<PAGE>   1

================================================================================

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

                                ----------------

                                    FORM 10-K


      (MARK ONE)
         X        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934 For the
                          fiscal year ended December 31, 1998
                                       OR
                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from            to
                                           ------------  -----------
                         Commission file number 0-22147

                               ILEX ONCOLOGY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                                       74-2699185
      (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
       11550 I.H. 10 WEST, SUITE 100
            SAN ANTONIO, TEXAS                                    78230
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (210) 949-8200



           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS:                       NAME OF EXCHANGE ON WHICH REGISTERED:
  COMMON STOCK,                            NATIONAL ASSOCIATION OF SECURITIES
  $.01 PAR VALUE                           DEALERS AUTOMATED QUOTATION SYSTEM

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

         INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO   .
                                             ---  ---
         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 THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K.      .
                             -----

         THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF
MARCH 12, 1999 IS 12,875,582.

         THE AGGREGATE MARKET VALUE OF THE STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 12, 1999 WAS APPROXIMATELY $74.0 MILLION.


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         This Annual Report on Form 10-K contains certain "forward-looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to the Company and its subsidiaries that
are based on the beliefs of the Company's management as well as assumptions made
by and information currently available to the Company's management. When used in
this report, the words "anticipate," "believe," "estimate," "expect" and
"intend" and words or phrases of similar import, as they relate to the Company
or its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitations, competitive factors, general economic conditions, relationships
with pharmaceutical and biotechnology companies, the ability to develop safe and
efficacious drugs, variability of royalty, license and other revenue, failure to
satisfy performance obligations, ability to enter into future collaboration
agreements, failure of the Company to achieve positive results in clinical
trials, failure to complete current or secure new contracts with contract
research services clients, uncertainty regarding the Company's patents and
proprietary rights (including the risk that the Company may be forced to engage
in costly litigation to protect such patent rights and the material adverse
consequences to the Company if there were unfavorable outcome of any such
litigation), governmental regulation and supervision, technological change,
changes in industry practices, onetime events and other factors described herein
or in the Company's Registration Statement on Form S-1 (Registration No. File
333-17769) and the Company's annual and quarterly reports filed with the
Securities and Exchange Commission. Based upon changing conditions, should any
one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. The Company does not intend to update these forward-looking
statements.

                                     PART I.


ITEM 1.  BUSINESS

SUMMARY

         ILEX Oncology, Inc. ("ILEX" or the "Company") is a drug development
company focused exclusively on accelerated development of drugs for the
treatment and prevention of cancer. The Company uses its expertise in the
identification, development, manufacturing and regulatory approval process of
oncology drugs to (i) develop cancer treatment products, (ii) develop products
for the prevention of cancer and (iii) provide contract research services to
pharmaceutical and biotechnology companies. The Company has ten cancer treatment
compounds under development, including six in Phase II or Phase III clinical
trials. Consistent with its strategy, the Company has worldwide development and
marketing collaborations with LeukoSite, Inc. ("LeukoSite"), Eli Lilly and
Company ("Lilly"), and Symphar S.A. ("Symphar") to develop some of its
compounds.

         In addition to its proprietary product development programs, the
Company offers contract research services on a contract basis to the
pharmaceutical and biotechnology industries. ILEX Oncology Services, Inc. ("ILEX
Services") is a full service contract research organization ("CRO") specializing
in oncology. The Company believes it is currently the only full-service provider
of CRO services focused exclusively on oncology. In July 1997, the Company
entered into a strategic collaboration with PRN Research, Inc., ("PRN"), a
wholly-owned subsidiary of Physician Reliance Network, Inc. ("PRN Parent"), the
largest oncology practice management company in the U.S., under which ILEX will
have priority access to cancer patients for clinical trials and PRN will refer
contract research business to ILEX. The Company offers its contract research
clients, among other things, expertise in the design of cancer clinical
protocols, preparation of regulatory submissions, toxicology services,
organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such capabilities, ILEX believes that
it may be able to reduce the time normally required by pharmaceutical and
biotechnology 


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companies and broad-based CRO's to develop oncology products and increase the
probability of obtaining regulatory approval.

         ILEX was formed by The Cancer Therapy and Research Foundation of South
Texas ("CTRC") in December 1993 for the purpose of conducting certain advanced
drug development programs and pursuing commercial opportunities which were not
within the scope of CTRC's tax-exempt purpose. The Company's common stock began
trading publicly on February 20, 1997.

         ILEX's objective is to be a leading worldwide oncology drug development
company. The Company believes that its approach of developing proprietary
products for cancer treatment combined with providing CRO services to
pharmaceutical and biotechnology companies will generate revenues in the near
term and diversify risk, while developing a portfolio of proprietary products
with significant long-term potential. The Company's strategy consists of the
following elements: (i) focusing on the expanding cancer market; (ii) using its
expertise to identify and in-license compounds in later stages of development;
(iii) forming strategic collaborations with corporate partners; and (iv)
offering a full range of oncology product development and manufacturing
services.

         ILEX implements this strategy through its two wholly owned operating
subsidiaries, ILEX Products, Inc. ("ILEX Products") and ILEX Services. Each
subsidiary operates under a separate and dedicated management team. ILEX
Products focuses on the research and development of ILEX's own portfolio of
anticancer compounds, while ILEX Services provides drug development services to
pharmaceutical and biotechnology companies on a fee-for-service basis. In
addition, ILEX Services provides research services on a contract basis for ILEX
Products' product portfolio.

         ILEX is also developing chemoprevention compounds. Physicians are
increasingly able to identify people at risk of developing cancer. For example,
tests are currently available to detect precancerous conditions, such as lesions
of the cervix and recurrent colon polyps. In the future, it is expected that
genetic markers will also be used to identify high-risk individuals. The Company
is attempting to develop oral, non-toxic drugs which, when taken chronically,
may prevent a progression to cancer. ILEX believes that clinical development
strategies aimed at obtaining marketing approval based upon achieving
intermediate endpoints will be necessary to the timely development of such
drugs. Currently the Company has two chemoprevention compounds under
development.

         The Company was incorporated in Delaware in 1993. The Company's
principal offices are located at 11550 IH-10 West, Suite 100, San Antonio, Texas
78230. The Company's phone number is (210) 949-8200.

RECENT DEVELOPMENTS

ILEX PRODUCTS

o    ILEX, through its joint venture with LeukoSite, has initiated a pivotal
     Phase II trial for CAMPATH(R) in chronic lymphocytic leukemia ("CLL"). The
     Company expects to combine the results of this study with the results from
     previously conducted Phase II studies and submit a Biologics License
     Application seeking Food and Drug Administration ("FDA") approval under the
     FDA's Fast Track accelerated approval procedure in 1999.

o    The Company has begun a Phase III pivotal trial of eflornithine to
     determine its efficacy in preventing the recurrence of superficial bladder
     cancer, and also a Phase III trial of eflornithine for the prevention of
     non-melanoma skin cancer.

o    ILEX has entered into a joint development agreement with Symphar of Geneva,
     Switzerland to develop SR-45023A (discovered by Symphar), an orally active,
     well tolerated compound which selectively targets cancer cells inducing
     their death through apoptosis. This program has recently entered Phase I
     clinical studies.



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o    The Company has expanded the Phase I trials of intoplicine, a synthetic
     anticancer agent which simultaneously inhibits the enzymes topoisomerase I
     and II, catalysts in DNA reformation.

o    ILEX and Lilly have entered an agreement under which ILEX will develop the
     diarysulfonylurea ILX-295501, a compound that has demonstrated anti-tumor
     activity in a broad spectrum of human tumors.

o    ILEX has acquired the rights to THP-Dox, a receptor-targeted angiogenesis
     inhibitor currently in non-clinical development, through a license with The
     Burnham Institute ("TBI").

o    The Company has initiated the Phase II trial of aminopterin, a potent
     antifolate that effectively inhibits cancer cell replication.

ILEX SERVICES

o    ILEX has expanded access to cancer patients for clinical trials through the
     Company's continuing strategic alliance with PRN, one of the nation's
     largest Phase II/III clinical trial networks.

o    The Company has reoriented its European affiliate, P.F.K.-ILEX, to focus
     exclusively in oncology, enabling the Company to provide services to
     develop anticancer compounds simultaneously in the U.S. and Europe.

STRATEGY

         ILEX's objective is to be a leading worldwide oncology drug development
company. By using its expertise in the identification, development,
manufacturing and regulatory approval process of oncology drugs, the Company
develops cancer treatment products and provides CRO services to pharmaceutical
and biotechnology companies. ILEX believes that this approach will, in the near
term, generate licensing fees, research and development funding, milestone
payments, and fee-for-service or participatory revenues pursuant to contracts
with its CRO clients, and in the longer term, generate payments from its
corporate partners for its cancer treatment drugs and allow the Company to
generate revenue from its chemoprevention drugs. The Company believes that this
strategy will enable it to generate revenues in the near term and diversify
risk, while building a portfolio of proprietary products with significant
long-term potential. ILEX's strategy consists of the following elements:

         FOCUS ON THE EXPANDING CANCER MARKET. The American Cancer Society
estimated that over 1.2 million new cases of cancer would be diagnosed and
approximately 565,000 cancer deaths, representing approximately 25% of all
projected deaths, would occur in the U.S. in 1998. Cancer is currently the
second leading cause of death in the U.S., and over 10 million people alive
today have a history of cancer. The worldwide oncology drug market is estimated
to be $12 billion a year, growing at 12% per year. It is expected that there
will be an increased need for oncology products because the incidence of cancer
increases dramatically with age, and the over-65 population is one of the
fastest growing age groups in the U.S. Moreover, due to the life threatening
nature of cancer, the FDA has announced procedures for accelerating the approval
of oncology agents, thereby reducing the amount of time required to bring such
agents to market. ILEX believes that the increasing demand for oncology products
and the acceleration of the oncology product approval process by the FDA creates
a unique opportunity for the Company to use its expertise in oncology drug
development.

         USE ITS EXPERTISE TO IDENTIFY AND IN-LICENSE COMPOUNDS. The Company
will continue to use the expertise of its management team and its Scientific
Advisory Board, as well as its established relationship with CTRC Research
Foundation ("CTRC Research"), the research subsidiary of CTRC, and its related
entities, to identify and in-license oncology compounds for development. ILEX
focuses its development activities on cancer treatment compounds in the later
stages of development in order to reduce the risk associated with drug discovery
and early stage development. The Company concentrates on those compounds that
have demonstrated preliminary safety and efficacy in human and/or animal
studies, and that are protected by, among other things, patents or Orphan Drug
status (an FDA designation of a drug intended to treat a "rare disease or
condition"). There are more than 400 oncology drugs 


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currently in clinical development worldwide. The Company believes that many of
these oncology drugs will become available for in-licensing or equity
participation by ILEX or other market participants because (i) industry
consolidation has caused pharmaceutical and biotechnology companies to
prioritize research and development programs, resulting in numerous licensing
opportunities, (ii) evaluation of a compound's market potential based on its
initial use may lead to an underestimation of the market potential of certain
oncology products and (iii) the market potential of certain of these compounds
may be considered too small to be attractive to large drug companies.

         FORM STRATEGIC COLLABORATIONS WITH CORPORATE PARTNERS. ILEX seeks to
form corporate partnerships with pharmaceutical and biotechnology companies to
obtain financial and marketing support for certain of its product development
activities. The Company believes that its product development strategy (i)
minimizes the substantial financial investment otherwise required by ILEX to
develop its oncology drugs, (ii) provides the Company with access to
international markets, (iii) enables the Company to carry an increased number of
products in its oncology drug portfolio and (iv) limits the Company's dependence
on the success of any single product.

         OFFER FULL-RANGE OF ONCOLOGY PRODUCT DEVELOPMENT AND MANUFACTURING
SERVICES. The Company believes it is currently the only full-service provider of
CRO services focused exclusively on oncology. The Company offers its CRO
clients, among other things, expertise in the design of cancer clinical
protocols, preparation of regulatory submissions, toxicology services,
organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such expertise, the Company believes
that it may be able to reduce the time normally required by other pharmaceutical
and biotechnology companies and broad-based CRO's to develop oncology products
and increase the probability of obtaining regulatory approval.

OVERVIEW OF CANCER

         Cancer is characterized by uncontrolled cell division resulting in the
growth of a mass of cells commonly known as a tumor. Cancer cells, if not
eradicated, can spread ("metastasize") throughout the body. Cancerous tumors can
arise in almost any tissue or organ within the human body. Cancer is believed to
occur as a result of a number of factors, including genetic predisposition,
environmental agents and irradiation. These factors may result in genetic
changes affecting the ability of cells to regulate normally their growth and
division.

         There are currently more than 400 investigational agents in clinical
development for treating patients with cancer, more than at any time in history.
Many of these agents are being developed for treatment of advanced disease. Due
to the life-threatening nature of cancer, the FDA has announced procedures for
accelerating the approval of oncology agents, thereby reducing the amount of
time required to bring such agents to market. Under these procedures, an
oncology drug can be approved if it is shown to shrink tumors in Phase II
studies and if the developing company commits to performing and completing Phase
III trials after marketing approval.

         TREATMENT OF CANCER. The three most prevalent methods of treating
patients with cancer are surgery, radiation therapy and chemotherapy. A cancer
patient often receives a combination of two or all three of these treatment
methods. Surgery and radiation therapy are particularly effective in patients in
which the disease has not yet spread to other tissues or organs. Chemotherapy is
the principal treatment for tumors that have metastasized. The purpose of
chemotherapy is to interfere with the molecular and cellular processes that
control the development, growth and survival of malignant tumor cells.
Chemotherapy involves the administration of drugs designed to kill cancer cells
("cytotoxic drugs") or the administration of hormone analogs to either reduce
the production of, or block the action of, certain hormones, such as estrogens
and androgens, which affect the growth of tumors. In many cases, chemotherapy
consists of the administration of several different drugs in combination.
Because 


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chemotherapeutic agents generally attack rapidly dividing cells
indiscriminately, damaging normal as well as cancerous cells, use of such agents
often has adverse effects.

         Although several types of tumors can now be treated effectively with
drugs, survival rates for the most common tumors have only begun to improve
slightly. In recent years, however, there have been significant advances in
molecular biology, immunology and other related fields of biotechnology which
have led to a better understanding of the processes that regulate the
proliferation and metastasis of malignant cells and by which malfunctioning
genes can result in the formation of tumors.

         PREVENTION OF CANCER. There are a number of conditions which can
currently be diagnosed and which predispose an individual to developing cancer.
For example, high-grade cervical dysplasia, if left unattended, often progresses
to invasive cervical cancer. Recurrent colon polyps can lead to colon cancer;
actinic keratosis, a type of sun-induced skin lesion, can progress to skin
cancers; and individuals who have had a local tumor removed are at high risk for
having a second tumor. In the near future, physicians will increasingly be able
to use relatively simple genetic-based tests to identify individuals at risk for
developing cancer. The Company believes there is a significant need for
non-toxic, oral drugs which can be prescribed for chronic use to prevent the
onset of cancer in these situations. To date, no drug for the prevention of
cancer (i.e. chemoprevention drug) has been approved by the FDA, and there can
be no assurance that the Company will be able to develop successfully a safe and
effective chemoprevention drug or that such drug will be commercially viable or
will achieve market acceptance.

             [The remainder of this page intentionally left blank.]


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ILEX PRODUCTS UNDER DEVELOPMENT

         ILEX is developing compounds for treating patients with cancer and
premalignant conditions. ILEX has incurred research and development costs of
approximately $3.6 million, $6.7 million, and $15.5 million for 1996, 1997 and
1998, respectively. In addition to the $15.5 million spent in 1998, an
additional $4.5 million loss was recognized as equity in losses of research and
development partnerships. The following table summarizes the drugs under
development by the Company and is qualified in its entirety by the more detailed
information following the table and elsewhere in this Annual Report on Form
10-K. The Company holds the worldwide marketing rights to each of these drugs,
including the shared marketing rights to CAMPATH(R).

                           PRODUCTS UNDER DEVELOPMENT


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------

        COMPOUNDS                       INDICATIONS                          DEVELOPMENT STATUS(1)

---------------------------------------------------------------------------------------------------------------
<S>                         <C>                                  <C>
CAMPATH(R)                  Chronic lymphocytic leukemia         Pivotal Phase II in U.S. & Europe nearing
                                                                 completion.  Anticipates filing BLA with FDA
                                                                 and MAA with EMEA in 1999 (2)
---------------------------------------------------------------------------------------------------------------
Eflornithine (DFMO)         Superficial bladder cancer(3)        Phase III - ongoing
---------------------------------------------------------------------------------------------------------------
Oxypurinol                  Symptomatic hyperuricemia            Establishing registration plan
---------------------------------------------------------------------------------------------------------------
Aminopterin                 Endometrial cancer(4)                Phase II ongoing
---------------------------------------------------------------------------------------------------------------
Piritrexim                  Malignant fibrous histiocytoma       Phase II ongoing
---------------------------------------------------------------------------------------------------------------
ILX-295501                  Several solid tumors                 Phase II trials planned for mid-1999
---------------------------------------------------------------------------------------------------------------
Intoplicine                 Solid tumors                         Phase I - ongoing in the U.S. & Canada
---------------------------------------------------------------------------------------------------------------
SR-45023A                   Solid tumors                         First Phase I - ongoing
                                                                 Second Phase I planned for mid-1999
---------------------------------------------------------------------------------------------------------------
ILX23-7553                  Solid tumors                         Investigational New Drug ("IND") approved in
(Vitamin D3 analog)                                              1999
                                                                 Phase I planned for mid-1999
---------------------------------------------------------------------------------------------------------------
THP-Dox                     Solid tumors                         Non-clinical
---------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  Trials indicated are either conducted or planned to be initiated by ILEX,
     except as otherwise indicated.

(2)  The Company has formed a joint venture with LeukoSite to jointly develop
     CAMPATH(R).

(3)  The National Cancer Institute ("NCI") and other independent investigators
     are also sponsoring trials of DFMO in other indications, such as
     non-melanoma skin cancer, colon cancer, cervical intraepithelial neoplasia,
     anal intraepithelial neoplasia, prostate cancer, and dysplasia.

(4)  An independent investigator is also sponsoring a trial of aminopterin in
     patients with acute lymphoblastic leukemia.





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                            ILEX'S PRODUCT PORTFOLIO

CAMPATH(R)

OVERVIEW

         CAMPATH(R) is a humanized monoclonal antibody currently under
development for the treatment of patients with CLL. ILEX and its development
partner, LeukoSite, have formed an equally owned joint venture, L&I Partners,
L.P., (L&I Partners) to develop CAMPATH(R). L&I Partners licensed CAMPATH(R)
from LeukoSite, who licensed the product from British Technology Group ("BTG").

DEVELOPMENT HISTORY

         CAMPATH(R) was initially evaluated by Burroughs Wellcome Co. ("BW"),
now Glaxo Wellcome, in a variety of indications. L&I Partners, after reviewing
data from Phase I and II clinical trials, identified that the compound was
active in the treatment of patients with CLL. CAMPATH(R) binds to the CD52
antigen resulting in the selective depletion of lymphocytes. This selective
depletion permits the body to retain hematopoietic stem cells which are crucial
to normal immune function.

         CLL patients are presently treated with chlorambucil and fludarabine as
first-line or second-line therapy. Despite this course of treatment, most
patients not dying of other causes eventually relapse. No approved therapy is
available to treat patients who fail therapy with fludarabine. Based on data
from clinical trials, the Company believes that CAMPATH(R) may be effective for
symptomatic CLL patients who have failed the current standard of care and second
line therapies.

         L&I Partners has entered into an agreement with Boehringer Ingleheiim
Pharma KG, for the manufacture of CAMPATH(R).

DEVELOPMENT STATUS

         Under an FDA-approved plan, L&I Partners agreed to conduct a pivotal
Phase II trial of patients with CLL who have failed treatment with alkylating
agents and with fludarabine phosphate. This pivotal trial was launched in the
second quarter of 1998 and is expected to be completed in early 1999.
Investigator confidence and enthusiasm for CAMPATH(R) resulted in the accrual of
93 patients in over 20 European and U.S. sites in less than four months. The
primary end-point for this study is the objective response rate as defined by
NCI criteria. Patient enrollment has been completed and data from this trial are
currently under evaluation. L&I Partners plans to file for marketing approval in
the U.S. and Europe in 1999. The FDA has designated CAMPATH(R) for "fast track"
development, clearing the way for expedited review of the companies' application
for marketing approval in the U.S. CAMPATH(R) was granted orphan drug status in
late 1997.

MARKETING

         CLL is the most prevalent form of adult leukemia, afflicting 120,000
patients in the U.S. and Europe. LeukoSite and ILEX are in discussions with
pharmaceutical companies with the objective of establishing one or more
marketing and distribution agreements for CAMPATH(R).

PROPRIETARY POSITION

         L&I Partners licensed CAMPATH(R) from LeukoSite, which had previously
licensed the compound from BTG. A series of patent applications have been made.
Certain of these have been granted in countries outside the U.S. including key
European markets. L&I Partners has a patent application pending in the U.S.




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EFLORNITHINE (DFMO)

OVERVIEW

         Eflornithine (also known as difluoromethyleornithine or DFMO) is a
potent, irreversible inhibitor of ornithine decarboxylase (ODC), the first
rate-limiting enzyme in the biosynthesis of polyamines. Polyamines play critical
roles in the differentiation and proliferation of cells and are also essential
for neoplastic transformation. Eflornithine is potentially effective both as a
chemopreventive in precancerous conditions and as a chemotherapeutic in a
variety of cancers. As a chemotherapeutic, eflornithine may be most effective as
a well tolerated, oral therapy for the prevention of progression and/or
recurrence of early stage disease.

         In collaboration with the NCI, ILEX began a Phase III
registration-directed study of eflornithine in superficial bladder cancer
patients in early 1999. ILEX is also working with the NCI and other independent
investigators to evaluate eflornithine in a variety of other cancers.

DEVELOPMENT HISTORY

         Numerous studies have demonstrated the usefulness of eflornithine.
Extensive work with a variety of experimental tumor models has indicated that
eflornithine, as a single agent, is effective in bringing about substantial
reduction in tumor burden, even when the therapy is initiated during the early
stages of tumor growth. The effects of eflornithine on tumor cell growth have
been even more impressive and significant when it has been given in combination
with other agents.

