized over
the life of the patent in that region. We may also receive payments upon
completion of certain milestones and a royalty based on net sales of CAMPATH in
those areas. 13. EMPLOYEE BENEFITS We have an employee benefit plan and trust for certain employees who meet
specified length of service requirements. The plan qualifies under Section
401(k) of the Internal Revenue Code as a salary reduction plan. In January
2003, we increased the amount that employees may elect to contribute to a
maximum of 25% of their salaries on a before-tax basis. Prior to 2003,
employees were allowed to contribute up to 15% of their salaries on a
before-tax basis. The plan is a defined contribution plan with employer
contributions made solely at the discretion of the board of directors. For the
years ended December 31, 2003, 2002 and 2001, administrative expenses incurred
by us related to this plan were not significant. In January 2000, we elected to
begin making contributions of up to 3% of an employees salary. Our
contributions to the plan were $360.0 for the year ended December 31, 2003,
$397.7 for the year ended December 31, 2002 and $418.0 for the year ended
December 31, 2001. Employees are immediately fully vested in their
contributions and begin vesting in employer contributions after one year of
service, as defined in the plan document. We do not provide postretirement
benefits or postemployment benefits to our employees. In 2001, we adopted the EDCP, which became effective in 2002. The EDCP is a
nonqualified deferred compensation plan available to a select group of our
officers and other key employees. Participants in the EDCP are able to defer
current federal income taxes on an unlimited amount of compensation. We match
50% of the first 6% of each participants contribution. Our contribution to the
EDCP was $94.8 for the year ended December 31, 2003 and $80.0 for the year
ended December 31, 2002. Assets associated with the EDCP of $895.0 are
accounted for as trading securities and are included in investments in
securities on F-24




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A our consolidated balance sheet. We have also recognized a liability of $895.0
related to the EDCP which is included in accrued liabilities on our
consolidated balance sheet. The EDCP is unfunded for tax purposes and for
purposes of Title I of ERISA. Participation in the EDCP constitutes a promise
by ILEX to make payments in accordance with the terms of the EDCP, and
Participants and beneficiaries shall have the status of general unsecured
creditors. 14. LEASES We have several noncancelable operating leases for office space, equipment and
the cGMP facility. Rent expense associated with these leases was approximately
$2.8 million for the year ended December 31, 2003, $3.9 million for the year
ended December 31, 2002 and $4.0 million for the year ended December 31, 2001.
One of the leases is with CTRC Research Foundation Building Corporation, a
related party (see Note 10). At December 31, 2003, future minimum lease payments under all leases are as
follows: Related Party
    
    Other
    
    TotalYears ending December 31,2004
    
    $
    240
    
    
    $
    2,328
    
    
    $
    2,5682005
    
    
    240
    
    
    
    2,053
    
    
    
    2,2932006
    
    
    240
    
    
    
    2,032
    
    
    
    2,2722007
    
    
    240
    
    
    
    1,667
    
    
    
    1,9072008
    
    
    240
    
    
    
    1,363
    
    
    
    1,603Thereafter
    
    
    480
    
    
    
    521
    
    
    
    1,001Total
    
    $
    1,680
    
    
    $
    9,964
    
    
    $
    11,644
 In July 2000, we entered into an agreement to lease our current corporate
headquarters. The commencement date of the operating lease was October 20,
2000, with a lease term of eight years. Future minimum lease payments under
this lease agreement are between $941.0 and $1.3 million per year through
October 31, 2008. We account for these lease payments under the straight-line
method. The lease required a deposit of approximately $140.0, which was
recorded as other non-current assets. Additionally, in connection with the
lease, we maintain a letter of credit, with the lessor as beneficiary, in the
amount of $1.9 million. The letter of credit is 105% collateralized with $2.0
million in restricted cash. In 2000, we entered into capital lease agreements which expired by the end of
2003. Amortization expense was $59.0, for the year ended December 31, 2003,
$106.0 for the year ended December 31, 2002 and $105.0 for the year ended
December 31, 2001. Interest expense was $1.0 for the year ended December 31,
2003, $10.0 for the year ended December 31, 2002 and $13.0 for the year ended
December 31, 2001. During 1995, we entered into the previously discussed related party lease
agreement. The leased cGMP facility is owned by a non-profit corporation
controlled by CTRC Research and the Texas Research Park Foundation. These two
organizations obtained a grant to build the facility from the Economic
Development Administration (EDA). The cGMP facility allows for the
manufacturing of oncology drugs. Currently, the facility is being used for
manufacturing support activities. Under the terms of the lease agreement, which
expires in 2010 and includes three additional five-year extension options, we
are required to make monthly payments, which commenced in 1998. The payments
are based on a fixed monthly rate plus a percentage of gross sales, as defined
in the agreement. This facility has produced no product sales subject to such
payments. In the event that there is an early termination of the lease or a
non-conforming use, there is a risk that we may be required to repay a portion
of the EDA grant. 15. INCOME TAXES As of December 31, 2003, we had net operating loss (NOL) carryforwards of
approximately $235.0 million for U.S. federal income tax purposes, which are
available to reduce future taxable income and which will expire in 2010 through
2023. As of December 31, 2003, we had federal research and development credit
carryforwards of $5.6 million that will expire in 2011 through 2023. Included
below in other tax differences, net is a gross capital loss carryforward of
$2.2 million, which will expire in 2004 if not utilized against capital gains. In addition, as of December 31, 2003, we had Swiss NOLs of approximately $1.1
million and U.K. NOLs of approximately $0.8 million. The tax effects of
significant temporary differences representing deferred income tax assets and
liabilities are as follows as of December 31, 2003 and 2002: F-25




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A December 31,2003
    
    2002Net operating loss carryforward
    
    $
    82,716
    
    
    $
    59,899Carrying value of technology
    
    
    20,621
    
    
    
    19,708Expense provisions
    
    
    474
    
    
    
    438Federal research and development credit carryforwards
    
    
    5,611
    
    
    
    4,811Other tax differences, net
    
    
    703
    
    
    
    733Valuation allowance
    
    
    (110,125
    )
    
    
    (85,589
    )Total deferred income tax assets
    
    $
    
    
    
    $
    
 The valuation allowance as of December 31, 2003 and 2002 provides a reserve
against the above deferred tax assets, which were not realizable at the above
dates. The availability of the NOL and credit carryforwards to reduce U.S. federal
taxable income is subject to various limitations under Section 382 of the
Internal Revenue Code of 1986, as amended, in the event of a change in
ownership. Such an ownership change occurred in 1999. However, we believe that
the limitations will not significantly impact the ability to utilize the NOL
and tax credit carryforwards before their expiration periods. Our loss before income taxes for financial reporting purposes consists of the
following: Years Ended December 31,2003
    
    2002
    
    2001Domestic
    
    $
    (60,730
    )
    
    $
    (48,017
    )
    
    $
    (91,873
    )Foreign
    
    
    (1,360
    )
    
    
    2,150
    
    
    
    (29,059
    )Loss before income taxes
    
    $
    (62,090
    )
    
    $
    (45,867
    )
    
    $
    (120,932
    )
 Our tax provision of $24.0 at December 31, 2003, $289.0 at December 31, 2002
and $22.0 at December 31, 2001, relates primarily to current taxes on foreign
operations. We have not provided any U.S. deferred income taxes on the
undistributed earnings of our foreign subsidiaries based on the determination
that such earnings will be indefinitely reinvested. Income tax expense attributable to income from continuing operations differed
from the amounts computed by applying the statutory tax rate of 35% to pre-tax
loss from continuing operations as a result of the following: Years Ended December 31,2003
    
    2002
    
    2001Computed expected tax expense
    
    $
    (21,731
    )
    
    $
    (16,053
    )
    
    $
    (42,327
    )Write-off of in-process research
and development for book purposes
    
    
    
    
    
    
    
    
    
    
    9,136Other permanent items
    
    
    (1,278
    )
    
    
    (127
    )
    
    

    86Change in valuation allowance
    
    
    24,536
    
    
    