         In addition to its cancer treatment potential, eflornithine has shown
potential to prevent the onset of cancer. Non-clinical models have demonstrated
that eflornithine can block one of the steps involved in carcinogenesis in a
number of tumor models. Studies sponsored by the NCI's Division of Cancer
Prevention and Control ("DCPC") have shown that eflornithine can reverse certain
premalignant conditions.

DEVELOPMENT STATUS

         ILEX, in collaboration with the NCI, has initiated a Phase III
registration-directed trial of eflornithine in patients with superficial bladder
cancer. ILEX is also working with the NCI and independent investigators to
evaluate eflornithine in prostate cancer, recurrent colon polyps, anal and
cervical intraepithelial neoplasia, advanced breast cancer, Barrett's esophagus,
and non-melanoma skin cancer.

MARKETING

         Approximately 225,000 patients in the U.S. have been diagnosed with
superficial bladder cancer. A substantial portion of these patients will be
potential candidates for therapeutic measures aimed to prevent the recurrence of
their bladder tumors after transurethral resection. Preliminary market estimates
of eflornithine administered chronically for the treatment of patients with
superficial bladder cancer suggest peak year sales of $200 million. The Company
is seeking one or more partners for the development and marketing of
eflornithine.

PROPRIETARY POSITION

         ILEX obtained a worldwide, exclusive license to patents for
eflornithine. This product is protected by various patents, including the
composition of matter and various use patent applications that are pending. ILEX
obtained the license from Marion Merrill Dow, Inc. which is now known as Hoechst
Marion Roussel, for use both in cancer and infectious diseases.




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<PAGE>   10

AMINOPTERIN

OVERVIEW

         Aminopterin, an antifolate, inhibits both the enzyme dihydrofolate
reductase (DHFR) and folic acid synthesis, which can lead to inhibition of DNA,
RNA, and protein synthesis. Results from a Phase I study of aminopterin, suggest
that this product may be an effective therapy for endometrial cancer.

DEVELOPMENT HISTORY

         Aminopterin was initially discovered and synthesized in 1947 by Sydney
Farber of the Farber Cancer Institute in Boston. In 1948, aminopterin became the
first antifolate used to obtain a temporary remission in children with acute
leukemia. It was the first drug to demonstrate the effectiveness of folate
inhibition for cancer therapy.

DEVELOPMENT STATUS

         ILEX is conducting a Phase II trial of aminopterin in patients with
recurrent endometrial cancer. An independent investigator is also sponsoring a
trial of aminopterin in patients with acute lymphoblastic leukemia.

PIRITREXIM

OVERVIEW

         Piritrexim is a lipid-soluble DHFR. ILEX is currently evaluating the
efficacy of piritrexim in malignant fibrous histiocytoma (MFH), a form of
sarcoma or tumor of connective tissue.

DEVELOPMENT HISTORY

         During Phase I and II studies of piritrexim administered to more than
700 patients, tumor responses were noted in patients with advanced bladder
cancer, Kaposi's sarcoma, colon cancer, melanoma, head-and-neck cancer and other
cancers, but the most activity was noted in patients with sarcoma.

DEVELOPMENT STATUS

         ILEX is currently evaluating the efficacy of piritrexim in a Phase II
study of patients diagnosed with MFH.

MARKETING

         MFH is one of the most common pathologic types of mesenchymal tumors,
representing some 10% of all soft tissue sarcomas in adults. About 6,600
patients per year in the U.S. are diagnosed with MFH.

PROPRIETARY POSITION

         In March 1995, the Company obtained an exclusive, worldwide license to
patents held by BW covering the composition and use of piritrexim for all cancer
indications.

ILX-295501

OVERVIEW

         ILX-295501 is a diarysulfonylurea, a class of compounds with
substantial non-clinical antitumor activity. ILEX, in partnership with Lilly,
will conduct Phase II trials of ILX-295501 in non-small cell lung cancer, renal
cancer, melanoma, and ovarian cancer.

         The mechanism of action of ILX-295501 is unknown. It is not cell
cycle-specific and does not 


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inhibit synthesis of DNA, RNA or protein. It appears to change intracellular pH
and intracellular calcium concentrations through an unidentified mechanism.

DEVELOPMENT HISTORY

         In January of 1999, ILEX and Lilly agreed to jointly develop
ILX-295501.

         ILX-295501 has demonstrated in vivo anti-tumor activity against a broad
spectrum of human tumors, including non-small cell lung, ovarian, pancreatic and
colon cancers. The compound also has demonstrated in vitro activity against
human tumor colony forming units. In the human tumor cloning assay, high degrees
of activity were noted against kidney, non-small cell lung, melanoma, ovarian,
and stomach human tumor colony-forming units.

DEVELOPMENT STATUS

         Protocols are currently under development for the following Phase II
trials of ILX-295501: renal cell carcinoma, ovarian cancer, non-small cell lung
cancer, and melanoma.

PROPRIETARY POSITION

         ILEX has obtained an exclusive, worldwide license from Lilly to
ILX-295501. Under the license agreement Lilly has an option to buy back
marketing rights at the end of Phase II trials.

INTOPLICINE

OVERVIEW

         Intoplicine is unique in that it inhibits both topoisomerase I and II.
These enzymes are involved in the replication of DNA and are required for the
proliferation of tumor cells. Inhibitors of topoisomerases interfere with the
DNA-nicking/closing reactions catalyzed by these enzymes. Through a reversible
stabilization of the covalent "cleavable complex" formed between the respective
topoisomerases and DNA, intoplicine induces single and double strand DNA breaks
which eventually lead to cell death. Currently, ILEX is sponsoring a Phase I
clinical trial of intoplicine in the U.S. and Canada.

DEVELOPMENT HISTORY

         In non-clinical studies, intoplicine demonstrated significant antitumor
activity against human tumor stem cells and in tumor bearing animal model
systems.

DEVELOPMENT STATUS

         A single-center, Phase I study, sponsored by the Company, is being
conducted at the CTRC in San Antonio, Texas. This is a dose-seeking trial to
evaluate the feasibility of administering intoplicine on a prolonged infusion
schedule of up to 21 days to patients with locally advanced or metastatic
cancer. This trial also seeks to determine the maximum tolerated dose level and
recommended Phase II dose for subsequent disease-directed evaluations. The
rationale for this prolonged infusion is to maximize the exposure of malignant
cells to active concentrations of intoplicine, while avoiding high peak plasma
levels and thereby preventing liver toxicity.

PROPRIETARY POSITION

         In 1994, ILEX in-licensed the rights to intoplicine in North America
from Rhone-Poulenc Rorer S.A.



                                       10
<PAGE>   12

SR-45023A

OVERVIEW

         In September 1998, ILEX and Symphar, a private Swiss biotech company
founded in 1977, entered into a co-development agreement on SR-45023A. This
product is a bisphosphonate ester that binds to the FXR (as defined below)
receptor and appears to induce cell apoptosis (programmed cell death) of cancer
cells. Unlike many chemotherapeutic agents currently being used, SR-45023A can
be taken orally. SR-45023A has already been tested in healthy volunteers without
significant toxicity. A Phase I trial of SR-45023A in advanced metastatic cancer
is now under way in the U.S. If successful, SR-45023A has the potential to be
used broadly in a variety of cancers and in concert with other forms of
chemotherapy. Because of its apparent selectivity for neoplastic cells and its
low toxicity, SR-45023A may also find a role as a chemopreventive agent.

DEVELOPMENT HISTORY

         SR-45023A was originally discovered by Symphar in Geneva, Switzerland.
In September 1998, ILEX and Symphar entered into a co-development agreement.

         SR-45023A is an orally active, bisphosphonate ester derivative with a
novel mechanism of action.

         Apoptosis, the process by which cells normally age and die, is
essential for healthy cell function and tissue homeostasis. Cancer (the
uncontrolled proliferation of cells) is thought to arise, in part, from the
deregulation of apoptosis. Therefore, agents that regulate this process may play
a role in cancer therapy and prevention.

         SR-45023A binds to a newly identified nuclear receptor (FXR),
selectively inducing apoptosis (i.e., cell death) in malignant cells. SR-45023A
has potential in both chemoprevention and the treatment of a variety of cancers
and in concert with other forms of chemotherapy.

DEVELOPMENT STATUS

         Since SR-45023A has exhibited significant antitumor activity in
non-clinical tumor models and has been well tolerated in animal and early
clinical testing, this Phase I study is being performed to (1) establish the
maximum tolerated dose of SR-45023A, (2) perform steady state pharmacokinetic
studies, and (3) profile toxicities in cancer patients with metastatic advanced
disease. A Phase I study is under way at the University of Arizona.

PROPRIETARY POSITION

         The process for preparation of SR-45023A, as well as the use of the
compound for the treatment of cancer, are covered by several U.S. and
international patents which are either issued or pending. The patents are held
by Symphar, and the Company is earning an equity interest in the product. These
patents and applications have recent priority dates and, therefore, this
proprietary compound will have prolonged protection.

ILX23-7553 (VITAMIN D3 ANALOG)

OVERVIEW

         ILX23-7553 is a vitamin D3 analog that has been shown to inhibit cell
proliferation and induce cell differentiation in non-clinical models. ILEX
received approval of the IND application for ILX23-7553 in March 1999. ILEX will
conduct Phase I clinical trials to assess the effectiveness of ILX23-7553 as
both a single agent and in combination with other anti-cancer drugs. Because of
its oral bioavailability and relatively low toxicity, ILX23-7553 has the
potential to act as a chemopreventive agent as well.




                                       11
<PAGE>   13


DEVELOPMENT HISTORY

         In the search for a less toxic treatment agent, numerous analogs of
vitamin D3 (deltanoids) have been studied. Several deltanoids demonstrate
enhanced antileukemic properties without hypercalcemia. One of the most
promising is ILX23-7553.

         ILX23-7553 has been shown in non-clinical studies to cause cancer cells
to stop dividing (i.e. differentiation) and to shrink established tumors. At
therapeutic concentrations, ILX23-7553 does not appear to cause hypercalcemia, a
potential toxic side effect caused by vitamin D3 and its analogs.


DEVELOPMENT STATUS


         ILEX received approval of the IND for ILX23-7553 in March 1999. ILEX
plans to initiate two Phase I trials of single agent ILX23-7553 at two different
schedules in patients with refractory solid tumors. These will be followed by a
Phase I trial in combination with chemotherapy. Then several Phase II trials are
likely in prostate, breast and other potential targets, including asthenia
associated with cancer.

PROPRIETARY POSITION

         ILEX has obtained an exclusive, worldwide license from Hoffmann-La
Roche to ILX23-7553.

THP-DOX

OVERVIEW

         THP-Dox was discovered and developed by Dr. Erkki Ruoslahti and his
associates at TBI. THP-Dox links a "tumor homing peptide" (THP) to one of the
most effective chemotherapy drugs, doxorubicin.

         THP-Dox is a novel therapeutic concept that may potentially be an
effective treatment for a variety of solid tumors (breast, colon, lung,
prostate, kidney, etc.). It attacks the blood vessels, which carry oxygen and
nutrients to tumor cells, and delivers one of the most commonly used and
effective therapies in the oncologist's arsenal (doxorubicin) directly to tumor
cells. In effect, its potential to target both tumor blood vessels and tumor
cells is the biggest advantage of THP-Dox.

DEVELOPMENT HISTORY

         TBI discovered the peptides that target the endothelial cells of tumor
vasculature. This research was funded by grants from the NCI. In 1998, ILEX
licensed THP-Dox from TBI.

DEVELOPMENT STATUS

         THP-Dox is still in the non-clinical stage of its development.

PROPRIETARY POSITION

         ILEX has obtained an exclusive, worldwide license from TBI to THP-Dox.

OXYPURINOL

OVERVIEW

         Oxypurinol is the active metabolite of allopurinol, an inhibitor of
xanthine oxidase. Since 1995, ILEX has maintained the compassionate distribution
of oxypurinol, a program that has been in existence 32 years. ILEX is in the
process of establishing an FDA-approved registration plan for this agent. In
November 1998, ILEX received orphan drug status for oxypurinol.



                                       12
<PAGE>   14

DEVELOPMENT HISTORY

         Oxypurinol, the primary metabolite of allopurinol, is also a xanthine
oxidase inhibitor. It was developed by BW. Since 1967 it has been made
available, however, for compassionate use in allopurinol-intolerant patients by
BW and, more recently, by ILEX.

DEVELOPMENT STATUS

         In November 1998, ILEX received orphan drug status for the use of
oxypurinol in symptomatic hyperuricemic patients. This status will grant ILEX
seven years of market exclusivity.

MARKETING

         Oxypurinol will be used by the patient who is intolerant to
allopurinol. Approximately 3% to 5% of patients who take allopurinol are
intolerant to it.

PROPRIETARY POSITION

         In 1995, ILEX obtained an exclusive to license oxypurinol from BW.

MITOGUAZONE (MGBG)

         ILEX discontinued the development of MGBG in 1998 due to a lack of
significant efficacy observed during clinical trials. Rights to MGBG had been
acquired by CTRC from a division of the Department of Health and Human Services
and were subsequently transferred to ILEX.

STRATEGIC ALLIANCES - ILEX PRODUCTS

         The Company may develop and commercialize on its own those product
candidates for which the clinical trial and marketing requirements can
realistically be managed by the Company. However, for most of the Company's
products, including CAMPATH(R), for which greater resource commitments will be
required, the Company has formed or intends to form corporate partnerships with
pharmaceutical companies for product development and commercialization. In a
typical licensing arrangement, a corporate partner would likely bear the
substantial cost of clinical development, scale-up production, FDA approval and
marketing. ILEX has entered into strategic alliances with respect to CAMPATH(R)
and several other products. Although the Company believes that these strategic
partners and any future corporate partners in these collaborations have or will
have an economic motivation to perform their contractual responsibilities, the
amount and timing of capital to be devoted to these activities are not within
the control of the Company. There can be no assurance that such partners will
perform their obligations as expected or that the Company will derive any
additional revenue from such arrangements. Furthermore, there can be no
assurance that the Company will be able to negotiate additional collaborative
arrangements in the future, or that such collaborative arrangements will be
successful. To the extent that the Company chooses not to, or is unable to,
establish such arrangements, it would require substantially greater capital to
undertake development and marketing of its proposed products at its own expense
and could result in delays in the Company's introduction of new products. The
Company does not currently have sales, marketing or distribution capability.

         LEUKOSITE

         In May 1997, ILEX formed the LeukoSite partnership to develop products
containing the CAMPATH(R) antibody. Pursuant to the formation of the
partnership, LeukoSite sublicensed the rights to manufacture and market
CAMPATH(R) products to the joint venture in exchange for licensing fees,
milestone payments and royalties. ILEX and LeukoSite own the partnership
equally.



                                       13
<PAGE>   15

         MPI

         In December 1996, ILEX formed a joint venture with MPI to develop
piritrexim pursuant to which ILEX licensed worldwide rights to manufacture and
market piritrexim to the joint venture in exchange for licensing fees, milestone
payments and royalties. The joint venture subcontracted with MPI and ILEX to
execute the development plan.

IN-LICENSING AGREEMENTS

         As a part of its business strategy, the Company actively seeks to
expand its product portfolio. Historically, these acquisitions have been in the
form of exclusive licensing arrangements with a number of universities,
pharmaceutical companies, and individual inventors.

         The Company's in-license agreements (the "Licenses") generally require
the Company to undertake and pursue with diligence and best efforts the
development of the compounds and technologies licensed and to report on a
regular basis on the Company's development, progress and plans. Each of the
Licenses requires payments of royalties on sales of products covered by the
License and, in several instances, minimum annual royalties. Under most of the
Licenses, the licensor has the first right to sue for infringement of, and
defend invalidity charges against, the licensed patents. All of the Licenses
provide that the licensor or sublicensor may terminate all or a portion of the
license or sublicense in the event of the Company's default in its obligations,
including the obligations to diligently pursue and apply best efforts to the
development of the licensed compound or technology, and, in some instances, in
the event of the Company's insolvency or bankruptcy. In addition, certain
Licenses will automatically terminate if the Company does not achieve certain
development milestones by specified dates or, in lieu thereof, make payments
extending such dates. A termination of any of the Licenses could have a material
adverse effect upon the Company. The Company believes it has complied in all
material respects with the terms of all of its Licenses to date. The Company
intends to continue its licensing program and to engage in compound acquisitions
with a primary focus on clinical stage oncology compounds. There can be no
assurance that any such licenses or acquisitions will be on terms similar to the
Licenses or favorable to the Company.

         The Company's agreements with its strategic corporate partners
typically provide that in the event the Company is required to pay a royalty to
a third party in order to market a product in any country because of a
third-party patent in such country, a portion of any such payments may be
credited by the Company against royalties payable to the partner. In addition,
if a product containing the compound subject to the agreement is introduced into
any country in which patent rights do not exist, and sales of such competing
product exceed certain specified percentages of unit sales of the Company's
products, then the royalty rates are subject to reduction. Subject to certain
exceptions, the obligation to pay royalties with respect to net sales in a
specific country typically ceases from eight to 15 years from the date of first
commercial sale of the product in such country.

ORPHAN DRUG STATUS

         Pursuant to the Orphan Drug Act of 1983 (the "Orphan Drug Act"), the
FDA may designate a drug intended to treat a "rare disease or condition" as an
"orphan drug." A "rare disease or condition" is one which affects less than
200,000 people in the U.S., or which affects more than 200,000 people but for
which the cost of development and distribution of the drug will not be recovered
from sales of the drug in the U.S. Upon approval of a new drug application
("NDA") for an orphan drug, such drug may be eligible for exclusive marketing
rights in the U.S. for designated and approved indications for seven years.
Orphan drugs may also be eligible for federal income tax credits for certain
clinical trial expenses. CAMPATH(R) and oxypurinol have been granted orphan drug
status.



                                       14
<PAGE>   16

         The Company may receive marketing exclusivity for an orphan drug only
if it is the sponsor of the first NDA approved for the drug for an indication
for which the drug was designated as an orphan drug prior to the approval of
such NDA. Therefore, unlike patent protection, orphan drug status does not
prevent other manufacturers from attempting to develop the drug for the
designated indication or from obtaining NDA approval prior to approval of the
Company's NDA. If another sponsor's NDA for the same drug and the same
indication is approved first, that sponsor is entitled to exclusive marketing
rights if that sponsor has received orphan drug designation for the drug. In
that case, the FDA would be prohibited from approving the Company's application
to market the product for the relevant indication for a period of seven years.
If another sponsor's NDA for the same drug and the same indication is approved
first, but that drug has not been designated as an orphan drug, the FDA would
still be permitted to approve the Company's NDA without the exclusivity provided
by orphan drug status.

         The Company believes that some of its products may qualify for
designation as orphan drugs. There can be no assurance, however, that such other
products will receive orphan drug status. Moreover, possible amendment of the
Orphan Drug Act by the U.S. Congress and possible reinterpretation by the FDA
are frequently discussed. Legislation to limit exclusivity in some respects was
passed by Congress, but vetoed by the President in 1990. FDA regulations
reflecting certain other limitations and procedures went into effect in January
1993. Therefore, there is no assurance as to the precise scope of protection
that may be afforded by orphan drug status in the future, or that the current
level of exclusivity and tax credits will remain in effect.

CONTRACT RESEARCH ORGANIZATION

         ILEX Services is a full service CRO, specializing in oncology. ILEX
provides CRO services in both clinical (human trials) and non-clinical services.
In order to fund its drug development efforts and monitor oncology trends, the
Company provides contract clinical research, development and manufacturing
services to pharmaceutical and biotechnology companies engaged in the
development of oncology drugs. ILEX believes it is well-positioned to provide
such services due to its expertise in the identification, development,
manufacturing and regulatory approval process of oncology drugs. The Company
believes it is currently the only full-service provider of contract research
services focused exclusively on oncology.

         Companies developing oncology drugs face particular issues related to
conducting clinical studies. Patients are increasingly being seen by physicians
in community practice rather than at teaching institutions. Therefore, the
traditional clinical trial sites often cannot provide sufficient numbers of
patients for studies. In addition, with the FDA approving new oncology drugs
more rapidly and the large number of oncology drugs currently in development, it
is critical that clinical trial designs take into account competing clinical
trials and changing treatment practices.

         ILEX's internal clinical staff has extensive knowledge of the current
oncology environment, which the Company believes provides its clients with a
distinct advantage. The Company offers its contract research clients, among
other things, expertise in the design of cancer clinical protocols, preparation
of regulatory submissions, toxicology services, organization and monitoring of
clinical trials, and state-of-the-art manufacturing capabilities. As a result,
ILEX believes that it may be able to reduce the time normally required by other
pharmaceutical and biotechnology companies and broad-based CRO's to develop
oncology products and increase the probability of obtaining regulatory approval.

         In July 1997, ILEX entered into a comprehensive clinical development
alliance with PRN, pursuant to which, for an initial term of ten years, PRN will
be a preferred vendor as a clinical trial site for ILEX therapeutic development
projects. PRN will (i) exclusively promote and market ILEX's CRO services to
pharmaceutical and biotechnology companies; (ii) exclusively refer all CRO
business 



                                       15
<PAGE>   17

opportunities to ILEX; (iii) be available to participate in all clinical trials
managed by ILEX, and participate in no less than two-thirds of such clinical
trials, subject to acceptance by PRN's Scientific Review Committee; (iv) allow
ILEX to install data entry interface systems at PRN clinical trial sites to
collect data and interface with ILEX's data entry system; (v) provide scientific
review services to ILEX; and (vi) not compete with ILEX's CRO business.


         In August 1997, ILEX formed an alliance with Pharma Forschung
Kaufbeuren GmbH ("PFK"), a European contract research organization headquartered
outside Munich, Germany. ILEX holds a 40% ownership interest in PFK, and PFK was
renamed PFK-ILEX in 1997. This alliance allows the Company to pursue a
leadership role in the European oncology CRO market and to pursue simultaneous
development of oncology drugs in the U.S. and Europe.