    19,735
    
    
    
    32,271Research and development credit
    
    
    (800
    )
    
    
    (2,237
    )
    
    
    (1,208
    )Foreign income (loss) taxed at
other than U.S. rates and other
foreign items
    
    
    500
    
    
    
    (464
    )
    
    
    1,058Other, net
    
    
    (1,203
    )
    
    
    (565
    )
    
    
    1,006Provision for foreign income taxes
    
    $
    24
    
    
    $
    289
    
    
    $
    22
 F-26




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A 16. COMMITMENTS AND CONTINGENCIES In September 2003, certain former shareholders of Convergence Pharmaceuticals,
Inc. (Convergence) delivered to us a demand for arbitration under the Plan of
Merger and Acquisition Agreement executed in connection with our acquisition of
Convergence in July 1999. The demand for arbitration alleges that we breached
an obligation of good faith and fair dealing by intentionally delaying Phase II
trials of NM-3 in order to avoid making a milestone payment of 500,000 shares
of our Common Stock that would have become due pursuant to the Plan of Merger
and Acquisition Agreement if Phase II trials were initiated by December 31,
2002. The demand for arbitration was filed by former shareholders of
Convergence whose pro rata share of the 500,000 share milestone payment is
210,000 shares. The parties are in the discovery phase of the arbitration
proceedings. We believe that the claims made against us are without merit and
intend to defend the action vigorously. However, the arbitration process is
inherently uncertain and unpredictable, and accordingly there can be no
assurance as to the ultimate outcome of the arbitration. If we are required to
deliver shares subject to the current demand or otherwise pay damages in lieu
thereof, then we may be required to deliver up to an additional 290,000 shares or pay damages to the other former
Convergence shareholders in connection with potential additional disputes with
other former Convergence shareholders. During 1998, we guaranteed a line of credit for Clinical Research Group, Inc.
(CRG). The guarantee gave us access to a network of clinical sites managed by
CRG. If the guarantee comes to redemption, we will obtain an ownership interest
in CRG in accordance with the guarantee agreement. Under the terms of the
agreement, we maintained approximately $492.0 in the form of securities as
collateral for the guarantee as of December 31, 2003. At December 31, 2003, we
had yet to fund the guarantee, however it has been reserved for in prior
financial statements. In addition to matters described above, we are subject to various other claims
and assessments arising out of the ordinary course of business. We believe it
is unlikely that the final outcome of any such ordinary course of business
claims or proceedings to which we are a party will have a material adverse
effect on our financial position or results of operations. However, due to the
inherent uncertainty of litigation, there can be no assurance that the
resolution of any such claim or proceeding would not have a material adverse
effect on our results of operations for the period in which such resolution
occurred. Our sole supplier of CAMPATH is BI in Germany. The agreement with BI is payable
in euros and contains a minimum purchase quantity in kilograms, which equals
approximately $4.5 million per year through 2006, or a total of approximately
$13.5 million, to avoid a contractual surcharge. The minimum purchase quantity
of $4.5 million per year is calculated based on the current exchange rate. We
believe that the minimum purchase quantity will be satisfied. In connection with research and development efforts associated with our product
pipeline, we have entered into agreements with certain development partners,
which generally expire over several years. The terms of these agreements
require us to make payments in either cash or stock if certain drug development
or time-based milestones are met. Based upon the assumption that all milestones
are achieved at expected dates, total potential commitments for the next five
years under these agreements are estimated to be $48.9 million due as follows: MilestonepaymentsYear ending December 31,2004
    
    $
    7,9282005
    
    
    8,4672006
    
    
    19,6752007
    
    
    10,6752008
    
    
    2,175Total
    
    $
    48,920
 17. NOTE PAYABLE In connection with the purchase of Millenniums interest in the Partnership we
were obligated to pay $140.0 million. The terms of the agreement required an
initial cash payment of $20.0 million and $120.0 million in scheduled payments.
The first two scheduled payments of $20.0 and $40.0 million were made on
December 31, 2001 and 2002, respectively. Additionally, $40.0 million was paid
in 2003, $10.0 million of which was paid with our common stock. The remaining
$40.0 million is due in 2004, of which we may pay $10.0 million in our common
stock subject to certain terms and conditions and at our option. Our $38.4
million current note payable balance as of December 31, 2003 represents the
present value of the future payments to be made to Millennium. Interest has
been imputed on this note payable at the rate of 6.2%. F-27