         ILEX has in the past derived, and may in the future derive, a
significant portion of its CRO revenue from a relatively limited number of major
projects or clients. Concentrations of business in the CRO industry are not
uncommon, and the Company is likely to experience such concentration in future
years. The Company intends to continue to expand its contract research business
by focusing its marketing efforts on longer term, multi-phase drug development
programs. For the year ended December 31, 1998, ILEX's top five CRO customers
accounted for 83% of the Company's CRO revenue. Oxigene, Proctor & Gamble, and
Lilly represented 28%, 22%, and 19% of the Company's 1998 CRO revenues. The loss
of business from a significant client could materially and adversely affect the
Company's business, financial condition and results of operations.

         CLINICAL RESEARCH SERVICES

         The Company offers its contract research clients a full range of
services, including but not limited to the following:

                  STUDY PROTOCOL DESIGN. The protocol defines the medical issues
         the study seeks to examine and the statistical tests that will be
         conducted. Accordingly, the protocol defines the frequency and type of
         laboratory and clinical measures that are to be tracked and analyzed,
         the number of patients required to produce a statistically valid
         result, the period of time over which the patients must be tracked, and
         the frequency and dosage of drug administration. The Company believes
         its experience with NDA-directed studies, knowledge of rapidly changing
         clinical practices and knowledge of the FDA's position on acceptable
         endpoints are very beneficial to the design of oncology clinical
         trials.

                  SITE AND INVESTIGATOR RECRUITMENT. The study drug is
         administered to patients by physicians, referred to as "investigators",
         at hospitals, clinics or other locations, referred to as "sites." The
         trial's success depends on the successful identification and
         recruitment of investigators with an adequate base of patients who
         satisfy the requirements of the study protocol. ILEX has access to
         leading sites and investigators through its relationships with CTRC
         Research and PRN, the Company's Scientific Advisory Board and
         investigators used in previous studies.

                  PATIENT ENROLLMENT. The speed with which trials can be
         completed is significantly affected by the rate at which patients are
         enrolled by investigators. ILEX has access to a large patient
         population through its relationships with CTRC Research and PRN, which
         enroll numerous oncology patients into clinical trials. The Company
         also has access to a network of investigators who collaborate with
         ILEX, CTRC Research and members of ILEX's Scientific Advisory Board.





                                       16
<PAGE>   18


                  REGULATORY AFFAIRS SERVICES. ILEX provides comprehensive
         regulatory product registration services for pharmaceutical and
         biotechnology products in North America and, to a lesser extent, in
         Europe, including regulatory strategy formulation, document preparation
         and liaison with the FDA and other regulatory agencies. ILEX works
         closely with clients to devise regulatory strategies and comprehensive
         product development programs. The Company's regulatory affairs experts
         review existing published literature, assess the scientific background
         of a product, assess the competitive and regulatory environment,
         identify deficiencies and define the steps necessary to obtain
         registration in the most expeditious manner. Through this service, the
         Company helps its clients determine the feasibility of developing a
         particular product or product line. ILEX's regulatory group specializes
         in enabling clients to make timely regulatory submissions with the
         final objective of NDA approval. The Company frequently communicates
         with the FDA, which the Company believes streamlines the approval
         process by allowing the Company to address regulatory concerns early in
         the development process. ILEX also closely monitors evolving regulatory
         policies in the U.S. and internationally, which allows the Company to
         design global regulatory strategies with the objective of expedited
         product approvals.

                  TOXICOLOGY SERVICES. ILEX performs the full range of drug
         safety toxicology analyses in a state-of-the-art, American Association
         for Accreditation of Laboratory Animal Care ("AAALAC") accredited
         facility currently certified to meet National Institutes of Health U.S.
         Public Health Service guidelines and current Good Laboratory Practices
         ("cGLP") standards. The Company's drug safety specialists develop and
         execute comparative studies, find the mechanism of action and interpret
         the data to determine a compound's clinical significance. The Company
         has also developed animal models to test compounds for the prevention
         of alopecia, mucositis and cardiotoxicity, side effects frequently
         associated with cancer treatment drugs. ILEX's Quality Assurance Unit
         audits all drug safety studies to certify that technicians are
         performing the procedures according to standard operating procedures
         and/or protocols. The Company currently manages validated animal
         testing laboratories at the University of Texas Health Science
         Center-San Antonio ("UTHSCSA") for the purposes of conducting
         toxicology studies under cGLP.

                  MANUFACTURING EXPERTISE. ILEX believes that it is one of only
         a few custom chemical synthesis manufacturers focused on bulk oncology
         drugs in the U.S. The Company conducts its manufacturing operations at
         a 7,200-square-foot state-of-the-art manufacturing facility, at which
         it manufactures bulk drug products for non-clinical and clinical trials
         for CRO clients and for its own in-licensed compounds. Oncology drugs
         are complex, toxic molecules that are difficult to synthesize and
         require special handling procedures. ILEX's management team has
         extensive oncology drug manufacturing expertise. Most of the compounds
         being developed by the Company have never been manufactured on a
         commercial basis, and the Company has no experience in manufacturing
         compounds in commercial quantities. There can be no assurance that such
         compounds can be manufactured at a cost, or in quantities, necessary to
         make them commercially viable.

         Additional services provided by the Company include study monitoring
and data collection, report writing and medical services.

STRATEGIC ALLIANCES - ILEX SERVICES

         PRN

         As described above, in July 1997, ILEX entered into a comprehensive
clinical development alliance with PRN. Pursuant to the Company's agreement with
PRN, as of December 31, 1998, ILEX has 


                                       17
<PAGE>   19

issued PRN 314,600 shares of Common Stock. Provided certain CRO revenue goals of
ILEX are achieved, PRN may receive an additional 941,991 shares of Common Stock
between July 1, 1999, and July 1, 2001. ILEX will market and promote PRN's
provision of services and participation in ILEX's clinical trials to
pharmaceutical and biotechnology companies. In addition, in July 1997, PRN
assigned its economic interests in a contract research agreement among PRN, ILEX
and Lilly to ILEX in exchange for 312,188 shares of Common Stock.

         In December 1998, PRN entered into a definitive agreement to combine
with American Oncology Resources, Inc. ("AOR"). Pending consummation of the
agreement, the combination will form the nation's largest cancer management
company. ILEX believes that its contract with PRN will remain in place, and that
ILEX will benefit through expanded access to cancer patients for clinical
trials.

         The Agreement between ILEX and PRN may be terminated by either party in
the event a "change of control" occurs in the other party. In the case of PRN, a
"change of control" occurs in the event (i) PRN Parent no longer owns at least
80% of the issued and outstanding voting stock of PRN, or (ii) any "Person" (as
such term is defined in Sections 12(d) and 13(d) of the Securities Exchange Act
of 1934, as amended, becomes the beneficial owner of more than 40% of the voting
power of PRN Parent's outstanding securities, and such Person is engaged in
either the CRO, pharmaceutical or biotechnology business. In the case of ILEX, a
"change of control" occurs in the event any Person becomes the beneficial owner
of more than 40% of the voting power of ILEX outstanding securities and such
Person is engaged in the physician practice management business. Either party
may also terminate the Agreement in the event the stockholders of the other
party approve a plan of liquidation or in the event of an agreement of sale or
disposition by the other party of all or substantially all of such party's
assets. As of December 31, 1998 a change in control had not occurred.

         PFK

         In August 1997, ILEX formed an alliance with PFK, a European contract
research organization headquartered outside Munich, Germany. ILEX initially
acquired 30% of the ownership interests of PFK, and PFK was renamed PFK-ILEX.
ILEX subsequently increased its ownership interest to 40%. The Company has the
option to acquire up to 49% of the ownership interests of PFK-ILEX. This
alliance allows the Company to pursue a leadership role in the European oncology
contract research services market and to pursue simultaneous development of
oncology drugs in the U.S. and Europe. In 1998, PFK incurred a net loss and did
not contribute to the profitability of the Company's CRO business.

         CRG

         In May 1998, the Company formed a strategic alliance with Clinical
Research Group, Inc., ("CRG"), the largest site management organization focused
exclusively in oncology in the U.S. The alliance expands ILEX's access to cancer
patients for clinical trials and enhances ILEX's position as the industry's
foremost provider of oncology drug development services.

         ILEX has agreed to guarantee the obligations of CRG with respect to
certain financing. In consideration for such accommodation by ILEX, CRG has
granted to ILEX an option to purchase 100% of the ownership interests of CRG.
This option can be exercised within three years of the agreement date, with the
purchase price calculation equal to the greater of $5 million or five times
annualized EBIT (earnings before interest and taxes), increased for CRG working
capital, and decreased for CRG debt principal and accrued interest guaranteed by
ILEX.




                                       18
<PAGE>   20



RELATIONSHIP WITH CTRC

         The Company was incorporated in December 1993 coincident with the
transfer of certain advanced drug development programs, intellectual property
rights and commercial opportunities from CTRC Research. CTRC Research was formed
as part of a program begun by CTRC, a regional cancer treatment and research
center located in San Antonio, Texas. CTRC was founded in 1972 and today, in
conjunction with the UTHSCSA, is an NCI-designated Comprehensive Cancer Center,
one of two in the state of Texas. Under the leadership of Charles Coltman, Jr.,
M.D., Co-Chairman of the Company's Scientific Advisory Board, CTRC has become
known for its expertise in clinical research. Dr. Coltman is also Chairman of
the Southwest Oncology Group ("SWOG"). Daniel Von Hoff, M.D., the other
Co-Chairman of the Company's Scientific Advisory Board, was appointed Director
of Research at CTRC in 1988. In 1991, under the direction of Dr. Von Hoff, CTRC
established the Institute for Drug Development ("IDD") under a Program Agreement
with UTHSCSA, with the mission of accelerating the development of oncology
drugs. Primarily through the efforts of Dr. Von Hoff, IDD has since established
one of the largest groups in the U.S. for conducting Phase I clinical trials of
oncology drugs. In 1991, CTRC also formed CTRC Research to principally engage in
the research activities of CTRC, including the IDD. CTRC and CTRC Research and
their related entities have had some level of participation in the clinical
development of a substantial majority of the U.S. anticancer drugs developed
over the past 10 years.

         CTRC Research beneficially owns approximately 22% of the Company's
outstanding shares of Common Stock.

         CTRC Research provides certain technical assistance to the Company on a
fee-for-service basis. The Company believes that access to these resources
better enable it to focus its efforts on building highly effective clinical
development, manufacturing and toxicology capabilities. The Company expects to
continue to engage CTRC Research to conduct clinical studies of ILEX's products,
which enables ILEX to receive timely feedback regarding the efficacy and safety
of new drugs.

         The Company believes that its established relationship with CTRC
Research and its related entities and the Company's experienced Scientific
Advisory Board put it in a position to identify and to license novel anticancer
drugs for development. ILEX believes its established relationship with CTRC
Research and SWOG allows it to obtain prompt feedback on the safety and efficacy
of its compounds, and access to potential contract research services clients.
However, CTRC Research is an independent entity that neither ILEX nor its
management controls. There can be no assurance that ILEX and CTRC will be able
to maintain their mutually beneficial relationship, and any deterioration of
such relationship could have a material adverse effect on the Company's
business, financial condition and results of operations.

         POTENTIAL FUTURE ALLIANCES AND COLLABORATIONS

         In the ordinary course of its business, the Company investigates,
evaluates and discusses with others the potential creation of strategic
collaborations, and the acquisition of businesses, technologies and compounds
that complement the Company's business. Although the Company currently has no
definitive understandings or agreements with respect to any such strategic
collaboration or acquisition, the Company is actively engaged in discussions
with several parties which may either singly or in the aggregate materially
impact the Company's business, financial condition and results of operations. No
assurance can be given, however, that any such strategic collaboration or
acquisition will be made or, if made, that it will prove to be successful.



                                       19
<PAGE>   21

PATENTS, TRADEMARKS AND TRADE SECRETS

         Proprietary protection for the Company's products is important to the
Company's business. Although the Company seeks appropriate patent protection
both in the U.S. and abroad for its proprietary technology, to date, the Company
has no patents issued in its name. In addition to seeking its own patents, the
Company has entered into license agreements with various pharmaceutical
companies and research, educational and governmental institutions to obtain
certain patent rights from them for the purpose of developing, manufacturing and
selling potential products using the compounds and technologies protected by
such patents. Under these agreements, the Company is obligated to pay royalties
of varying rates based upon, among other things, levels of revenues from the
licensed products. Generally, the agreements continue for a specified number of
years or for as long as any licensed patents remain in force, absent breach of
the terms of the agreements or termination of the agreements. The patent
positions of biotechnology and pharmaceutical companies, however, can be highly
uncertain and often involve complex legal and factual questions, and therefore,
the breadth of claims allowed in biotechnology and pharmaceutical patents cannot
be predicted.

         The Company's compounds acquired pursuant to in-licensing arrangements
are protected by 14 patents obtained by the Company's licensors in the U.S., and
six patents of the Company's licensors are pending in the U.S. The Company's
licensors also obtained 126 foreign patents (counterparts to the U.S. issued
patents and patent applications) and nine foreign patents are pending. The
patents and patent applications in-licensed by the Company have not been
independently investigated by the Company, and there can be no assurance that
any such patents or patent applications will not be challenged or will provide
protection for the Company's compounds. The Company has filed two of its own
U.S. patent applications for the use of eflornithine in combination with certain
drugs used to treat breast cancer and in certain novel formulations. There can
be no assurance that a patent will issue as a result of either such application
or what scope of protection that these issued patents will provide or whether
such patents will ultimately be upheld as valid by a court of competent
jurisdiction in the event of a legal challenge. Oxypurinol and aminopterin do
not have patent protection. U.S. patents on ILEX's other current products which
expire in the next 10 years include: eflornithine (2000) and piritrexim (2007).
The patent application of the LeukoSite joint venture for CAMPATH(R) is pending.
Various patents have been granted outside of the U.S. relating to CAMPATH(R),
which expire between years 2011 and 2013. The U.S. patent application of the
LeukoSite joint venture for CAMPATH(R) is pending. The Company's licenses
generally cover the length of the patent.

         A number of significant changes in the U.S. patent laws were mandated
by the North American Free Trade Agreement ("NAFTA") and the Uruguay Round of
the General Agreement on Tariffs and Trade ("GATT"). Legislation enacting these
treaties has been passed into law. The term of exclusive rights afforded by a
U.S. patent has historically been a period of 17 years measured from the date of
grant. Under the new legislation, the new term of U.S. patents will commence on
the date of grant, and terminate 20 years from the date on which the patent
application was filed in the U.S. Existing patents and future patents granted on
an application filed before June 8, 1995, will have a term that is the longer of
20 years from the filing date or 17 years from the date of grant. If a patent
issues from a continuation-in-part, divisional or continuing application, the
20-year patent expiration date is measured from the filing date of the earliest
U.S. priority application, other than a provisional application, relied on by
the applicant. This change will affect the term of any patent granted on
applications filed subsequent to June 8, 1995, including patents which
ultimately mature from existing applications, if they are refiled as
continuations or continuations-in-part after June 8, 1995.

         Under the Drug Price Competition and Patent Term Restoration Act of
1984, U.S. product patents, use patents or manufacturing patents may be extended
for up to five years under certain circumstances to compensate the patent holder
for the time required for FDA regulatory review of the product. The benefits of
such act are available only to the first approved use of the active ingredient
in the 


                                       20
<PAGE>   22

drug product and may be applied only to one patent per drug product. This law
also establishes a period of time following FDA approval of certain new drug
applications during which other sponsors may not submit an NDA for the drug
without infringing upon the Company's patent. There can be no assurance that the
Company will be able to take advantage of either the patent term extension or
market exclusivity provisions of this law.

         No assurance can be given that any patent issued to, or licensed by,
the Company will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds is particularly
uncertain. No assurance can be given that the Company's patents will afford
protection against competitors with similar compounds or technologies, that
others will not obtain patents claiming aspects similar to those covered by the
Company's patents or applications, that the patents of others will not have an
adverse effect on the ability of the Company to do business or that the patents
issued to or licensed by the Company will not be infringed, challenged,
invalidated or circumvented. Moreover, the Company believes that obtaining
foreign patents may, in some cases, be more difficult than obtaining domestic
patents because of differences in patent laws, and the Company recognizes that
its patent position, therefore, may be stronger in the U.S. than abroad. In
addition, the protection provided by foreign patents, once they are obtained,
may be weaker than that provided by domestic patents.

         In addition to pursuing patent protection in appropriate cases, the
Company also relies on trade secret protection for its unpatented proprietary
technology. However, trade secrets are difficult to protect. There can be no
assurance that the Company will be able to meaningfully protect its rights in
such unpatented proprietary technology or that others will not independently
develop substantially equivalent proprietary information and techniques,
circumvent the Company's attempts to protect its proprietary technology, or
otherwise gain access to the Company's trade secrets, that such trade secrets
will not be disclosed or that the Company can effectively protect its rights to
unpatented trade secrets. The Company requires its employees and consultants to
execute proprietary information agreements upon commencement of employment or
consulting relationships with the Company, which agreements provide that all
confidential information developed or made known to the individual during the
course of the relationship shall be kept confidential except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets or other
proprietary information in the event of unauthorized use or disclosure of such
information.

         ILEX is a registered U.S. trademark of the Company.

COMPETITION

         Competition in the area of pharmaceutical products is intense. There
are many companies, both public and private, including pharmaceutical and
biotechnology companies that are engaged in the development of products for
certain of the applications being pursued by the Company. Moreover, products
currently exist in the market that will compete directly with the products that
the Company is seeking to develop. Most of these companies have substantially
greater financial, research and development, manufacturing and marketing
experience and resources than the Company and represent substantial long-term
competition for the Company. Such companies may succeed in discovering and
developing pharmaceutical products more rapidly than the Company and its
collaborative partners or pharmaceutical products that are safer or more
effective or less costly than any that may be developed by the Company and its
collaborative partners. Such companies may also prove to be more successful than
the Company and its collaborative partners in production and marketing. Smaller
companies may also prove to be significant competitors, particularly through
collaborative arrangements with large pharmaceutical and established
biotechnology companies. Academic institutions, governmental agencies and other
public and private research organizations also conduct clinical development,
seek patent protection and establish collaborative arrangements for the
development of oncology products. ILEX faces competition based on product
efficacy and safety, the timing and scope of regulatory approvals, 


                                       21
<PAGE>   23

availability of supply, marketing and sales capability, reimbursement coverage,
price and patent position. There can be no assurance that the Company's
competitors will not (i) develop safer and more effective products; (ii) obtain
patent protection or intellectual property rights that limit the Company's or
its collaborative partners' ability to commercialize products that may be
developed; or (iii) commercialize products earlier than the Company. The
industry in which the Company competes is characterized by extensive research
and development efforts and rapid technological progress. New developments occur
and are expected to continue to occur at a rapid pace, and there can be no
assurance that discoveries or commercial developments by the Company's
competitors will not render some or all of the Company's potential products
obsolete or non-competitive, which would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
competitive position also depends on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources.

         In its contract research services business, the Company primarily
competes against in-house departments of pharmaceutical companies, other more
broad-based CROs and, to a lesser extent, universities and teaching hospitals.
Many of these competitors have substantially greater capital, technical and
other resources than the Company. CROs generally compete on the basis of
previous experience, medical and scientific expertise in specific therapeutic
areas, the quality of contract research, the ability to organize and manage
large-scale trials on a global basis, the ability to manage large and complex
medical databases, the ability to provide statistical and regulatory services,
the ability to recruit investigators and patients, the ability to integrate
information technology with systems to improve the efficiency of contract
research, an international presence with strategically located facilities,
financial viability and price. There can be no assurance that the Company will
be able to compete favorably in these areas.

GOVERNMENT REGULATION

         The design, development, research, testing, manufacture, labeling,
distribution, marketing and advertising of products such as the Company's
proposed products are subject to extensive regulation by governmental regulatory
authorities in the U.S. and other countries. The drug approval process is
generally lengthy, expensive and subject to unanticipated delays. The FDA, and
comparable agencies in foreign countries, impose substantial requirements on the
introduction of new pharmaceutical products through lengthy and detailed
non-clinical and clinical testing procedures, sampling activities and other
costly and time-consuming compliance procedures. A new drug may not be marketed
in the U.S. until it has undergone rigorous testing and has been approved by the
FDA. The drug may then be marketed only for the specific indications, uses,
formulation, dosage forms and strengths approved by the FDA. Similar
requirements are imposed by foreign regulators upon the marketing of a new drug
in their respective countries. Satisfaction of such regulatory requirements,
which includes demonstrating to the satisfaction of the FDA that the relevant
product is both safe and effective, typically takes eight to ten years or more
depending upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources. Non-clinical studies must be conducted in
conformance with the FDA's cGLP regulations. The Company's compounds require
extensive clinical trials and FDA review as new drugs. Clinical trials are
vigorously regulated and must meet requirements for FDA review and oversight and
requirements under Good Clinical Practice Regulations. There can be no assurance
that the Company will not encounter problems in clinical trials that would cause
the Company or the FDA to delay or suspend clinical trials. Any such delay or
suspension could have a materially adverse effect on the Company's business,
financial condition and results of operations.

         The steps required before a drug may be marketed in the U.S. include
(i) non-clinical laboratory and animal tests, (ii) submission to the FDA of an
application for an IND, which must become effective before human clinical trials
may commence, (iii) human clinical trials to establish the safety and efficacy


                                       22
<PAGE>   24

of the drug, (iv) the submission of a detailed NDA to the FDA and (v) FDA
approval of the NDA. In addition to obtaining FDA approval for each product,
each domestic establishment where the drug is to be manufactured must be
registered with the FDA. Domestic manufacturing establishments must comply with
current Good Manufacturing Practices ("cGMP") and are subject to periodic
inspections by the FDA. Foreign manufacturing establishments also must comply
with cGMP and are subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA.

         Non-clinical tests include laboratory evaluation of product chemistry
and animal studies to assess the potential safety and efficacy of the product.
Products must be formulated according to cGMP, and non-clinical tests must be
conducted by laboratories that comply with FDA regulations regarding cGLP. The
results of non-clinical tests are submitted to the FDA as part of an IND, which
must become effective before the sponsor may conduct clinical trials in human
subjects. Unless the FDA objects to an IND, the IND becomes effective 30 days
following its receipt by the FDA. There is no certainty that submission of an
IND will result in FDA authorization of the commencement of clinical trials.

         Clinical trials involve the administration of the investigational drug
to patients. Clinical trials typically are conducted in three phases, which
generally are conducted sequentially, and test for safety, side effects, dosage
tolerance, metabolism and clinical pharmacology. With respect to anticancer
agents, testing typically is done with a small group of patients with advanced
cancers that have proved unresponsive to other forms of therapy. Phase I testing
typically takes one year to complete. Phase II involves tests in a larger but
still limited patient population to determine the efficacy of the drug for
specific indications, to determine optimal dosage and to identify possible side
effects and safety risks. Phase II testing for an indication typically takes
from one and one-half to two and one-half years to complete. If a drug proves to
be efficacious in Phase II evaluations, expanded Phase III trials are undertaken
to evaluate the overall risks and benefits of the drug in relationship to the
treated disease in light of other available therapies. Phase III studies
generally take from two and one-half to five years to complete. There can be no
assurance, however, that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all. Furthermore,
the FDA may suspend clinical trials at any time if it decides that patients are
being exposed to a significant health risk.

         The results of the non-clinical studies and clinical trials are
submitted to the FDA as part of an NDA for approval of the marketing and
commercial shipment of the drug. The NDA also includes information pertaining to
the chemistry, formulation, activity and manufacture of the drug and each
component of the final product, as well as details relating to the sponsoring
company. The NDA review process takes more than two years on average to
complete, although reviews of treatments for cancer and other life-threatening
diseases may be accelerated. However, the process may take substantially longer
if the FDA has questions or concerns about a product. In general, the FDA
requires at least two adequate and well-controlled clinical studies
demonstrating efficacy in order to approve an NDA. The FDA may, however, request
additional information, such as long-term toxicity studies or other studies
relating to product safety. Notwithstanding the submission of such data, the FDA
ultimately may decide that the application does not satisfy its regulatory
criteria for approval. Finally, the FDA may require additional clinical tests
following NDA approval.

         The Company's area of focus, oncology, is not thoroughly understood and
there can be no assurance that the drugs the Company is seeking to develop will
prove to be safe and effective in treating or preventing cancer. The development
of such drugs will require the commitment of substantial resources to conduct
the non-clinical development and clinical trials necessary to bring such
compounds to market. Drug research and development by its nature is uncertain.
There is a risk of delay or failure at any stage, and the time required and cost
involved in successfully accomplishing the Company's objectives cannot be
predicted. Actual drug research and development costs could exceed budgeted
amounts, which could have a material adverse effect on the Company's business,
financial condition and results of operations.



                                       23
<PAGE>   25

         The Company cannot predict with certainty when, if ever, it might
submit for regulatory review additional compounds currently under development.
Once the Company submits its potential products for review, there can be no
assurance that FDA or other regulatory approvals for any pharmaceutical products
developed by the Company will be granted on a timely basis, if at all. There
also can be no assurance that delays or rejections will not be encountered based
upon additional government regulation from future legislation or administrative
action or that changes will not be made in FDA policy during the period of
product development and FDA regulatory review of each submitted NDA. A delay in
obtaining or failure to obtain such approvals would have a material adverse
effect on the Company's business, financial condition and results of operations.
Even if such regulatory approval is obtained, it is limited as to the indicated
uses for which the product may be promoted or marketed. A marketed product, its
manufacturer and the facilities in which it is manufactured are subject to
continual review and periodic inspections. Failure to comply with regulatory
requirements and other factors could subject the Company to regulatory or
judicial enforcement actions, including, but not limited to, product recalls or
seizures, injunctions, withdrawal of the product from the market, civil
penalties, criminal prosecution, refusals to approve new products and withdrawal
of existing approvals, as well as potentially enhanced product liability
exposure. Sales of the Company's products outside the U.S. will be subject to
foreign regulatory requirements governing clinical trials and marketing
approval. These requirements vary widely from country to country and could delay
introduction of the Company's products in certain countries.

         One element of the Company's strategy is to develop chemoprevention
compounds that, when taken chronically, may prevent the progression of cancer.
To date, the FDA has not approved any chemoprevention compounds and there can be
no assurance that the FDA will approve such compounds in the future. Because no
chemoprevention drugs have yet obtained marketing approval, the clinical
development path is uncertain. There can be no assurance that ILEX will be able
to successfully develop a safe and efficacious chemoprevention product, that
such product will be commercially viable or that it will achieve market
acceptance.

         In 1988, the FDA issued regulations intended to expedite the
development, evaluation and marketing of new therapeutic products to treat
life-threatening and severely debilitating illnesses for which no satisfactory
alternative therapies exist. These regulations provide for early consultation
between the sponsor and the FDA in the design of both non-clinical studies and
clinical trials. There can be no assurance, however, that any future products
the Company may develop will be eligible for evaluation by the FDA under the
1988 regulations. In addition, there can be no assurance that future products,
if eligible, will be approved for marketing at all or, if approved for
marketing, will be approved for marketing sooner than would be traditionally
expected. Regulatory approval granted under these regulations may be restricted
by the FDA as necessary to ensure the safe use of the drug. In addition,
post-marketing clinical studies are required. If drugs do not perform
satisfactorily in such post-marketing clinical studies, the products would
likely be required to be withdrawn from the market.

         The Company intends to seek orphan drug status for some of its product
candidates pursuant to the Orphan Drug Act and has been granted orphan drug
status for CAMPATH(R) and oxypurinol. There can be no assurance orphan drug
status will be granted for other product candidates or that any such grant of
orphan drug status will provide the Company with any benefits. Although orphan
drug status may provide an applicant exclusive marketing rights in the U.S. for
a designated indication for seven years following marketing approval, in order
to obtain such benefits, the applicant must be the sponsor of the first NDA
approved for that drug and indication. Moreover, amendment of the Orphan Drug
Act by the U.S. Congress and reinterpretation by the FDA are frequently
discussed. Legislation to limit exclusivity in some respects was passed by
Congress, but vetoed by the President in 1990. FDA regulations reflecting
certain other limitations and procedures went into effect in January 1993.
Therefore, there can be no assurance as to the precise scope of protection that
may be afforded by orphan drug status in the future, or that the current level
of exclusivity will remain in effect.



                                       24
<PAGE>   26

         Among the requirements for product approval is the requirement that
prospective manufacturers conform to the FDA's cGMP standards, which also must
be observed at all times following approval. Accordingly, manufacturers must
continue to expend time, money and effort in production, record keeping and
quality control to ensure compliance with cGMP standards. Failure to so comply
subjects the manufacturer to possible FDA action, such as the suspension of
manufacturing or seizure of the product. The FDA may also request a voluntary
recall of a product.

         The product testing and approval process is likely to take a
substantial number of years, and involves the expenditure of substantial
resources. There can be no assurance that any approval will be granted. The FDA
also may require post-marketing testing and surveillance to monitor the product
and its continued compliance with regulatory requirements. Upon approval, a drug
may only be marketed for the approved indications in the approved dosage forms
and at the approved levels. Adverse experiences with the product must be
reported to the FDA. The FDA also may require the submission of any lot of the
product for inspection and may restrict the release of any lot that does not
comply with FDA standards, or may otherwise order the suspension of manufacture,
recall or seizure if non-compliant product is discovered. Product approvals may
be withdrawn if compliance with regulatory standards is not maintained or if
problems concerning safety or efficacy of the product are discovered following
approval.

         The Prescription Drug User Fee Act of 1992 ("the Act") was enacted to
expedite FDA review and approval of new drugs by providing the FDA additional
funds through the imposition of user fees. The Act imposes three kinds of user
fees on manufacturers of prescription drugs: (i) a one-time fee for each
single-source prescription drug application submitted on or after September 1,
1992; (ii) an annual fee for each establishment that produces single-source
prescription drugs; and (iii) an annual fee for each single-source prescription
drug product marketed.

         The Company also will be subject to foreign regulatory requirements
governing clinical trials, manufacturing of products, marketing of products and
product approvals. Whether or not FDA approval has been obtained, approval of a
product by the comparable regulatory authorities of foreign countries must be
obtained prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country and the time
required may be longer or shorter than that required for FDA approval. Under its
agreement with licensees and distributors in foreign countries, the Company
often requires the licensee or the distributor to be responsible for obtaining
regulatory approvals in their respective territories.

         Health care reform, if enacted, could result in significant change in
the financing and regulation of the health care industry. The Company is unable
to predict whether such changes will be enacted or, if enacted, the effect of
such changes on the future operation of the Company's business. Changes
affecting drug pricing, drug reimbursement, prescription benefits and levels of
reimbursement for drugs, among other changes, could have a materially adverse
effect on the Company's business, financial condition and results of operations.




                                       25
<PAGE>   27




                            ADDITIONAL BUSINESS RISKS

ABSENCE OF DEVELOPED PRODUCTS; EARLY STAGE OF PRODUCT DEVELOPMENT; UNCERTAINTY
OF PRODUCT DEVELOPMENT AND CLINICAL DEVELOPMENT

         The Company currently has no products available for sale, however, the
Company anticipates CAMPATH(R) will receive FDA approval to be marketed
commercially within the next two years. However, no assurances can be made that
the FDA will grant such approval or, if the FDA does grant such approval that
CAMPATH(R) will be accepted in the marketplace. The Company's proposed products
are primarily in the development stage and will require extensive clinical
testing prior to submission of any regulatory application for commercial use.
These potential products are subject to the risks of failure inherent in the
development of pharmaceutical products. Some of the Company's potential products
may be found to be unsafe or ineffective or otherwise fail to receive necessary
regulatory clearances, and some have been found to have adverse side effects in
previous clinical trials. A finding that these products have undesirable or
unintended side effects or other characteristics that prevent or limit their
commercial use could have a materially adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
any products will be developed successfully by the Company or its partners,
prove to be safe and efficacious, receive required governmental regulatory
approvals, be capable of being manufactured on a large scale or at acceptable
costs, be economical to market or achieve market acceptance. There can also be
no assurance that third parties will not market superior products or that
reimbursement to the consumer from government and private insurance plans and
other third-party payors will be sufficient or available.

         The Company's area of focus, oncology, is not thoroughly understood and
there can be no assurance that the drugs the Company is seeking to develop will
prove to be safe and effective in treating or preventing cancer. The development
of such drugs will require the commitment of substantial resources to conduct
the non-clinical development and clinical trials necessary to bring such
compounds to market. Drug research and development by its nature is uncertain.
For example, to date, no drug for the prevention of cancer (i.e.,
chemoprevention drug) has been approved by the FDA, and there can be no
assurance that the Company will be able to develop successfully a safe and
efficacious chemoprevention drug, that such drug will be commercially viable or
that it will achieve market acceptance. There is a risk of delay or failure at
any stage, and the time required and cost involved in successfully accomplishing
the Company's objectives cannot be predicted. For example, actual drug research
and development costs could exceed budgeted amounts, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.


             [The remainder of this page intentionally left blank.]



                                       26
<PAGE>   28

DEPENDENCE ON COLLABORATIVE RELATIONSHIPS; DEPENDENCE ON LICENSES

         The Company's strategy for the development, clinical testing,
manufacture and commercialization of certain of its proposed products depends
upon the Company's entering into various collaborations with corporate partners,
licensors, licensees and others, and is contingent upon the subsequent success
of these third parties in performing their responsibilities. The Company has
entered into corporate collaborations with LeukoSite, PRN and CRG. The amount
and timing of capital and resources to be devoted to these activities by its
strategic partners and any future collaborators are not within the control of
the Company. There can be no assurance that such partners will perform their
obligations as expected or that the Company will derive any additional revenue
from such arrangements. There can be no assurance that these strategic partners
or any other future collaborators will not pursue their existing or alternative
products in preference to those being developed in collaboration with the
Company. In addition, there can be no assurance that these collaborations will
be maintained, that these strategic partners or any of the Company's future
collaborators will pay any additional fees to the Company or that they will
market any products pursuant to agreements with the Company. Furthermore, there
can be no assurance that the Company will be able to negotiate additional
collaborative arrangements in the future, or that such collaborative
arrangements will be maintained or be successful. To the extent that the Company
chooses not to, or is unable to, establish and maintain (or avoid termination
of) such arrangements, it would require substantially greater capital to
undertake development and marketing of its proposed products at its own expense.
In addition, the Company may encounter significant delays in introducing its
proposed products into certain markets or find that the sale of its proposed
products in such markets is adversely affected by the absence of such
collaborative agreements. The Company does not have sales, marketing or
distribution capability. To market any of its products directly, the Company
would need to develop a marketing and sales force with both technical expertise
and supporting distribution capability. There can be no assurance that the
Company will be able to establish in-house sales and distribution capabilities
or marketing relationships with third parties, that such marketing relationships
will be successful or that the Company will be otherwise successful in gaining
market acceptance for its products. Failure to market or otherwise develop its
products successfully through corporate partners or directly would have a
materially adverse effect on the Company's business, financial condition and
results of operations.

LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; EXPECTED FUTURE LOSSES

         The Company commenced operations in October 1994 and has only a limited
operating history upon which an evaluation of its performance may be based.
Potential investors, therefore, have limited historical financial information
upon which to base an evaluation of the Company's performance and an investment
in shares of Common Stock. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stages of operations.

         To date, the Company has incurred substantial net losses. Net loss for
the years ended December 31, 1996, 1997 and 1998 was approximately $615,000,
$8,682,000, and $21,228,000. At December 31, 1998, the company's accumulated
deficit was approximately $31,283,000. The Company has not generated any
revenues from product sales to date, and there can be no assurance that revenues
from product sales will be achieved. Moreover, even if the Company does achieve
revenues from product sales or increased contract research services, the Company
expects to incur significant operating losses over the next several years. The
Company's ability to achieve a profitable level of operations in the future will
depend in large part on its completing development of its compounds, obtaining
regulatory approvals for such compounds, commercializing these potential
products through marketing agreements with other companies or, if the Company
chooses, marketing such compounds independently, successfully manufacturing such
compounds, achieving market acceptance of such compounds and expanding its
contract research services business. There can be no assurance that the Company
will ever be successful 


                                       27
<PAGE>   29

in developing such compounds, obtaining such approvals, bringing such compounds
to market, developing sales, marketing or distribution capabilities,
manufacturing such products, generating market acceptance or expanding its
contract services business. The likelihood of the long-term success of the
Company must be considered in light of the expenses, difficulties and delays
frequently encountered in the development and commercialization of new
pharmaceutical products, competitive factors in the marketplace as well as the
comprehensive and uncertain regulatory environment in which the Company
operates. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

         The Company will require substantial additional funds to conduct
research and development, to develop further its potential pharmaceutical
products, to manufacture and market any pharmaceutical products that may be
developed and to expand its contract research services business. The Company
expects its capital and operating expenditures to increase substantially over
the next several years. The Company has no current sources of funding beyond the
proceeds from its initial public offering, its collaborative agreements with its
strategic partners, its drug development service operations, existing cash and
cash equivalents and investments in marketable securities. The Company believes
that its collaborative agreements with strategic partners, its contract research
services, existing cash and cash equivalents and investments in marketable
securities will satisfy its currently budgeted cash requirements through at
least year 2000 based upon the Company's current operating plan and conditions,
but there can be no assurance that the Company will not require, or choose to
raise, additional funds prior to such date. The Company may seek such additional
funding through public or private equity or debt financing, collaborative or
other arrangements with third parties or from other sources. There can be no
assurance, however, that additional funds will be available on acceptable terms,
if at all. If additional funds are raised by issuing equity securities, further
substantial dilution to existing stockholders, including purchasers of the
Common Stock offered hereby, may result. If adequate funds are not available,
the Company may be required to delay, scale back or eliminate one or more of its
development programs, or to obtain funds by entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its products or technologies that the Company would not
otherwise relinquish and which could have a materially adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DEPENDENCE ON KEY INDIVIDUALS; UNCERTAINTY OF IDENTIFICATION AND ACQUISITION OF
NEW PRODUCT CANDIDATES; NEED FOR ADDITIONAL PERSONNEL

         The success of the Company depends upon its ability to identify and
obtain rights to commercially viable oncology compounds and to negotiate
favorable relationships with owners of oncology-related technology. There can be
no assurance that the Company will be successful in identifying commercially
viable oncology compounds, in-licensing the rights to such compounds or
negotiating other favorable relationships. Due to the technical expertise and
knowledge required by ILEX to identify potential compounds or technology
acquisition targets, it has made a strategic decision to rely heavily upon
Daniel Von Hoff, M.D., a founder of the Company and Co-Chairman of the Company's
Scientific Advisory Board. Dr. Von Hoff does not have an employment contract
with the Company, and the consulting contract between the Company and Dr. Von
Hoff does not obligate Dr. Von Hoff to devote any specified level of time or
resources to the development of potential products for ILEX. Dr. Von Hoff has
substantial other professional time commitments, including serving on the
scientific advisory boards of other companies, and there can be no assurance
that he will provide the Company with any product targets in the future. In
addition, Dr. Von Hoff is prohibited under the terms of his consulting agreement
from making recommendations about, or actively participating in decisions
regarding the acquisitions of 


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<PAGE>   30

compounds or technologies (i) owned or discovered by or licensed to certain
entities related to CTRC, or (ii) for which Dr. Von Hoff was the principal
investigator, supervised the principal investigator or provided the leadership
for the clinical or non-clinical studies for such compounds or technologies,
when such actions would give the appearance of a conflict. Dr. Von Hoff is also
prohibited from acting as the principal investigator for or supervising the
principal investigator for studies conducted by the Company. There can be no
assurance that the Company, through Dr. Von Hoff or otherwise, will be
successful in selecting product candidates or developing commercial
pharmaceutical products that are safe and efficacious. Discontinuation of the
Company's relationship with Dr. Von Hoff could have a significant adverse effect
on the Company's business, financial condition and results of operations.

         Because of the specialized scientific nature of the Company's business,
the Company's success is highly dependent upon its ability to attract and retain
qualified scientific and technical personnel. Loss of the services of Mr.
Richard Love or Dr. Von Hoff would be significantly detrimental to the Company's
product development and manufacturing programs and the Company's ability to
identify and obtain rights to commercially viable oncology compounds. Mr. Love's
employment agreement with the Company provides that it is terminable without
cause by either party upon 30 days' notice, and Dr. Von Hoff's consulting
agreement with the Company is terminable without cause by either party upon 60
days' notice. The Company is also highly dependent on the other principal
members of its scientific and management staff, and the loss of the services of
such personnel could have a materially adverse effect on the Company's business,
financial condition and results of operations. The Company only maintains
key-man life insurance policies on each of Mr. Love and Dr. Von Hoff, in each
case in the amount of $3 million.

         To expand its research and development programs, pursue its product
development plans and expand its CRO business, the Company will be required to
hire additional qualified scientific and technical personnel, as well as
personnel with expertise in clinical testing and government regulation. There is
intense competition for qualified personnel in the areas of the Company's
activities, and there can be no assurance that the Company will be able to
attract and retain the qualified personnel necessary for the development of its
business. The Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and research
institutions. The failure to attract and retain key scientific and technical
personnel would have a materially adverse effect on the Company's business,
financial condition and results of operations.

DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS; LOSS OR DELAY OF CRO CONTRACTS;
DEPENDENCE ON CTRC RESEARCH AND ITS RELATED ENTITIES

         Most of the Company's CRO contracts are terminable upon 60 to 90 days'
notice by the client. Clients terminate or delay service contracts for a variety
of reasons, including, among others, the failure of a compound being tested to
satisfy safety requirements, unexpected or undesired clinical results of the
compound, the client's decision to forgo a particular study, insufficient
patient enrollment or investigator recruitment, or production problems resulting
in shortages of the compound. The loss or delay of a large contract or the loss
or delay of multiple contracts could have a materially adverse effect on the
business, financial condition and results of operations of the Company. The
Company's contract services revenues are highly dependent on research and
development expenditures by the pharmaceutical and biotechnology industries. The
Company's business, financial condition and results of operations could be
materially and adversely affected by general downturns in, or adverse trends or
factors impacting, the pharmaceutical or biotechnology industries, the impact of
the current trend toward consolidation in these industries or any decrease in
research and development expenditures. The Company has an option to license
certain drug discoveries arising from research programs of CTRC Research.
However, the Company has no written agreement to acquire drugs or technology
from CTRC Research other than the Subordinated Option Agreement and there can be
no assurance that such a relationship will continue. If ILEX and CTRC Research
and its related entities are unable to maintain a mutually beneficial
relationship, including 


                                       29
<PAGE>   31

access by the Company to patients and investigators of CTRC Research and its
related entities, and to potential contract research clients, the business,
financial condition and results of operations of the Company could be materially
and adversely affected.

INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE

         Competition in the area of pharmaceutical products is intense. There
are many companies, both public and private, including pharmaceutical and
biotechnology companies that are engaged in the development of products for
certain of the applications being pursued by the Company. Moreover, products
currently exist in the market that will compete directly with the products that
the Company is seeking to develop. Most of these companies have substantially
greater financial, research and development, manufacturing and marketing
experience and resources than the Company and represent substantial long-term
competition for the Company. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Academic institutions,
governmental agencies and other public and private research organizations also
conduct clinical development, seek patent protection and establish collaborative
arrangements for the development of oncology products. There can be no assurance
that the Company's competitors will not (i) develop more safe and effective
products; (ii) obtain patent protection or intellectual property rights that
limit the Company's or its collaborative partners' ability to commercialize
products that may be developed; or (iii) commercialize products earlier than the
Company. Extensive research and development efforts and rapid technological
progress characterize the industry in which the Company competes. New
developments occur and are expected to continue to occur at a rapid pace, and
there can be no assurance that discoveries or commercial developments by the
Company's competitors will not render some or all of the Company's potential
products obsolete or non-competitive, which would have a materially adverse
effect on the Company's business, financial condition and results of operations.
In its contract research services business, the Company primarily competes
against in-house departments of pharmaceutical companies, CROs and, to a lesser
extent, universities and teaching hospitals. Many of these competitors have
substantially greater capital, technical and other resources than the Company
and represent significant long-term competition for the Company. There can be no
assurance that the Company will be able to compete favorably in its contract
research services.