---



##### Table of Contents



ILEX ONCOLOGY, INC.
2003 ANNUAL REPORT ON FORM 10-K/A 18. QUARTERLY FINANCIAL DATA (UNAUDITED) The tables below show our results of operations by quarter for the years ended
December 31, 2003 and 2002. Included in these results are certain prior year
reclassifications to conform to the current year presentation (see Note 2).
Amounts are in thousands, except per share amounts. 2003 Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31
    
    YearRevenue
    
    $
    8,684
    
    
    $
    10,127
    
    
    $
    8,726
    
    
    $
    7,252
    
    
    $
    34,789Operating loss
    
    
    (24,962
    )
    
    
    (8,748
    )
    
    
    (10,761
    )
    
    
    (17,804
    )
    
    
    (62,275
    )Net loss
    
    
    (24,921
    )
    
    
    (8,792
    )
    
    
    (10,624
    )
    
    
    (17,777
    )
    
    
    (62,114
    )Net loss per share:Basic and diluted
    
    $
    (.76
    )
    
    $
    (.27
    )
    
    $
    (.29
    )
    
    $
    (.46
    )
    
    $
    (1.76
    )
 2002 Quarter EndedMarch 31
    
    June 30
    
    September 30
    
    December 31
    
    YearRevenue
    
    $
    8,271
    
    
    $
    7,428
    
    
    $
    7,919
    
    
    $
    7,283
    
    
    $
    30,901Operating loss
    
    
    (9,860
    )
    
    
    (15,829
    )
    
    
    (10,038
    )
    
    
    (10,570
    )
    
    
    (46,297
    )Net loss
    
    
    (9,122
    )
    
    
    (15,486
    )
    
    
    (10,405
    )
    
    
    (11,143
    )
    
    
    (46,156
    )Net loss per share:Basic and diluted
    
    $
    (.28
    )
    
    $
    (.48
    )
    
    $
    (.32
    )
    
    $
    (.34
    )
    
    $
    (1.42
    )
 19. SUBSEQUENT EVENT On February 26, 2004, we entered into a definitive merger agreement with
Genzyme. Under the terms of the Merger Agreement, each outstanding share of
ILEX common stock, $0.01 par value per share, will be converted into the right
to receive a fraction of a share (the Exchange Ratio) of Genzyme common
stock. The Exchange Ratio will be calculated by dividing $26.00 by the average
per share closing price of Genzyme common stock (the Genzyme Share Price) as
reported by the NASDAQ National Market over the twenty trading days ending on
the fifth trading day prior to the closing date of the Mergers, except that if
the Genzyme Share Price is greater than $59.88, the Exchange Ratio will be
0.4342, and if the Genzyme Share Price is less than $46.58, the Exchange Ratio
will be 0.5582. In addition, each outstanding option to purchase ILEX common
stock will be immediately vested and will be converted into an option to
purchase the number of shares of Genzyme common stock equal to the number of
shares of ILEX common stock subject to such option multiplied by the Exchange
Ratio, and the associated exercise price will be adjusted accordingly. Until
the closing date, which is anticipated to occur in mid-2004, we will continue
to operate independently of Genzyme. The closing of the transaction is
contingent upon approval by certain regulatory authorities including the U.S.
Federal Trade Commission and our shareholders. If the merger is not completed,
we maybe subject to payment of a $32.5 million termination fee under certain
circumstances and payment of a maximum of $2.5 million in costs related to the
merger, such as financial, advisory, legal and accounting fees. Additionally,
the Rights Agreement discussed in Note 8 was amended on February 26, 2004 to,
among other things, exclude Genzyme Corporation from the definition of an
Acquiring Person. F-28