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY POSITION; RIGHTS TO TECHNOLOGY
DEPENDENT UPON COMPLIANCE WITH LICENSES AND AGREEMENTS

         The Company's success depends in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others. To date, the Company has no patents issued in its name. There can be
no assurance that the Company's patent position will provide it with significant
protection against competitors or that patents issued to or licensed by the
Company will not be infringed or will not be challenged, invalidated or
circumvented. The patent positions of biotechnology and pharmaceutical companies
can be highly uncertain and often involve complex legal and factual questions
and therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents cannot be predicted. There can also be no assurance that the Company
will develop additional technologies, drugs or processes that are patentable,
license new technology, that patents will issue from any patent application or
that claims allowed will be sufficient to protect the Company's products and
technologies. Competitors may have filed applications, may have been issued
patents or may obtain additional patents and proprietary rights relating to
technologies, drugs and processes that compete with those of the Company. The
failure by the Company to protect adequately its technologies, drugs and
processes covered by issued patents or to obtain patents could have a materially
adverse effect on the Company's business, financial condition and results of
operations.

         The patents and patent applications in-licensed by the Company have not
been independently investigated by the Company, and there can be no assurance
that any such patents or patent applications 


                                       30
<PAGE>   32

will not be challenged or will provide protection for the Company's compounds.
Oxypurinol and aminopterin do not have patent protection and U.S. patents on
ILEX's other current products which expire in the next 10 years include:
eflornithine (2000) and piritrexim (2007). The patent application of the
LeukoSite joint venture for CAMPATH(R) is pending. The Company's rights to its
proprietary compounds are dependent upon compliance with certain licenses and
agreements which require, among other things, certain royalty and other
payments, the Company's reasonable use of the underlying technology of the
applicable patents, as well as the filing of certain regulatory submissions.

         Trade secrets are difficult to protect. There can be no assurance that
the Company will be able to meaningfully protect its rights in unpatented
proprietary technology or that the others will not independently develop
substantially equivalent proprietary information and techniques, circumvent the
Company's attempts to protect its proprietary technology, or otherwise gain
access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets.

         Litigation, which could result in substantial costs to the Company,
could be necessary to protect the Company's orphan drug designations or patent
position or to determine the scope and validity of third-party proprietary
rights, and there can be no assurance that the Company will have the required
resources to pursue such litigation or otherwise to protect its patent rights.
An adverse outcome in litigation with respect to the validity of any Company
patents could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require the Company
to cease using such product or technology, any of which could have a materially
adverse effect on the Company's business, financial condition and results of
operations.

         There can be no assurance that claims against the Company will not be
raised successfully in the future based on patents or other intellectual
property rights held by others. Such other persons could bring legal actions
against the Company claiming damages and seeking to enjoin clinical testing,
manufacturing and marketing of the affected product. If any actions are
successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to manufacture or
market the affected product. There can be no assurance that the Company would
prevail in any such action or that any license required under any such patent
would be made available on acceptable terms, if at all. There has been, and the
Company believes that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If the Company becomes involved in any litigation, it could consume a
substantial portion of the Company's resources and capital regardless of the
outcome of such litigation.

LACK OF OPERATING EXPERIENCE; MANAGEMENT OF GROWTH

         The Company has no experience in manufacturing or procuring products in
commercial quantities or selling pharmaceutical products and has only limited
experience in negotiating, establishing and maintaining strategic relationships,
conducting clinical trials and other later-stage phases of the regulatory
approval process. To date, the Company has engaged exclusively in acquiring and
developing pharmaceutical compounds and providing clinical research, development
and manufacturing services. The Company's ability to manage its growth, if any,
will require it to continue to improve and expand its management, operational
and financial systems and controls. If the Company's management is unable to
manage growth effectively, the Company's business, financial condition and
results of operations will be adversely affected. In addition, if rapid growth
occurs, it may strain the Company's operational, managerial and financial
resources. In the normal course of business, the Company evaluates potential
acquisitions of patents, compounds, technologies and businesses that could
complement or expand the Company's business. In the event the Company were to
identify an appropriate acquisition candidate, there is no assurance that the
Company would be able to successfully negotiate, finance or integrate such
acquired patents, compounds, technologies or businesses. Furthermore, such an
acquisition could cause a 


                                       31
<PAGE>   33

diversion of management time and resources. There can be no assurance that a
given acquisition would not materially adversely affect the Company's business,
financial condition and results of operations.

EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF NECESSARY FDA AND OTHER
REGULATORY APPROVALS

         The design, development, research, testing, manufacture, labeling,
distribution, marketing and advertising of products such as the Company's
proposed products are subject to extensive regulation by governmental regulatory
authorities in the U.S. and other countries. The drug approval process is
generally lengthy, expensive and subject to unanticipated delays. Satisfaction
of such regulatory requirements, which includes demonstrating to the
satisfaction of the FDA that the relevant product is both safe and effective,
typically takes several years or more depending upon the type, complexity and
novelty of the product and requires the expenditure of substantial resources.
There can be no assurance that the Company will not encounter problems in
clinical trials, which would cause the Company or the FDA to delay or suspend
clinical trials. Any such delay or suspension could have a materially adverse
effect on the Company's business, financial condition and results of operations.

         The Company cannot predict with certainty when, if ever, it might
submit for regulatory review additional compounds currently under development.
Once the Company submits its potential products for review, there can be no
assurance that FDA or other regulatory approvals for any pharmaceutical products
developed by the Company will be granted on a timely basis, if at all. There can
also be no assurance that delays or rejections will not be encountered or that
changes will not be made in FDA policy during the period of product development
and FDA regulatory review of each submitted NDA. A delay in obtaining or failure
to obtain such approvals would have a materially adverse effect on the Company's
business, financial condition and results of operations. Even if such regulatory
approval is obtained, it is limited as to the indicated uses for which the
product may be promoted or marketed. A marketed product, its manufacturer and
the facilities in which it is manufactured are subject to continual review and
periodic inspections. Failure to comply with regulatory requirements and other
factors could subject the Company to regulatory or judicial enforcement actions.
Sales of the Company's products outside the U.S. will be subject to foreign
regulatory requirements governing clinical trials and marketing approval, which
could delay introduction of the Company's products in certain countries.

POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT RELATED MATTERS AND HEALTH
CARE REFORM

         The levels of revenues and profitability of pharmaceutical companies
may be affected by the continuing efforts of governmental and third-party payors
to contain or reduce the costs of health care. The Company cannot predict the
effect that private sector or governmental health care reforms may have on its
business, and there can be no assurance that any such reforms will not have a
materially adverse effect on the Company's business, financial condition and
results of operations. In addition, in both the U.S. and elsewhere, sales of
prescription drugs are dependent in part on the availability of reimbursement to
the consumer from third-party payors, such as government and private insurance
plans. Third-party payors and others are increasingly challenging the prices
charged for medical products and services. If the Company succeeds in bringing
one or more products to the market, there can be no assurance that these
products will be considered cost effective or that reimbursement to the consumer
will be available or will be sufficient to allow the Company to sell its
products on a competitive basis. In addition, because the FDA to date has
approved no chemoprevention drug, there can be no assurance that any
chemoprevention drug developed by the Company, if any, would be eligible for
reimbursement to the consumer.




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<PAGE>   34



CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS

         CTRC Research beneficially owns approximately 22% of the Company's
outstanding shares of Common Stock, and the Company's executive officers and
directors, as a group, beneficially own or control approximately 25% of the
Company's outstanding shares of Common Stock. Accordingly, together with CTRC
Research, the present directors and executive officers have the ability to
exercise substantial influence over the outcome of most stockholders' actions.
Moreover, the Company's Certificate of Incorporation does not provide for
cumulative voting with respect to the election of directors. Consequently, the
present directors and executive officers, together with CTRC Research, can
exercise substantial influence over the election of the members of the Board of
Directors. Such concentration of ownership could have an adverse effect on the
price of the Common Stock or have the effect of delaying or preventing a change
in control of the Company. In addition, certain provisions of Delaware law and
the Company's Certificate of Incorporation could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. These provisions of Delaware law and the
Company's Certificate of Incorporation may also have the effect of discouraging
or preventing certain types of transactions involving an actual or threatened
change of control of the Company (including unsolicited takeover attempts), even
though such a transaction may offer the Company's stockholders the opportunity
to sell their stock at a price above the prevailing market price. Certain of
these provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders and prevent or eliminate cumulative voting in
the election of directors. These provisions may make it more difficult for
stockholders to take certain corporate actions and could have the effect of
delaying or preventing a change in control of the Company. In addition, certain
of the Company's corporate partners have the right to terminate their respective
agreements with the Company upon certain changes in control of the Company,
which may discourage acquisitions or other changes in control (including those
in which stockholders of the Company might otherwise receive a premium for their
shares over then-current market prices).

RIGHTS OF LICENSORS

         Through licenses and other agreements, the Company has various rights
to certain products. The terms of these licenses and agreements generally
survive for a specified period of years; however, the licensor also has the
ability to terminate the license, or render it non-exclusive, if the Company
fails to perform its obligations pursuant to the agreements. In certain of these
agreements the licensor has reserved royalty-free licenses for research and
other purposes. If any of these licenses were terminated or rendered
non-exclusive, the business, financial condition and results of operations of
the Company could be materially and adversely affected.

LACK OF COMMERCIAL MANUFACTURING EXPERIENCE; HANDLING OF HAZARDOUS MATERIALS;
ENVIRONMENTAL MATTERS

         ILEX is currently responsible for manufacturing bulk drug product for
non-clinical and clinical trials of CAMPATH(R) and oncology drugs on behalf of
third parties; however, other than CAMPATH(R), the compounds being developed by
the Company have never been manufactured on a commercial scale and the Company
has no experience in manufacturing these compounds in commercial quantities.
There can be no assurance that such compounds can be manufactured at a cost, or
in quantities, necessary to make them commercially viable. All facilities and
manufacturing techniques used in the manufacture of compounds for clinical use
or for sale in the U.S. must be operated in conformity cGMP regulations, FDA
regulations and guidelines governing the development and production of
pharmaceutical compounds. The Company's facilities are subject to scheduled
periodic regulatory inspections to ensure compliance with cGMP requirements.
Failure on the part of the Company to comply with applicable requirements 


                                       33
<PAGE>   35

could result in the termination of ongoing research or the disqualification of
data for submission to regulatory authorities. A finding that the Company had
materially violated cGMP requirements could result in additional regulatory
sanctions and, in severe cases, could result in a mandated closing of the
Company's facilities, which would materially and adversely affect the Company's
business, financial condition and results of operations. If the Company proves
to be unsuccessful in supplying compounds on acceptable terms, fails to satisfy
regulatory requirements or if it should encounter delays or difficulties in its
third-party relationships, the Company's clinical testing schedule would be
delayed, resulting in delay in the submission of compounds for regulatory
approval or the market introduction and subsequent sales of such products, which
could have a materially adverse effect on the Company's business, financial
condition and results of operations.

         The Company's development and non-clinical supply contract
manufacturing programs involve or could involve in the future the controlled use
of hazardous materials, chemicals and various radioactive compounds. The Company
is subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of hazardous materials and certain
waste products. Although the Company believes that its safety procedures for
handling and disposing of such materials will comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
The Company may incur substantial costs to comply with environmental regulations
if and when the Company develops commercial scale manufacturing capacity.

POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE

         Clinical research involves the testing of new drugs on human volunteers
pursuant to a research plan, and such testing involves a risk of liability for
personal injury or death to patients due to, among other reasons, possible
unforeseen adverse side effects or improper administration of the new drug. Many
of these patients are already seriously ill and are at risk of further illness
or death. The Company could be materially and adversely affected if it were
required to pay damages or incur defense costs (i) in connection with a claim
outside the scope of indemnity or insurance coverage, (ii) if the indemnity,
although applicable, is not performed in accordance with the terms of the
relevant contract or (iii) if the Company's liability exceeds the amount of
applicable insurance. In addition, there can be no assurance that such insurance
will continue to be available on terms acceptable to the Company, if at all, or
that, if obtained, the insurance coverage will be sufficient to cover any
potential claims or liabilities. Similar risks would exist upon the
commercialization or marketing of any products by the Company or its partners.

VOLATILITY OF STOCK PRICE; VARIATION IN QUARTERLY OPERATING RESULTS

         The stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many pharmaceutical, biotechnology and developmental stage
companies and that are often unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. In addition, the market price of the Common
Stock may be highly volatile. Factors that may have a significant effect on the
market price of the Common Stock include fluctuations in the Company's operating
results, announcements of technological innovations or new products by the
Company or its competitors, announcements of new collaborations or changes in
existing collaborations by the Company or its competitors, the loss, or prospect
of loss, of a significant contract with one or more of the Company's contract
research clients, FDA and international regulatory actions, actions with respect
to reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products, developed by the Company or
others, changes in health care policy in the U.S. and internationally, rumors
relating to the Company or its competitors, changes in stock market analyst


                                       34
<PAGE>   36

recommendations regarding the Company, other pharmaceutical companies or the
pharmaceutical industry generally and general market conditions.

         The Company's results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
fluctuations, and quarterly comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. In addition, fluctuations in quarterly results could affect the
market price of the Common Stock in a manner unrelated to the longer term
operating prospects of the Company.

ADVERSE EFFECT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE OR POSSIBLE
FUTURE ISSUANCE OF SHARES; REGISTRATION RIGHTS

         The sale, or availability for sale, of substantial amounts of Common
Stock in the public market pursuant to Rule 144 ("Rule 144") under the
Securities Act of 1933, as amended (the "Securities Act") or otherwise could
materially adversely affect the market price of the Common Stock and could
impair the Company's ability to raise additional capital through the sale of its
equity securities or debt financing. In general, under Rule 144 as currently in
effect, a person (or persons whose shares are aggregated), including a person
who may be deemed to be an "affiliate" of the Company as that term is defined
under the Securities Act, would be entitled to sell within any three-month
period a number of shares beneficially owned for at least one year that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock, or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. However, a person who is not
deemed to have been an affiliate of the Company during the 90 days preceding a
sale by such person and who has beneficially owned shares of Common Stock for at
least two years may sell such shares without regard to the volume, manner of
sale or notice requirements of Rule 144.

         At December 31, 1998, approximately 27.3 million shares of common stock
were eligible for sale subject to compliance with Rule 144 of the Securities
Act.

         ILEX is also obligated to issue to PRN 629,200 shares of Common Stock
in two increments between June 30, 1999 and July 1, 2000, and, provided certain
CRO revenue goals of ILEX are achieved, PRN may receive up to an additional
941,991 shares of Common Stock between June 30, 1999, and July 1, 2001.

         In addition, at December 31, 1998, the holders of approximately
2,240,344 shares of Common Stock are entitled to certain piggy-back registration
rights with respect to such shares, and PRN is also entitled to such rights with
respect to the additional shares issuable to them, as discussed above. If the
Company is required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of their piggy-back registration
rights, sales made by such holders may have an adverse effect on the Company's
ability to raise needed capital and on the price of the Common Stock. In
addition, certain stockholders hold demand registration rights, which permit
them to request, the Company to register the shares of Common Stock held by
them. If such parties, by exercising their demand registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales may have an adverse effect on the market price for the Common Stock. In
addition, shares of Common Stock that are issued by the Company to fund its
operations or in connection with an acquisition could also have an adverse
effect on the market price for the Common Stock.

PRODUCT LIABILITY AND INSURANCE

         The Company's business involves the risk of product liability claims.
The Company has not experienced any product liability claims to date. Although
the Company maintains clinical trials liability 


                                       35
<PAGE>   37

insurance with coverage limits of $10 million per occurrence and an annual
aggregate maximum of $10 million, and general commercial liability insurance
with an additional $5 million umbrella coverage per occurrence and an annual
aggregate maximum of $5 million, there can be no assurance that product
liability claims will not exceed such insurance coverage limits, which could
have a materially adverse effect on the Company's business, financial condition
or results of operations, or that such insurance will continue to be available
on commercially reasonable terms, if at all.

COMPUTER SYSTEMS AND YEAR 2000 ISSUES

         The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the application year of business transactions. The
Company's information technology management has conducted a comprehensive
assessment of the Company's computer systems to identify the systems that could
be affected by the Year 2000, and has determined that no material changes are
required for the Company's computer systems to be Year 2000 compliant. As such,
the Company believes that, based upon currently available information, it will
incur no material costs associated with becoming Year 2000 compliant. The
company is completing its confirmation of the Year 2000 readiness of its
material customers, service providers, key licensees, and its material vendors.
Failure of the Company, its software providers or the Company's customers or
vendors to adequately address the Year 2000 issue could result in misstatement
of reported financial information, scientific data or otherwise materially and
adversely affect the Company's business, financial condition and results of
operations.

         The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in the "Year 2000 Information and Readiness Disclosure
Act" which was signed into law on October 19, 1998. Such act provides added
protection from liability for certain public and private statements concerning a
company's Year 2000 readiness.

EMPLOYEES

         At December 31, 1998, the Company had 185 full-time employees, 148 of
whom are engaged in research and development activities. No employees are
covered by collective bargaining agreements, and the Company believes it
maintains good relations with its employees.

ITEM 2.  PROPERTIES

         The Company's administrative offices comprise approximately 47,000
square feet of leased office space in San Antonio, Texas. The lease governing
the Company's existing office space expires at the end of December 2003.

         The Company leases and operates a 8,945-square-foot manufacturing
facility located in San Antonio that has been designed to produce multi-kilogram
lot sizes of anticancer compounds under cGMP. The design of this facility,
prepared by ILEX staff, has been reviewed by the Regional Compliance Office of
the FDA and found to be suitable for production of bulk drugs. The manufacturing
facility is owned by a non-profit corporation that is controlled by CTRC
Research and the Texas Research and Technology Foundation, and provides for the
payment by the Company of fixed monthly rent plus a percentage of gross sales
generated from the facility. These two organizations obtained a grant to build
the facility from the Economic Development Administration. ILEX has a 15-year
lease to the facility with three five-year-extension options. The lease expires
at various dates between 1999 and 2010.

         The Company's facility has sufficient capacity to manufacture the
materials necessary to satisfy the requirements for conducting clinical trials
of ILEX's current clients and collaborative partners. The 


                                       36
<PAGE>   38

Company will be required to expand its manufacturing facilities or to contract
with other manufacturers in the event the Company's CRO manufacturing business
is expanded or there is a need for commercial quantities of the Company's
compounds.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a party to claims and legal proceedings arising in the
ordinary course of business. The Company believes it is unlikely that the final
outcome of any of the claims or proceedings to which the Company is a party
would have a material adverse effect on the Company's financial statements;
however, due to the inherent uncertainty of litigation, the range of possible
loss, if any, cannot be estimated with a reasonable degree of precision and
there can be no assurance that the resolution of any particular claim or
proceeding would not have an adverse effect on the Company's results of
operations for the interim period in which such resolution occurred.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


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                                       37
<PAGE>   39


                                    PART II.


ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         As of March 12, 1999, the Company had approximately 1,500 beneficial
holders of common stock, including approximately 106 record holders. The
Company's common stock is traded on the NASDAQ National Market under the symbol
"ILXO". The following table sets forth, for the calendar periods indicated, the
range of high and low bid closing prices for the Company's common stock, as
reported by the NASDAQ National Market:

<TABLE>
<CAPTION>
                                              1997                                      1998
                                              ----                                      ----
                                   High                  Low                 High                Low
                                   ----                  ---                 ----                ---
<S>                               <C>                  <C>                  <C>                 <C>
First Quarter                     $13-1/2              $12                  $10                $7-1/4
Second Quarter                     24-3/4               12                   18-1/4             9-1/4
Third Quarter                      20-1/4               11-3/4               10-1/4             5-1/2
Fourth Quarter                     12                    5-7/8               14-1/2             6-7/16
</TABLE>


         These price quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. The Company's common stock began trading February 20, 1997. The
closing price of the Company's common stock on March 12, 1999 was $11.00.

         The Company has not paid dividends on its common stock the past three
years and anticipates that it will not pay dividends in the foreseeable future.

         Pursuant to a Drug Development and Commercialization Agreement (the
"Agreement") dated effective March 27, 1998 between the Company and TBI, the
Company issued warrants (the "Warrants") to purchase 590,113 shares of the
common stock, $.01 par value ("Common Stock"), at an exercise price per share of
$10.17 to TBI on March 27, 1998. The Warrants expire on March 27, 2003, and are
exercisable by a cash payment or pursuant to a "cashless" exercise provision.
Under the terms of the Agreement, the Company received as consideration an
exclusive, worldwide license to THP-Dox. The Warrants and the shares of Common
Stock underlying the Warrants were not registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to the exemptions of such
registration provided under Section 4(2) of the Securities Act.



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                                       38
<PAGE>   40



ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial information relating to the Company
has been taken or derived from the audited financial statements, and notes
related thereto, and other records of the Company. The statements of operations
and balance sheets for the years ended December 31, 1996, 1997, and 1998 have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report on those statements. The selected financial
information should be read in conjunction with the Company's financial
statements, including the notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations.

<TABLE>
<CAPTION>
                                                                             Years Ended
                                                                             December 31,
                                                                    --------------------------------
                                                                      1996        1997        1998
                                                                    --------    --------    --------
                                                                 (in thousands, except per share data)
<S>                                                                 <C>         <C>         <C>     
SUMMARY OF OPERATING STATEMENT DATA:
         Revenue:
                  Product development                               $  3,831    $  5,027    $  4,622
                  Contract research services                           1,537       5,903       9,650
                  Licensing fees                                       2,775         300        --
                                                                    --------    --------    --------
                    Total revenue                                      8,143      11,230      14,272
         Operating expenses:
                  Research and development costs                       3,637       6,740      15,509
                  General and administrative                           2,886       6,691       6,534
                  Costs of contract research services                  2,169       4,587       9,313
                                                                    --------    --------    --------
                         Total operating expenses                      8,692      18,018      31,356
                                                                    --------    --------    --------
Operating loss                                                          (549)     (6,788)    (17,084)
Other Income (Expense):
         Interest income                                                 684       2,583       1,850
         Equity in losses of research and development                   (750)     (4,477)     (5,994)
         partnerships and contract research affiliate
Net loss                                                            $   (615)   $ (8,682)   $(21,228)
                                                                    ========    ========    ========
Net loss per share                                                  $   (.07)   $   (.72)   $  (1.71)
                                                                    ========    ========    ========
Weighted average number of shares of common stock and 
common stock equivalents outstanding(1)
                                                                       8,744      12,118      12,450
                                                                    ========    ========    ========
BALANCE SHEET DATA:
         Cash, cash equivalents and investments in
                  marketable securities                             $ 22,984    $ 42,646    $ 26,025
         Working capital                                              11,682      34,336      23,942
         Total assets                                                 27,374      55,311      42,340
         Accumulated deficit                                          (1,373)    (10,055)    (31,283)
         Total stockholders' equity                                   24,826      51,076      35,904
</TABLE>


---------

(1)  See Note 2 of Notes to Financial Statements for information concerning the
     computation of net loss per share.




                                       39
<PAGE>   41



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The following discussion is included to describe the Company's
financial position and results of operations for each of the three years in the
period ended December 31, 1998. The Consolidated Financial Statements and notes
thereto contain detailed information that should be referred to in conjunction
with this discussion.

GENERAL

         ILEX is engaged in the businesses of (i) acquiring rights to (generally
in exchange for the payment of licensing fees and future royalty payments) and
developing for commercialization drugs for the treatment of patients with cancer
and for the prevention of cancer and (ii) providing clinical research,
development and manufacturing services on a contract basis to pharmaceutical and
biotechnology companies engaged in the development of oncology products.

         During the past year, the Company announced several significant events.
ILEX and LeukoSite received "fast track" designation for CAMPATH(R) from the
FDA, clearing the way for expedited review of the companies' application for
marketing approval in the U.S. The Company has begun a Phase III pivotal trial
of eflornithine to determine its efficacy in preventing the recurrence of
superficial bladder cancer, and also a Phase III trial of eflornithine for the
prevention of non-melanoma skin cancer. ILEX entered into an agreement with
Symphar to develop the compound SR-45023A, now in Phase I testing. ILEX and
Lilly have entered into an agreement to develop the diarysulfonylurea
ILX-295501, to treat a broad spectrum of tumors. The Company acquired the rights
to THP-Dox, currently in pre-clinical development, through a license with TBI.

         The Company currently has no products available for sale, however, the
Company anticipates CAMPATH(R) will receive FDA approval to be marketed
commercially within the next two years. However, no assurances can be made that
the FDA will grant such approval or, if the FDA does grant such approval that
CAMPATH(R) will be accepted in the marketplace. The Company has incurred losses
and expects to incur losses for the foreseeable future as the Company's research
and development expenditures increase. The Company's revenue for the foreseeable
future will be limited to development funding under its collaborative
relationships, fee-for-service revenues pursuant to contracts with its CRO
clients, interest income and other miscellaneous income.

         Until its initial public offering in February 1997, the Company had
financed its operations primarily through the sale of Convertible Preferred
Stock, through development funding provided by its collaborative partners under
its collaborative agreements, through licensing fees and milestone payments and,
to a lesser extent, through fee-for-service revenues pursuant to contracts with
its CRO clients. The development funding received by the Company pursuant to
collaborative agreements often includes payments for research to support the
development of specific compounds, recorded as development revenue, and
licensing fees and milestone payments recorded as licensing fees. ILEX's
collaborative agreements are generally conducted on a best efforts basis and
payments for research are recognized based on the time incurred on the related
studies. The Company is reimbursed for investigator costs based on actual costs
incurred or at predetermined rates plus out-of-pocket costs incurred during the
performance of the study. Revenues related to milestone payments are recognized
upon the achievement of the related milestone and when collection is probable.

         ILEX also derives revenue from performing CRO services for companies
within the pharmaceutical and biotechnology industries. In general, the Company
provides CRO services to a client based on a pre-specified contract cost that
may be adjusted during the term of the project. The terms of the Company's
engagements vary, ranging from less than one month to several years, and
generally may 


                                       40
<PAGE>   42

be terminated upon notice of 30 days or less by the client. The Company
recognizes revenue with respect to its CRO services on a percentage of
completion basis as work is performed.

         Research and development costs are expensed as incurred and include
costs associated with collaborative agreements. These costs consist of direct
and indirect costs related to specific projects as well as fees paid to other
entities, which conduct certain research activities on behalf of the Company.

         During the years ended December 31, 1996 and 1997, the Company had one
collaborative research agreement that accounted for 40% and 10% of total
revenue, respectively. In addition, one CRO client accounted for 28% of contract
research revenue during 1998.

         The following is a discussion of the financial condition and results of
operations for the Company for 1996, 1997 and 1998. It should be read in
conjunction with the Interim Financial Statements of the Company, the Notes
thereto and other financial information included elsewhere in this report.

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

OPERATING REVENUES

         Total revenue increased from approximately $11.2 million in 1997 to
$14.3 million in 1998. The increase of approximately $3.1 million, or 28%, was
due to an additional $3.8 million of contract research revenues, offset by a
decrease of $400,000 in product development revenues and $300,000 in licensing
fees. The reduction in product development revenues reflects the elimination of
revenue from the development of cristanol and mitoguazone, which was partially
offset by the addition of development revenue for CAMPATH(R). The $3.8 million
increase in contract research services revenues, to $9.7 million, compared to
$5.9 million in 1997, reflects an increase in both the number of contracts under
way in the size and complexity of the contract research projects.

OPERATING EXPENSES

         Total Operating Expenses. Total operating expenses increased from
approximately $18.0 million in 1997 to $31.4 million in 1998. This increase of
approximately $13.4 million, or 74%, includes a one-time, non-cash expense for
$3.1 million for the value of a warrant to purchase shares of common stock of
the Company issued to TBI in exchange for the licensing rights to THP-Dox. The
remaining increase of $10.3 million reflects an increase in research and
development costs and direct costs of research services. ILEX believes that
research and development costs will increase in future periods as the Company
expands its non-clinical and clinical trials associated with developing
additional compounds.

         Research and Development Costs. Research and development costs
increased from approximately $6.7 million in 1997 to $15.5 million in 1998. This
increase of $8.8 million, or 131%, was primarily attributable to increased
spending for the development of CAMPATH(R), eflornithine, piritrexim, THP-Dox,
and ILX23-7553 (Vitamin D3 analog). In addition to the $15.5 million spent in
1998, an additional $4.5 million loss was recognized as equity in losses of
research and development partnerships.

         General and Administrative Costs. General and administrative costs
decreased slightly from approximately $6.7 million in 1997 to $6.5 million in
1998. This decrease of $200,000, or 3%, included an increase of $60,000 in
facility rental expense, offset by a reduction in other general and
administrative expenses.

         Direct Cost of Research Services. Direct cost of research services
costs increased from $4.6 million in 1997 to $9.3 million in 1998. This increase
of $4.7 million, or 103%, is attributable to the increased amortization of the
amounts associated with the cost of the shares granted to PRN, and additional
contract research business.



                                       41
<PAGE>   43

OPERATING LOSS

         The loss from operations increased from $6.8 million in 1997 to $17.1
million in 1998. This increase of $10.3 million, or 151%, includes a one-time,
non-cash charge in the amount of $3.1 million for the value of a warrant to
purchase shares of common stock of the Company issued to TBI for payment, in
part, of a licensing fee for the compound THP-Dox.

EQUITY IN LOSSES IN JOINT VENTURES AND CONTRACT RESEARCH AFFILIATE

         Equity in losses in joint ventures and contract research affiliate was
$4.5 million in 1997, and $6.0 million in 1998, an increase in losses of $1.5
million, or 33%, primarily due to the increased losses of PFK-ILEX.

NET INTEREST INCOME

         Net interest income decreased from approximately $2.6 million in 1997
to $1.9 million in 1998. This decrease of $700,000, or 27%, is attributable to a
decrease in interest income resulting from lower average balances of cash, cash
equivalents and investments in marketable securities.

NET LOSS

         The net loss increased $12.5 million during 1998, or 144% from $8.7
million in 1997 to $21.2 million in 1998.

NET LOSS PER SHARE

         The net loss per share increased from $0.72 per share in 1997 to $1.71
in 1998, a change of $0.99 per share.

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

OPERATING REVENUES

         Total revenue increased from approximately $8.1 million in 1996 to
$11.2 million in 1997. The increase of approximately $3.1 million, or 38%, was
due to an additional $1.2 million of product development revenues and $4.4
million of contract research revenues offset by a decrease of $2.5 million in
licensing fees. The $1.2 million increase in product development revenues, to
$5.0 million, compares to $3.8 million in 1996. The increase primarily reflects
additional revenue from license and development agreements signed in the fourth
quarter of 1996 relating to piritrexim and crisnatol, as well as revenues from
the L&I Partners joint venture for the development of CAMPATH(R). This increase
was partially offset by a decrease in revenues with respect to the development
of MGBG. The $4.4 million increase in contract research services revenues, to
$5.9 million, compared to $1.5 million in 1996, reflects an increase in both the
number of contracts underway as well as in the size and complexity of the
contract research projects.



                                       42
<PAGE>   44

OPERATING EXPENSES

         Total Operating Expenses. Total operating expenses increased from
approximately $8.7 million in 1996 to $18.0 million in 1997. This increase of
approximately $9.3 million, or 107%, was due to increases in research and
development costs, general and administrative costs, and direct cost of research
services.

         Research and Development Costs. Research and development costs
increased from approximately $3.6 million in 1996 to $6.7 million in 1997. This
increase of $3.1 million, or 86%, was primarily attributable to spending
approximately $1.5 million in connection with the development of eflornithine
and $1.0 million on CAMPATH(R) (exclusive of manufacturing).

         General and Administrative Costs. General and administrative costs
increased from approximately $2.9 million in 1996 to $6.7 million in 1997. This
increase of $3.8 million, or 131%, is primarily attributable to increases in
rental expense, legal costs, business development activities and compensation
related to additional administrative staff.

         Direct Cost of Research Services. Contract research services costs
increased from $2.2 million in 1996 to $4.6 million in 1997. This increase of
$2.4 million, or 109%, is primarily attributable to the amortization of the cost
of the shares granted to PRN, and to increases in expenditures required to
support growth in the number and size of contract research contracts.

OPERATING LOSS

         The loss from operations increased from $0.5 million in 1996 to $6.8
million in 1997. This increase in loss from operations of $6.3 million, or
1,260% is primarily attributable to increased spending on ILEX's portfolio
products, which have not yet been partnered for development, including increased
spending associated with the development of eflornithine and CAMPATH(R).

EQUITY IN LOSSES IN JOINT VENTURES AND CONTRACT RESEARCH AFFILIATE

         Equity in losses in joint ventures and contract research affiliate was
$0.8 million in 1996, and $4.5 million in 1997, an increase in losses of $3.7
million, or 463%. Since the joint ventures were not formed until December 1996
and May 1997, respectively, and the agreement with the CRO affiliate was
concluded in August 1997, the comparable expenses for 1996 were limited to $0.8
million.

NET INTEREST INCOME

         Net interest income increased from approximately $0.7 million in 1996
to $2.6 million in 1997. This increase of $1.9 million, or 271%, is attributable
to an increase in interest income resulting from higher average balances of
cash, cash equivalents and investments in marketable securities from proceeds
received from ILEX's initial public offering of Common Stock completed in
February 1997 and private placements of the Company's securities completed in
the last quarter of 1996.

NET LOSS

         The net loss increased $8.1 million during 1997, or 1,350% from $0.6
million in 1996 to $8.7 million in 1997.




                                       43
<PAGE>   45


NET LOSS PER SHARE

         The net loss per share increased from $0.07 per share in 1996 to $0.72
in 1997, a change of $0.65 per share. This was primarily attributable to
increased spending on the product portfolio and the expenses associated with the
PRN collaboration.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995

         Total revenue increased from approximately $4.2 million in the year
ended December 31, 1995 to $8.1 million in 1996. The increase of $3.9 million,
or 93%, was due to an additional $3.0 million of licensing fee revenue, $30,000
of product development revenue, and $880,000 of contract research services
revenue. The licensing fee revenue was received pursuant to collaborations with
strategic partner, as well as from a milestone payment from a strategic partner.

         Total operating expenses increased from approximately $5.1 million in
the year ended December 31, 1995 to $8.7 million in 1996. This increase of $3.6
million, or 71%, was primarily a result of increases in direct cost of research
services of $1.1 million associated with the start-up of the Company's
manufacturing facilities, which commenced operations in early 1996,
subcontractor costs of $520,000 relating to increases in expenditures required
to support the Company's contract research services operations and research and
development costs of approximately $420,000, primarily due to costs associated
with MGBG. In addition, operating expenses increased by approximately $1.6
million due to increases in general and administrative expenses associated with
increased compensation primarily as a result of increased number of personnel
and, to a lesser extent, business development costs.

         Net interest income increased from approximately $130,000 in the year
ended December 31, 1995, to $680,000 in 1996. This increase of $550,000 is
attributable to an increase in interest income resulting from higher average
balances of cash, cash equivalents and investments in marketable securities from
proceeds received from sales of Convertible Preferred Stock completed in 1995
and 1996.

         ILEX expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of revenues earned under existing or
future collaborative relationships or joint ventures, if any, technological
advances and determinations as to the commercial potential of compounds, the
progress of the Company's drug development programs, the receipt of regulatory
approvals, acquisitions, the timing of start-up expenses for new facilities,
changes in the Company's mix of services, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims and other
intellectual property rights, the status of competing products and technologies
and the timing and availability of financing for the Company, including existing
or future strategic alliances and joint ventures with third parties. In
addition, with respect to the Company's contract research services revenues,
fluctuations may result due to a number of factors, including the commencement,
completion or cancellation of large contracts and progress of ongoing contracts.
ILEX believes that comparisons of its quarterly and annual historical results
may not be meaningful and should not be relied upon as an indication of future
performance.




                                       44
<PAGE>   46

INCOME TAXES

         The availability of the NOL carryforward to reduce U.S. federal taxable
income is subject to various limitations under the Internal Revenue Code of 1986
(the "Code"), as amended, in the event of an ownership change as defined in
Section 382 of the Code. The Company experienced a change in ownership interest
in excess of 50 percent as defined under the Code upon the consummation of its
offering of Series B convertible preferred stock. The Company does not believe
that this change in ownership significantly impacts the Company's ability to
utilize its net operating loss and tax credit carryforwards as of December 31,
1998, because the amount of the annual limitation under the Code of such
carryforwards is in excess of the total amount of net operating loss and tax
credit carryforwards. The Company did not experience a change in control under
the Code as the result of its initial public offering. See Note 11 of the Notes
to Consolidated Financial Statements contained herein.

LIQUIDITY AND CAPITAL RESOURCES

         ILEX has financed its operations primarily through the sale of its
capital stock, through development and licensing fee revenues provided by its
collaborative partners under its collaborative agreements and through
fee-for-service or participatory revenues pursuant to contracts with its CRO
clients. The Company receives payments under collaborative agreements primarily
in the form of development funding, milestone payments, if milestones are
achieved, and royalties, if products are commercialized.

         To date, the majority of the Company's expenditures have been for
research and development activities, including associated general and
administrative expense and losses incurred by joint ventures. ILEX expects
research and development expenses to increase for the next several years as its
development programs progress. In addition, general and administrative expenses
necessary to support such expanded programs are also expected to increase over
the next several years. At December 31, 1998, the Company had cash, cash
equivalents and investments in marketable securities of approximately $26
million and working capital of approximately $23.9 million. The Company expects
such amounts to be used primarily to support continued research and development
of its compounds, expand its CRO services business, for general and
administrative expenses and for other general corporate purposes.

         At December 31, 1998, the Company did not have any material commitments
for capital expenditures.

         On March 8, 1999, the Company sold $2.5 million of common stock as part
of an agreement to develop an oncology compound.

         During 1998, the Company guaranteed a $615,000 line of credit for PFK,
its European affiliate. The guarantee is limited for a period of two years
beginning in July 1998 and ending in June 2000. If the guarantee comes to
redemption, the Company will automatically obtain an additional 10 percent
ownership interest in PFK.

         During 1998, the Company guaranteed a $1.0 million line of credit for
CRG, an oncology site management organization. The guarantee is limited for a
period of three years beginning in May 1998 and ending in May 2001. If the
guarantee comes to redemption, the company will obtain an ownership interest in
CRG in accordance with the guarantee agreement.

         ILEX's future expenditures and capital requirements will depend on
numerous factors, including without limitation, the progress of its research and
development programs, the progress of its non-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 


                                       45
<PAGE>   47

intellectual property rights, competing technological and market developments,
changes in or termination of existing collaborative arrangements, the ability of
the Company to establish, maintain and avoid termination of collaborative
arrangements, and the purchase of capital equipment and acquisitions of
compounds, technologies or businesses. The Company's cash requirements are
expected to continue to increase each year as it expands its activities and
operations. There can be no assurance that the Company will ever be able to
generate product revenue or achieve or sustain profitability. The Company
expects its cash, cash equivalents, and marketable securities will be adequate
to cover all of its obligations for the next year.

YEAR 2000 COMPLIANCE

         The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the application year of business transactions. The
Company's information technology management has conducted a comprehensive
assessment of the Company's computer systems to identify the systems that could
be affected by the Year 2000, and has determined that no material changes are
required for the Company's computer systems to be Year 2000 compliant. As such,
the Company believes that, based upon currently available information, it will
incur no material costs associated with becoming Year 2000 compliant. The
company is completing its confirmation of the Year 2000 readiness of its
material customers, service providers, key licensees, and its material vendors.
Failure of the Company, its software providers or the Company's customers or
vendors to adequately address the Year 2000 issue could result in misstatement
of reported financial information, scientific data or otherwise materially and
adversely affect the Company's business, financial condition and results of
operations.

         The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in the "Year 2000 Information and Readiness Disclosure
Act" which was signed into law on October 19, 1998. Such act provides added
protection from liability for certain public and private statements concerning a
company's Year 2000 readiness.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk represents the risk of loss that may impact the financial
position, results of operations, or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, foreign
currency exchange rate risk, commodity price risk, and other relevant market
rate or price risks.

         The Company is exposed to some market risk through interest rates,
related to its investment of its current cash, cash equivalents, and marketable
securities of approximately $26 million. These funds are generally invested in
highly liquid treasury bills and money market accounts with short-term
maturities. As such instruments mature and the funds are re-invested, the
Company is exposed to changes in market interest rates. This risk is not
considered material and the Company manages such risk by continuing to evaluate
the best investment rates available for short-term high quality investments. The
Company has not used derivative financial instruments in its investment
portfolio.

         The Company's European affiliate operations are denominated in local
currency. The Company has unhedged transaction exposures in these currencies.
The Company has not entered into any forward foreign exchange contracts for
speculative, trading or other purposes.

ITEM 8.  FINANCIAL STATEMENTS AND SCHEDULES

         The reports of the Company's Independent Public Accountants, Financial
Statements and Notes to Financial Statements appear herein commencing on page
F-1.



                                       46
<PAGE>   48

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         Not Applicable.


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                                       47
<PAGE>   49



                                    PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information called for by item 10 of Form 10-K is incorporated
herein by reference to such information in the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

         The information called for by item 11 of Form 10-K is incorporated
herein by reference to such information included in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information called for by item 12 of Form 10-K is incorporated
herein by reference to such information included in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information called for by item 13 of Form 10-K is incorporated
herein by reference to such information included in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.


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                                       48
<PAGE>   50



                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      1.       Financial Statements
                  Index to Financial Statements appears on Page F-1.

         2.       Financial Statement Schedules
                  The Financial Statement Schedules of fifty percent or less
                  owned persons required to be filed by Regulation S-X are
                  attached hereto as Exhibit 9.9.1.

(b)               Reports on Form 8-K
                    None

(c)               Exhibits

EXHIBIT 
NUMBER          IDENTIFICATION OF EXHIBIT

3.1             Amended and Restated Certificate of Incorporation of the Company
                (Incorporated herein by reference to Exhibit 3.1 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

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)

10.1            Assignment of Rights and Assets dated November 1994 from CTRC
                Research Foundation to the Company (Incorporated herein by
                reference to Exhibit 10.4 of the Company's Registration
                Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.2            First Amendment to Assignment of Rights and Assets dated
                September 1995 between ILEX Oncology, Inc. and CTRC Research
                Foundation (Incorporated herein by reference to Exhibit 10.5 of
                the Company's Registration Statement No. 333-17769 on Form S-1
                filed December 12, 1996, as amended)

10.3            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)

10.4            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)


                                       49
<PAGE>   51

10.5            Lease Agreement dated September 1, 1995 between CTRC Research
                Foundation and the Company (Incorporated herein by reference to
                Exhibit 10.10 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.6            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)

10.7+           License Agreement [Piritrexim Isethionate] dated March 31, 1995
                by and among BW Wellcome Co., The Wellcome Foundation Limited
                and the Company (Incorporated herein by reference to Exhibit
                10.13 of the Company's Registration Statement No. 333-17769 on
                Form S-1 filed December 12, 1996, as amended)

10.8+           License Agreement [Oxypurinol] dated March 31, 1995 by and among
                BW Wellcome Co., The Welcome Foundation Limited and the Company
                (Incorporated herein by reference to Exhibit 10.14 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.9+           License Agreement [Crisnatol Mesylate] dated November 1, 1993 by
                and among BW Wellcome Co., The Welcome Foundation Limited and
                CTRC Research Foundation (Incorporated herein by reference to
                Exhibit 10.15 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.10+          Amendment and Agreement with Respect to License Agreement
                [Crisnatol Mesylate] dated October 5, 1996 amending License
                Agreement dated November 1, 1993 by and among BW Wellcome Co.,
                The Welcome Foundation Limited and CTRC Research Foundation
                (Incorporated herein by reference to Exhibit 10.16 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.11+          License Agreement [Eflornithine] between ILEX Oncology, Inc. and
                Marion Merrell Dow Inc. and its subsidiaries Merrell Dow
                Pharmaceuticals Inc. and Marion Merrell Dow France Et Cie
                (Incorporated herein by reference to Exhibit 10.17 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.12+          Development and License Agreement [Crisnatol Mesylate] dated
                October 11, 1996 by and among the Company and Janssen
                Pharmaceutica, N.V. (Incorporated herein by reference to Exhibit
                10.18 of the Company's Registration Statement No. 333-17769 on
                Form S-1 filed December 12, 1996, as amended)

10.13+          License Agreement [Farnesyl Transferase Inhibitors] dated July
                1, 1996 by and between Sother Limited and the Company
                (Incorporated herein by reference to Exhibit 10.19 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.14+          License Agreement [RP 60475] dated November 18, 1994 between
                Rhone-Poulenc Rorer S.A. and the Company (Incorporated herein by
                reference to Exhibit 10.20 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)




                                       50
<PAGE>   52

10.15+          Agreement dated November 25, 1996 between Hoffmann-La Roche,
                Inc. and the Company [RO23-7553] (Incorporated herein by
                reference to Exhibit 10.21 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.16+          Research Collaboration Agreement dated December 12, 1995 between
                CTRC Research Foundation and Sanofi (Incorporated herein by
                reference to Exhibit 10.23 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.17           Consent, Acknowledgement and Waiver Agreement dated September
                1994 by and among CTRC Research Foundation, Sterling Winthrop
                Inc. and the Company (Incorporated herein by reference to
                Exhibit 10.24 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.18+          Drug Development Project Agreement
                [4-hydroperoxycyclophosphamide] effective April 1, 1993 between
                CTRC Research Foundation and MGI Pharma, Inc. (Incorporated
                herein by reference to Exhibit 10.25 of the Company's
                Registration Statement No. 333-17769 on Form S-1 filed December
                12, 1996, as amended)

10.19           Material Transfer Agreement [Dihydro-5-Azacytidine] dated March
                9, 1995 between the Company and the National Institutes of
                Health (Incorporated herein by reference to Exhibit 10.26 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.20+          Patent License Agreement--Exclusive [Methyl-Glyoxal
                Bix-Guanylhydrazone] dated September 8, 1991 between the
                National Institutes of Health and Cancer Therapy and Research
                Center (Incorporated herein by reference to Exhibit 10.27 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.21           Master Services Agreement (Non-clinical Services) dated June 11,
                1996 by and between the Company and Lipitek International, Inc.
                (Incorporated herein by reference to Exhibit 10.30 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.22           Warrant for the purchase of shares of Common Stock dated
                September 1995 between the Company and Vector Securities
                International, Inc. (Incorporated herein by reference to Exhibit
                10,32 of the Company's Registration Statement No. 333-17769 on
                Form S-1 filed December 12, 1996, as amended)

10.23           Warrant for the purchase of shares of Common Stock dated July
                1996 between the Company and Chestnut Partners, Inc.
                (Incorporated herein by reference to Exhibit 10.33 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.24           Institute for Drug Development Program Agreement dated September
                20, 1994 between CTRC Research Foundation and The University of
                Texas Health Science Center at San Antonio (Incorporated herein
                by reference to Exhibit 10.34 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.25           Subordinated Option Agreement dated March 27, 1995 between CTRC
                Research Foundation and the Company (Incorporated herein by
                reference to Exhibit 10.35 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)


                                       51
<PAGE>   53

10.26           Employment Agreement dated November 2, 1994 between Richard L.
                Love and the Company (Incorporated herein by reference to
                Exhibit 10.36 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.27           Amendment to Employment Agreement dated April 4, 1995 between
                Richard L. Love and the Company (Incorporated herein by
                reference to Exhibit 10.37 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.28           Amendment to Employment Agreement dated September 27, 1995
                between Richard L. Love and the Company (Incorporated herein by
                reference to Exhibit 10.38 of the Company's Registration
                Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.29           Employment Agreement dated November 2, 1994 between Alexander L.
                Weis, Ph.D. and the Company (Incorporated herein by reference to
                Exhibit 10.39 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.30           Amendment to Employment Agreement dated April 10, 1995 between
                Alexander L. Weis, Ph.D. and the Company (Incorporated herein by
                reference to Exhibit 10.40 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.31           Amendment to Employment Agreement dated September 27, 1995
                between Alexander L. Weis, Ph.D. and the Company (Incorporated
                herein by reference to Exhibit 10.41 of the Company's
                Registration Statement No. 333-17769 on Form S-1 filed December
                12, 1996, as amended)

10.32           Employment Agreement Dated August 13, 1996 between James R. Koch
                and the Company (Incorporated herein by reference to Exhibit
                10.42 of the Company's Registration Statement No. 333-17769 on
                Form S-1 filed December 12, 1996, as amended)

10.33           Employment Agreement dated August 27, 1996 between Pedro
                Santabarbara, M.D., Ph.D. and the Company (Incorporated herein
                by reference to Exhibit 10.43 of the Company's Registration
                Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.34           Letter Agreement dated November 2, 1994 between Alexander L.
                Weis, Ph.D. and the Company (Incorporated herein by reference to
                Exhibit 10.44 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.35           Consulting Services Agreement dated March 16, 1995 between the
                Company and Charles A. Coltman, Jr., M.D. (Incorporated herein
                by reference to Exhibit 10.45 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.36           1995 Stock Option Plan for the Company (Incorporated herein by
                reference to Exhibit 10.47 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.37           1996 Non-Employee Director Stock Option Plan for the Company
                (Incorporated herein by reference to Exhibit 10.48 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)



                                       52
<PAGE>   54

10.38           Form of Non-Employee Director Stock Option Agreement
                (Incorporated herein by reference to Exhibit 10.49 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.39           Third Amended and Restated Registration Rights Agreement between
                the Company, CTRC and the holders of the Series B, C, D and E
                Preferred Stock (Incorporated herein by reference to Exhibit
                10.50 of the Company's Registration Statement No. 333-17769 on
                Form S-1 filed December 12, 1996, as amended)

10.40           Form of Pledge Agreement between Cancer Therapy and Research
                Center Endowment and each of Gary V. Woods, Ruskin C. Norman,
                M.D. and Robert V. West, Jr., Ph.D. (Incorporated herein by
                reference to Exhibit 10.55 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.41+          Exclusive License Agreement [Oxypurinol] dated November 27, 1996
                between MGI Pharma, Inc. and the Company (Incorporated herein by
                reference to Exhibit 10.56 of the Company's Registration
                Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
                amended)

10.42+          Exclusive License Agreement [DHAC] dated November 7, 1996
                between MGI Pharma, Inc. and the Company (Incorporated herein by
                reference to Exhibit 10.57 of the Company's Registration
                Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.43           Stock Purchase Agreement dated April 11, 1995 between Daniel Von
                Hoff and the Company (Incorporated herein by reference to
                Exhibit 10.58 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.44           Stock Purchase Agreement dated April 11, 1995 between Alexander
                L. Weis and the Company (Incorporated herein by reference to
                Exhibit 10.59 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.45           Stock Purchase Agreement dated April 11, 1995 between Richard L.
                Love and the Company (Incorporated herein by reference to
                Exhibit 10.60 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.46           Stock Purchase Agreement dated April 11, 1995 between Charles A.
                Coltman, Jr., and the Company (Incorporated herein by reference
                to Exhibit 10.61 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.47           Promissory Note dated April 12, 1995 between Daniel Von Hoff and
                the Company (Incorporated herein by reference to Exhibit 10.62
                of the Company's Registration Statement No. 333-17769 on Form
                S-1 filed December 12, 1996, as amended)

10.48           Promissory Note dated April 12, 1995 between Richard L. Love and
                the Company (Incorporated herein by reference to Exhibit 10.63
                of the Company's Registration Statement No. 333-17769 on Form
                S-1 filed December 12, 1996, as amended)



                                       53
<PAGE>   55

10.49           Promissory Note dated April 12, 1995 between Charles A. Coltman,
                Jr. and the Company (Incorporated herein by reference to Exhibit
                10.64 of the Company's Registration Statement No. 333-17769 on
                Form S-1 filed December 12, 1996, as amended)

10.50           Promissory Note dated April 12, 1995 between Alexander L. Weis
                and the Company (Incorporated herein by reference to Exhibit
                10.65 of the Company's Registration Statement No. 333-17769 on
                Form S-1 filed December 12, 1996, as amended)

10.51           Ownership Restriction Agreement dated December 11, 1996 between
                MPILEX Management, L.L.C., MPILEX Partners, L.P. and holders of
                units thereof (Incorporated herein by reference to Exhibit 10.66
                of the Company's Registration Statement No. 333-17769 on Form
                S-1 filed December 12, 1996, as amended)

10.52           Agreement of Limited Partnership of MPILEX Partners, L.P. among
                MPILEX Management, L.L.C. (Incorporated herein by reference to
                Exhibit 10.67 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.53           Regulations of MPILEX Management, L.L.C. dated December 1996
                (Incorporated herein by reference to Exhibit 10.68 of the
                Company's Registration Statement No. 333-17769 on Form S-1 filed
                December 12, 1996, as amended)

10.54+          License Agreement dated December 11, 1996 between MPILEX
                Partners, L.P. and the Company (Incorporated herein by reference
                to Exhibit 10.69 of the Company's Registration Statement No.
                333-17769 on Form S-1 filed December 12, 1996, as amended)

10.55           Lease Agreement between the Company and N.W.A. Limited
                Partnership, dated October 15, 1996 (Incorporated herein by
                reference to Exhibit 10.1 to the Company's Quarterly Report on
                Form 10-Q filed August 14, 1997)

10.56           First Amendment to Lease Agreement between the Company and
                N.W.A. Limited Partnership, dated March 26, 1997 (Incorporated
                herein by reference to Exhibit 10.2 to the Company's Quarterly
                Report on Form 10-Q filed August 14, 1997)

10.57           Registration Rights Agreement dated July 9, 1997, between the
                Company and PRN Research, Inc. (Incorporated herein by reference
                to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
                filed August 14, 1997)

10.58           Service Agreement dated June 30, 1997, between the Company and
                PRN Research, Inc. (Incorporated herein by reference to Exhibit
                10.4 to the Company's Quarterly Report on Form 10-Q filed August
                14, 1997)

10.59           Drug Development and Commercialization Agreement dated March 27,
                1998, between the Company and The Burnham Institute, Inc.
                (Incorporated herein by reference to Exhibit 10.1 to the
                Company's Quarterly Report on Form 10-Q filed May 15, 1998)

10.60           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)

10.61*          Consulting Services Agreement dated July 1, 1997, between the
                Company and Dr. Daniel D. Von Hoff, M.D.

11.1*           Computation of Earnings Per Share



                                       54
<PAGE>   56

21.1            Subsidiaries of the Company


<TABLE>
<CAPTION>
                                                                      State of Names Under                             
                Name                                                      Incorporation          Which Doing Business  
                ----                                                      -------------          --------------------  
<S>            <C>                                                         <C>                    <C>                  
                ILEX Oncology Services, Inc.                                Delaware              ILEX Services, Inc.  
                ILEX Products, Inc.                                         Delaware              ILEX Products, Inc.  
23*             Consent of Arthur Andersen LLP                             

24.1*           Power of Attorney (included on signature page)

27*             Financial Data Schedule

99.1*           Financial Statements of L&I Partners, L.P.
</TABLE>

---------------

*    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.


             [The remainder of this page intentionally left blank.]





                                       55
<PAGE>   57






         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, in San Antonio, Texas,
on March 29, 1999.

                                        ILEX ONCOLOGY, INC.

                                        By  /s/  RICHARD L. LOVE
                                            ------------------------------------
                                                 Richard L. Love,
                                                 President and Chief Executive
Officer
                                                 (Principal Executive Officer)

                                        By  /s/  MICHAEL T. DWYER
                                            ------------------------------------
                                                 Michael T. Dwyer
                                                 Vice President and Chief
                                                 Financial Officer
                                                 (Chief Financial and Accounting
                                                 Officer)


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, this report has been signed below by the following persons in the
capacities indicated on March 29, 1999.


<TABLE>
<CAPTION>
    Signature                                          Title                                          
    ---------                                          -----                                          
<S>                                                   <C>
/s/   GARY V. WOODS                                    Director                                       
------------------------------------                                                                  
      Gary V. Woods                                                                                   
                                                       
/s/   RICHARD L. LOVE                                  President, Chief Executive Officer and Director
------------------------------------
      Richard L. Love


/s/   DANIEL D. VON HOFF, M.D.                         Director  
------------------------------------                             
      Daniel D. Von Hoff, M.D.                                   
                                                       
/s/   JOHN L. CASSIS                                   Director  
------------------------------------                             
      John L. Cassis                                   
                                                       
/s/   A. DANA CALLOW, JR.                              Director  
------------------------------------                             
      A. Dana Callow, Jr.                                        
                                                       
/s/   RUSKIN C. NORMAN, M.D.                           Director  
------------------------------------                             
      Ruskin C. Norman, M.D.                                     
                                                       
/s/   JASON S. FISHERMAN, M.D.                         Director  
------------------------------------                             
      Jason S. Fisherman, M.D.                                                   
                                                       
/s/   JOSEPH S. BAILES, M.D.                           Director  
------------------------------------
      Joseph S. Bailes, M.D.
</TABLE>




                                       56

<PAGE>   58
                               ILEX ONCOLOGY, INC.


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

                                                                                                      Page
                                                                                                      ----
<S>                                                                                                  <C>
Report of Independent Public Accountants                                                               F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998                                           F-3

Consolidated Statements of Operations - For the Years Ended December 31, 1996, 1997 
   and 1998                                                                                            F-4

Consolidated Statements of Stockholders' Equity - For the Years Ended December 31, 1996,
   1997 and 1998                                                                                       F-5

Consolidated Statements of Cash Flows - For the Years Ended December 31, 1996, 1997
   and 1998                                                                                            F-6
                                                                                                                      
Notes to Consolidated Financial Statements                                                             F-8
</TABLE>




                                      F-1

<PAGE>   59


                    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, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1996, 1997 and 1998.
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 generally accepted auditing
standards. 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, 1997 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1996, 1997 and
1998, in conformity with generally accepted accounting principles.


                                              /s/ ARTHUR ANDERSEN LLP



San Antonio, Texas
January 29, 1999



                                      F-2

<PAGE>   60

                               ILEX ONCOLOGY, INC.


                           CONSOLIDATED BALANCE SHEETS

               (In Thousands, Except Shares and Per Share Amounts)

<TABLE>
<CAPTION>

                                                                                                       December 31
                                                                                                   --------------------
                                                    ASSETS                                           1997        1998
                                                                                                   --------    --------
<S>                                                                                                <C>         <C>     
CURRENT ASSETS:
   Cash and cash equivalents                                                                       $ 22,655    $  6,581
   Investments in marketable securities                                                              10,111      18,999
   Accounts receivable, net of allowance for doubtful accounts of $123 in 1997 and
     $150 in 1998-
       Billed                                                                                         2,516       2,685
       Unbilled                                                                                         889         515
   Prepaid expenses and other                                                                           720       1,194
                                                                                                   --------    --------

                                           Total current assets                                      36,891      29,974
                                                                                                   --------    --------

NONCURRENT ASSETS:
   Investments in marketable securities                                                               9,880         445
   Investments in and advances to-
     Research and development partnerships                                                             (360)        228
     Contract research affiliate                                                                      1,494         473
   Intangible asset, net                                                                              4,847       6,704
   Other                                                                                               --            75

                                                                                                     15,861       7,925
                                                                                                   --------    --------
PROPERTY AND EQUIPMENT:
   Office equipment                                                                                   2,509       4,208
   Lab equipment                                                                                        300       1,252
   Leasehold improvements                                                                               312         355
                                                                                                   --------    --------

                                                                                                      3,121       5,815
   Less- Accumulated depreciation and amortization                                                     (562)     (1,374)
                                                                                                   --------    --------

                                                                                                      2,559       4,441

                                           Total assets                                            $ 55,311    $ 42,340
                                                                                                   ========    ========

                                                                                                       December 31
                                                                                                   --------------------
                                    LIABILITIES AND STOCKHOLDERS' EQUITY                             1997       1998
                                                                                                   --------    --------
CURRENT LIABILITIES:
   Accounts payable-
     Related parties                                                                               $    163    $    215
     Other                                                                                              345         876
   Accrued subcontractor costs-
     Related parties                                                                                    982         239
     Other                                                                                              657       1,874
   Accrued liabilities                                                                                  727       1,143
   Deferred revenue                                                                                     928       1,685
                                                                                                   --------    --------

                           Total current liabilities                                                  3,802       6,032
                                                                                                   --------    --------


OTHER LONG-TERM LIABILITIES                                                                             433         404
                                                                                                   --------    --------

COMMITMENTS AND CONTINGENCIES (Notes 8, 10 and 12)


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; 40,000,000 shares authorized; 12,279,530 and 12,652,593 shares
     issued in 1997 and 1998, respectively                                                              123         127
   Additional paid-in capital                                                                        61,090      67,623
   Receivables on sale of common stock (Note 5)                                                         (82)        (46)
   Accumulated deficit                                                                              (10,055)    (31,283)
   Less treasury stock at cost; 39,000 shares in 1998                                                  --          (517)
                                                                                                   --------    --------

                           Total stockholders' equity                                                51,076      35,904
                                                                                                   --------    --------

                           Total liabilities and stockholders' equity                              $ 55,311    $ 42,340
                                                                                                   ========    ========
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-3


<PAGE>   61


                               ILEX ONCOLOGY, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In Thousands, Except Per Share Amounts)


<TABLE>
<CAPTION>

                                                                           Years Ended
                                                                           December 31
                                                                --------------------------------
                                                                  1996        1997        1998
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>     
REVENUE:
   Product development                                          $  3,831    $  5,027    $  4,622
   Contract research services                                      1,537       5,903       9,650
   Licensing fees                                                  2,775         300        --
                                                                --------    --------    --------

                      Total revenue                                8,143      11,230      14,272
                                                                --------    --------    --------

OPERATING EXPENSES:
   Research and development costs                                  3,637       6,740      15,509
   General and administrative                                      2,886       6,691       6,534
   Direct cost of research services                                2,169       4,587       9,313
                                                                --------    --------    --------

                      Total operating expenses                     8,692      18,018      31,356
                                                                --------    --------    --------

OPERATING LOSS                                                      (549)     (6,788)    (17,084)

OTHER INCOME (EXPENSE):
   Equity in losses of-
     Research and development partnerships                          (750)     (4,295)     (4,453)
     Contract research affiliate                                    --          (182)     (1,541)
   Interest income, net                                              684       2,583       1,850
                                                                --------    --------    --------

NET LOSS                                                        $   (615)   $(8,682)    $(21,228)
                                                                ========    ========    ========

NET LOSS PER SHARE                                              $   (.07)   $   (.72)   $  (1.71)
                                                                ========    ========    ========

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
                                                                   8,744      12,118      12,450
                                                                ========    ========    ========
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                      F-4

<PAGE>   62

                                      ILEX ONCOLOGY, INC.

                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                      (In Thousands, Except Shares Issued and Outstanding)


<TABLE>
<CAPTION>

                                                   Series A Convertible      Series B Convertible       Series C Convertible  
                                                      Preferred Stock           Preferred Stock           Preferred Stock   
                                                   ----------------------    ----------------------    ----------------------
                                                     Shares        $0.01       Shares       $0.01        Shares        $0.01  
                                                   Issued and       Par      Issued and       Par      Issued and       Par   
                                                   Outstanding     Value     Outstanding     Value     Outstanding     Value  
                                                   -----------    -------    -----------    -------    -----------    -------

<S>                                               <C>             <C>       <C>            <C>        <C>             <C>
BALANCES, December 31, 1995                          2,991,477    $    30      3,101,448    $    31           --      $  --   
   Private placement of Series C convertible
     preferred stock for cash                             --         --             --         --        1,309,424         13
   Private placement of Series D convertible
     preferred stock for cash                             --         --             --         --             --         --   
   Private placement of Series E convertible
     preferred stock for cash                             --         --             --         --             --         --   
   Issuance cost of convertible preferred stock           --         --             --         --             --         --   
   Payments received on receivables on sale of
     common stock                                         --         --             --         --             --         --   
   Net loss                                               --         --             --         --             --         --   
                                                   -----------    -------    -----------    -------    -----------    -------

BALANCES, December 31, 1996                          2,991,477         30      3,101,448         31      1,309,424         13
   Issuance of common shares in public offering,
     net of issuance costs                                --         --             --         --             --         --   
   Conversion of Series A, B, C, D and E preferred
     stock into common stock                        (2,991,477)       (30)    (3,101,448)       (31)    (1,309,424)       (13)
   Exercise of stock options and warrants                 --         --             --         --             --         --   
   Issuance of common shares for collaborative
     agreement                                            --         --             --         --             --         --   
   Issuance of common shares for investment in
     European affiliate                                   --         --             --         --             --         --   
   Payments received on receivables on sale of
     common stock                                         --         --             --         --             --         --   
   Net loss                                               --         --             --         --             --         --   
                                                   -----------    -------    -----------    -------    -----------    -------

BALANCES, December 31, 1997                               --         --             --         --             --         --   
   Issuance of common shares for collaborative
     agreement                                            --         --             --         --             --         --   
   Stock received as a reduction in advances to
     partners                                             --         --             --         --             --         --   
   Exercise of stock options                              --         --             --         --             --         --   
   Collections of receivables on sale of common           
     stock                                                --         --             --         --             --         --   
   Warrants issued in payment of licensing fee            --         --             --         --             --         --   
   Net loss                                               --         --             --         --             --         --   
                                                   -----------    -------    -----------    -------    -----------    -------

BALANCES, December 31, 1998                               --      $  --             --      $  --             --      $  --   
                                                   ===========    =======    ===========    =======    ===========    =======

<CAPTION>


                                                    Series D Convertible      Series E Convertible
                                                      Preferred Stock           Preferred Stock             Common Stock     
                                                   ----------------------    ----------------------    ----------------------
                                                     Shares       $0.01        Shares        $0.01       Shares       $0.01   
                                                   Issued and      Par       Issued and       Par      Issued and      Par    
                                                   Outstanding    Value      Outstanding     Value     Outstanding     Value   
                                                   -----------    -------    -----------    -------    -----------    -------

<S>                                               <C>            <C>        <C>            <C>          <C>          <C>    
BALANCES, December 31, 1995                               --      $  --             --      $  --        1,187,539    $    12
   Private placement of Series C convertible
     preferred stock for cash                             --         --             --         --             --         --   
   Private placement of Series D convertible
     preferred stock for cash                          113,953          1           --         --             --         --   
   Private placement of Series E convertible
     preferred stock for cash                             --         --          475,753          5           --         --   
   Issuance cost of convertible preferred stock           --         --             --         --             --         --   
   Payments received on receivables on sale of
     common stock                                         --         --             --         --             --         --   
   Net loss                                               --         --             --         --             --         --   
                                                   -----------    -------    -----------    -------    -----------    -------

BALANCES, December 31, 1996                            113,953          1        475,753          5      1,187,539         12
   Issuance of common shares in public offering,
     net of issuance costs                                --         --             --         --        2,700,000         27
   Conversion of Series A, B, C, D and E preferred
     stock into common stock                          (113,953)        (1)      (475,753)        (5)     7,992,055         80
   Exercise of stock options and warrants                 --         --             --         --           70,387          1
   Issuance of common shares for collaborative
     agreement                                            --         --             --         --          312,188          3
   Issuance of common shares for investment in
     European affiliate                                   --         --             --         --           17,361       --   
   Payments received on receivables on sale of
     common stock                                         --         --             --         --             --         --   
   Net loss                                               --         --             --         --             --         --   
                                                   -----------    -------    -----------    -------    -----------    -------

BALANCES, December 31, 1997                               --         --             --         --       12,279,530        123
   Issuance of common shares for collaborative
     agreement                                            --         --             --         --          314,600          3
   Stock received as a reduction in advances to
     partners                                             --         --             --         --          (39,000)      --   
   Exercise of stock options                              --         --             --         --           58,463          1
   Collections of receivables on sale of common           
     stock                                                --         --             --         --             --         --
   Warrants issued in payment of licensing fee            --         --             --         --             --         --   
   Net loss                                               --         --             --         --             --         --   
                                                   -----------    -------    -----------    -------    -----------    -------

BALANCES, December 31, 1998                               --      $  --             --      $  --       12,613,593    $   127
                                                   ===========    =======    ===========    =======    ===========    =======


<CAPTION>


                                                                Receivables
                                                   Additional     on Sale
                                                     Paid-In     of Common     Accumulated    Treasury
                                                     Capital       Stock         Deficit       Stock         Total
                                                   ----------    ----------    ----------    ----------    ----------

<S>                                                <C>           <C>           <C>           <C>           <C>       
BALANCES, December 31, 1995                        $   10,332    $     (136)   $     (758)   $     --      $    9,511
   Private placement of Series C convertible
     preferred stock for cash                           9,987          --            --            --          10,000
   Private placement of Series D convertible
     preferred stock for cash                             999          --            --            --           1,000
   Private placement of Series E convertible
     preferred stock for cash                           4,995          --            --            --           5,000
   Issuance cost of convertible preferred stock           (95)         --            --            --             (95)
   Payments received on receivables on sale of
     common stock                                        --              25          --            --              25
   Net loss                                              --            --            (615)         --            (615)
                                                   ----------    ----------    ----------    ----------    ----------

BALANCES, December 31, 1996                            26,218          (111)       (1,373)         --          24,826
   Issuance of common shares in public offering,
     net of issuance costs                             29,135          --            --            --          29,162
   Conversion of Series A, B, C, D and E preferred
     stock into common stock                             --            --            --            --            --   
   Exercise of stock options and warrants                 163          --            --            --             164
   Issuance of common shares for collaborative
     agreement                                          5,296          --            --            --           5,299
   Issuance of common shares for investment in
     European affiliate                                   278          --            --            --             278
   Payments received on receivables on sale of
     common stock                                        --              29          --            --              29
   Net loss                                              --            --          (8,682)         --          (8,682)
                                                   ----------    ----------    ----------    ----------    ----------

BALANCES, December 31, 1997                            61,090           (82)      (10,055)         --          51,076
   Issuance of common shares for collaborative
     agreement                                          3,104          --            --            --           3,107
   Stock received as a reduction in advances to
     partners                                            --            --            --            (517)         (517)
   Exercise of stock options                              286          --            --            --             287
   Collections of receivables on sale of common          
     stock                                               --              36          --            --              36
   Warrants issued in payment of licensing fee          3,143          --            --            --           3,143
   Net loss                                              --            --         (21,228)         --         (21,228)
                                                   ----------    ----------    ----------    ----------    ----------

BALANCES, December 31, 1998                        $   67,623    $      (46)   $  (31,283)   $     (517)   $   35,904
                                                   ==========    ==========    ==========    ==========    ==========
</TABLE>







        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                      F-5

<PAGE>   63




                               ILEX ONCOLOGY, INC.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In Thousands)

<TABLE>
<CAPTION>

                                                                                   Years Ended December 31
                                                                              --------------------------------
                                                                                1996        1997        1998
                                                                              --------    --------    --------
<S>                                                                           <C>         <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                  $   (615)   $ (8,682)   $(21,228)
    Adjustments to reconcile net loss to net cash used in operating
      activities-
       Depreciation and amortization                                               105         967       2,076
       Net activity of research and development partnerships and
         contract research affiliate                                               750       4,477         435
       Valuation of warrant issued in payment of licensing fees                   --          --         3,143
       Change in assets and liabilities-
         (Increase) decrease in assets-
           Accounts receivable, net                                             (1,432)     (3,589)        205
           Prepaid expenses and other                                             (653)        327        (474)
           Other noncurrent assets                                                --          --           (75)
         Increase (decrease) in liabilities-
           Accounts payable                                                        240          89         583
           Accrued liabilities                                                     281         982         890
           Deferred revenue                                                        360         398         757
           Other long-term liabilities                                             226         207         (29)
                                                                              --------    --------    --------

                   Net cash used in operating activities                          (738)     (4,824)    (13,717)
                                                                              --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net activity of marketable securities' transactions                         (17,947)     (2,044)        547
   Purchase of property and equipment                                             (539)     (2,047)     (2,708)
   Investments in and advances to research and development partnerships and     (1,000)     (2,736)       (519)
                                                                              --------    --------    --------
     contract research affiliate

                   Net cash used in investing activities                       (19,486)     (6,827)     (2,680)
                                                                              --------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of common stock for cash, net of issuance costs                       --        29,076        --   
   Issuance of preferred stock for cash, net of issuance costs                  15,905        --          --   
   Exercise of options and warrants                                               --           164         287
   Collections of receivables on sale of common stock                               25          29          36
   Repayment of advances from related party                                       (305)       --          --
                                                                              --------    --------    --------

                   Net cash provided by financing activities                    15,625      29,269         323
                                                                              --------    --------    --------
</TABLE>





                                       F-6

<PAGE>   64

<TABLE>
<CAPTION>

                                                            Years Ended December 31
                                                       -------------------------------
                                                           1996        1997       1998
                                                       --------    --------   --------
<S>                                                    <C>         <C>        <C>      
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   $ (4,599)   $ 17,618   $(16,074)

CASH AND CASH EQUIVALENTS, beginning of year              9,636       5,037     22,655
                                                       --------    --------   --------

CASH AND CASH EQUIVALENTS, end of year                 $  5,037    $ 22,655   $  6,581
                                                       ========    ========   ========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for-
     Interest                                          $     10    $   --     $   --   
     Income taxes                                          --          --         --   
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.




                                      F-7


<PAGE>   65






                               ILEX ONCOLOGY, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1997 AND 1998

                (Amounts in Thousands, Except Share Information,
                Per Share Information or As Otherwise Indicated)


 1.  ORGANIZATION AND OPERATIONS:

ILEX Oncology, Inc. (the Company), was incorporated in December 1993 under the
laws of the State of Delaware. The Company was incorporated as a for-profit,
wholly owned subsidiary of the CTRC Research Foundation (CTRC Research), a
nonprofit organization.

The Company is a drug development company focused on oncology through its two
wholly owned subsidiaries ILEX Products, Inc. (ILEX Products) and ILEX Services,
Inc. (ILEX Services). ILEX Products focuses in the areas of identification,
development, manufacturing and regulatory approval of oncology compounds to
develop cancer therapeutics and build a chemoprevention product platform. ILEX
Services offers contract research services to both the pharmaceutical and
biotechnology industries.

The accompanying consolidated financial statements include the accounts of ILEX
Oncology, Inc., and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.

Currently, the Company has no products available for sale. The Company's
proposed products, with one exception, are primarily in the development stage
and will require extensive clinical testing prior to submission of any
regulatory application for commercial use. Accordingly, the Company has incurred
net losses to date. The Company has not generated any revenues from product
sales to date, and there can be no assurance that revenues from product sales
will be achieved. The Company's ability to achieve a profitable level of
operations in the future will depend in large part on its completing development
of its compounds, obtaining regulatory approvals for such compounds,
commercializing these potential products through marketing agreements with other
companies or, if the Company chooses, marketing such compounds independently,
successfully manufacturing such compounds, achieving market acceptance of such
compounds and expanding its contract research services business. There can be no
assurance that the Company will ever 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.

The Company may require substantial additional funds to conduct research and
development, to further develop its potential pharmaceutical products, to
manufacture and market any pharmaceutical products that may be developed and to
expand its contract research service business. The Company expects its capital
and operating expenditures to increase substantially over the next several
years. The Company's current sources of funding are derived from its
collaborative agreements with its strategic partners, its contract research
services, existing cash and cash equivalents and investments in marketable
securities. The Company believes that its collaborative agreements with
strategic partners, its contract research services, existing cash and cash
equivalents and investments in marketable securities will satisfy its cash
requirements for the foreseeable future. There can be no assurance, however,
that additional funds will be available on acceptable terms, if at all.

                                      F-8

<PAGE>   66



 2.  SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

   Product Development -- Revenues from drug development studies are either
   based on the time incurred on such studies or are recognized on a
   percentage-of-completion basis. The Company is reimbursed for investigator
   costs based on actual costs incurred or predetermined rates and out-of-pocket
   costs incurred during the performance of the study. Revenues related to
   milestone payments of the drug development studies are recognized based on
   the completion of the milestone measurements.

   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.

   Licensing Fees -- Revenues from the signing of licensing agreements are
   recognized upon the execution of the agreements as the Company has no future
   obligations related to the signing of the license agreement and such fees are
   nonrefundable.

Current Assets and Current Liabilities

The carrying value of current assets and current liabilities approximates fair
value due to the short maturity of these items.

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. Leasehold
improvements represent capitalized employee salaries related to construction and
other miscellaneous costs incurred to bring the leased cGMP (current Good
Manufacturing Practices) facility (Note 10) into use. 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                                3 - 10 years
        Lab equipment                                   5 - 10 years
        Leasehold improvements                              15 years

Deferred Revenue

Deferred revenue represents advances for services not yet rendered under
contract services and billings in excess of revenue recognized.

Investments in Marketable Securities

At December 31, 1997 and 1998, marketable debt securities have been categorized
as held to maturity and are stated at amortized cost, as these securities have
staggered maturity dates, and management of the Company does not intend to
liquidate these securities before maturity. Marketable debt securities with an
original maturity of less than one year are classified in the balance sheet as
current assets, while securities with a maturity of greater than one year are
classified as noncurrent assets. The fair value of marketable securities is
based on currently published market quotations.

                                      F-9

<PAGE>   67



Credit Risk and Major Customer

The Company places its excess temporary cash and cash equivalents in a money
market account with a high quality financial institution. At times, such amounts
may be in excess of the FDIC insurance limit. The Company's accounts receivable
are from pharmaceutical and biotechnology companies. Based on the Company's
evaluation of the collectibility of these accounts receivable, an allowance for
doubtful accounts of $123 was necessary at December 31, 1997 and $150 at
December 31, 1998. The Company believes the exposure to credit risk related to
the remaining accounts receivable is minimal.

For the year ended December 31, 1996, 40 percent of revenue arose from one
customer. For the year ended December 31, 1997, the Company's top five customers
accounted for 77 percent of revenue. For the year ended December 31, 1998, the
Company's top five customers accounted for 85 percent of revenue.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles 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.

Income Taxes

The Company has incurred losses since inception for both book and tax purposes.
Accordingly, no income taxes have been provided for in the consolidated
financial statements for the years ended December 31, 1996, 1997 and 1998.

Statements of Cash Flows

The Company considers all highly liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents.

Noncash financing and investing activities for the years ended December 31,
1996, 1997 and 1998, include the following:

<TABLE>
<CAPTION>

                                                                         1996     1997     1998
                                                                         ----   ------   ------

<S>                                                                     <C>     <C>      <C>    
Conversion of preferred stock into common stock                          $ --   $   80   $ --   

Contribution payable to MPILEX Partners, L.P. (MPILEX)                     --       11     --   

Contribution made to MPILEX as a reduction in accounts receivable          --    1,089     --   

Issuance of common stock for investment in PFK GmbH (PFK)                  --      278     --   

Issuance of common stock to Physician Reliance Network, Inc. (PRN) for
   collaborative agreement                                                 --    5,299    3,107

Treasury shares received from MPILEX as a reduction in advances
   to research and development partnerships                                --      --       517
</TABLE>


                                      F-10

<PAGE>   68



Investments in and Advances to Research and Development
Partnerships and Contract Research Affiliate                     

The Company holds a 50 percent interest and a 54 percent interest in two
separate research and development partnerships and a 40 percent interest in a
contract research affiliate. All of these are for the purpose of research
collaboration endeavors. The Company accounts for its nonmajority owned
investments in research and development partnerships and contract research
affiliate using the equity method of accounting.

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.

Reclassifications

Certain prior period amounts have been reclassified to conform to the 1998
presentation.

 3.  INVESTMENTS IN MARKETABLE SECURITIES:

At December 31, 1997 and 1998, the following marketable securities due within
one year were classified as current assets:

<TABLE>
<CAPTION>

                                         1997                    1998
                               -----------------------  ----------------------
                                  Cost      Fair Value     Cost     Fair Value
                               ----------   ----------  ----------  ----------
<S>                            <C>          <C>         <C>         <C>       
Government agency securities   $     --     $     --    $    2,885  $    2,885
                               ==========   ==========  ==========  ==========

Corporate securities           $     --     $     --    $   15,964  $   15,955
                               ==========   ==========  ==========  ==========

U.S. Treasury securities       $   10,111   $   10,564  $      150  $      150
                               ==========   ==========  ==========  ==========
</TABLE>

At December 31, 1997 and 1998, the following marketable securities with a
maturity greater than one year were classified as noncurrent assets:

<TABLE>
<CAPTION>

                                      1997                   1998
                               ---------------------   ---------------------
                                 Cost     Fair Value     Cost     Fair Value
                               ---------   ---------   ---------   ---------
<S>                            <C>         <C>         <C>         <C>      
U.S. Treasury securities       $   7,166   $   6,713   $     445   $     446
                               =========   =========   =========   =========

Government agency securities   $   2,714   $   2,699   $    --     $    --
                               =========   =========   =========   =========
</TABLE>

Gross unrealized holding gains and losses at December 31, 1997, were
approximately $38 and $53, respectively. Gross unrealized holding gains and
losses at December 31, 1998, were approximately $ 7 and $15, respectively.

 4.  INVESTMENTS IN RESEARCH AND
     DEVELOPMENT PARTNERSHIPS AND
     CONTRACT RESEARCH AFFILIATE:                 

In December 1996, the Company entered into an agreement with MPI Enterprises,
L.L.C. (MPI), for an equally owned joint venture, MPILEX, for research
collaboration endeavors. At December 31, 1998, as a result of making
contributions to MPILEX in excess of MPI's contributions, the Company had a
majority ownership interest in and controlling interest of MPILEX. The activity
for the venture has been fully consolidated in the Company's 1998 operating
results with all significant intercompany transactions and accounts being
eliminated.


                                      F-11

<PAGE>   69



In May 1997, the Company entered into an agreement with Leukosite, Inc.
(Leukosite), for an equally owned joint venture, L&I Partners, L.P. (L&I), for
research collaboration endeavors. The following is summarized financial
information for L&I as of and for the period ended December 31, 1997 and 1998:

Summarized Income Statement Information

<TABLE>
<CAPTION>

                                           1997       1998
                                         -------    -------
<S>                                      <C>        <C>     
                    Revenue              $  --      $  --   
                    Operating expenses     6,722      7,784
                    Operating loss        (6,722)    (7,784)
                    Net loss              (6,716)    (7,716)
</TABLE>

Summarized Balance Sheet Information

<TABLE>
<CAPTION>

                                          1997       1998
                                        -------    -------
<S>                                     <C>        <C>    
                     Assets             $   353    $    64
                     Liabilities          4,412        737
                                        -------    -------

                     Partners' equity   $(4,059)   $  (673)
                                        =======    =======
</TABLE>

In September 1997, the Company entered into an agreement with PFK, a German
contract research organization, to purchase a 30 percent equity interest in PFK.
In 1998, the Company purchased an additional 10 percent equity interest in PFK
for a cash payment of $519, bringing the Company's total ownership interest in
PFK to 40 percent.

5.  STOCKHOLDERS' EQUITY:

In April 1995, certain consultants and employees of the Company exercised rights
to purchase, in aggregate, 1,187,481 shares of common stock pursuant to their
respective consulting or employment agreements for $208. A portion of this
amount was paid in cash and the Company financed the remaining balance. At
December 31, 1997 and 1998, notes receivable from the consultants and employees
related to these financings equaled $82 and $46, respectively. The notes
receivable bear interest at an annual rate of 8 percent and mature in March
1999. Payments of principal and interest are due quarterly with the remaining
balance due at maturity. The notes receivable are presented as a deduction from
stockholders' equity for financial reporting purposes.

Also in April 1995, the Company issued 2,991,477 shares of Series A convertible
preferred stock in exchange for certain rights and net assets previously
transferred to the Company as capital contributions by CTRC Research. The rights
and net assets previously transferred to the Company were recorded at the
carrying value of its predecessor as of the date of the transfer.

The Company effected private placements of 3,101,448 shares of Series B
convertible preferred stock in September 1995, 1,309,424 shares of Series C
convertible preferred stock in July 1996, 113,953 shares of Series D convertible
preferred stock in November 1996 and 475,753 shares of Series E convertible
preferred stock in December 1996.

                                      F-12

<PAGE>   70



In February 1997, the Company completed the issuance of an additional 2.7
million common shares through a public offering, resulting in net proceeds
(after deducting issuance costs) of $29.2 million. In connection with the public
offering, the board of directors approved an approximate 1.75 for 1 reverse
stock split of the Company's common stock effective upon the effective date of
the public offering. All common stock, convertible preferred stock, options,
warrants and per share information included in the accompanying consolidated
financial statements were adjusted to give retroactive effect to the split. All
of the Series A, Series B, Series C, Series D and Series E convertible preferred
stock were converted into 7,992,055 shares of common stock at the date of the
public offering. The Company continues to use the net proceeds of the public
offering to fund its research and development activities, including the
formation of joint ventures and other collaborative relationships. In addition,
the Company continues to use some of the proceeds of this public offering to
expand its contract research services through internal growth, including the
acquisition of information technology and expansion of other strategic
collaborations. The Company has the remainder of the proceeds of this public
offering for working capital and general corporate purposes. The Company has
invested and continues to invest available proceeds of this public offering in
government securities and investment-grade, interest-bearing instruments.

In July 1997, the Company entered into a series of collaborative agreements with
PRN under which the Company and PRN agreed to jointly market their clinical
trial service capabilities. As part of entering into these agreements, the
Company issued 312,188 and 314,600 common shares to PRN in July 1997 and 1998,
respectively. The Company has recorded these issuances as an intangible asset
and amortizes them over the term of the agreement. The Company has also agreed
to issue up to an additional 629,200 shares to PRN over a two-year period if PRN
remains in compliance with various provisions of the agreements. Additionally,
1,255,988 common shares may be issued over a four-year period based on
achievement of certain milestones. No additional shares have been issued related
to these milestones. At December 31, 1998, the Company did not anticipate
achievement of any milestones in 1999.

In September 1997, the Company acquired a 30 percent equity interest in PFK, a
German contract research organization, followed by an additional investment of
10 percent in 1998. This purchase was effected through the issuance of 17,361
common shares and cash payments of $1.4 million and $519 in 1997 and 1998,
respectively.

In December 1998, the Company received 39,000 shares of its own stock from
MPILEX as payment for contract research services rendered by the Company. The
cost of the stock at the date of payment was $517 and was recorded as treasury
stock in the accompanying consolidated financial statements.

6.  STOCK OPTIONS AND STOCK PURCHASE WARRANTS:

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123) 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, FAS 123 also
allows entities to continue to measure compensation costs for employee stock
compensation plans using the intrinsic value method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The
Company has adopted FAS 123 and has elected to remain with the accounting
prescribed by APB 25. The Company has made the required disclosures prescribed
by FAS 123.

                                      F-13

<PAGE>   71



During 1995, the Company adopted a stock option plan (the Plan). Under the Plan,
incentive stock options may be granted to key employees and consultants of the
Company as approved by a committee of the Company's board of directors.
Originally, the Company had reserved 570,904 shares of common stock for issuance
in accordance with the Plan. In October 1996, the Company increased the number
of authorized shares of common stock reserved for issuance under the Plan to
1,141,807. Stock options vest pursuant to the individual stock option
agreements, usually 25 percent per year beginning one year from the date of
grant, with unexercised options expiring 5 years from the date of grant.

In October 1996, the Company adopted a nonemployee directors' stock option plan
(the Directors' Plan). Under the Directors' Plan, each nonemployee director is
granted a one-time option equaling 17,128 shares of common stock. In October
1996, December 1996, August 1997, and February 1998 the nonemployee directors
were granted 102,768, 17,128, 17,128, and 30,000 options, respectively,
exercisable at approximately $7.01, $7.01, $16.50, and $8.63 per share,
respectively. These options vest at 1/48 per month, with unexercised options
expiring 10 years from the date of grant. During both 1997 and 1998, 17,128 of
these options were forfeited when nonemployee directors left the Company.

A summary of the status of the Company's fixed stock option plans for the years
ended December 31, 1996, 1997 and 1998, and changes during these years on those
dates is presented below:

<TABLE>
<CAPTION>

                                             December 31, 1996          December 31, 1997          December 31, 1998
                                         ------------------------   ------------------------   ------------------------
                                                        Weighted                   Weighted                   Weighted
                                                         Average                    Average                    Average
                                                        Exercise                   Exercise                   Exercise
                                           Shares        Price        Shares        Price        Shares         Price
                                         ----------    ----------   ----------    ----------   ----------    ----------
<S>                                      <C>          <C>          <C>           <C>          <C>           <C>       
Outstanding, beginning of year              337,490    $     2.41      688,680    $     4.21      972,258    $     7.74
Granted                                     361,982          5.91      380,730         12.96      396,514         10.37
Exercised                                      --            --        (68,975)         2.20      (58,463)         5.12
Forfeited                                   (10,792)         4.75      (28,177)         5.79     (131,573)        10.09
                                         ----------    ----------   ----------    ----------   ----------    ----------

Outstanding, end of year                    688,680    $     4.21      972,258    $     7.74    1,178,736    $     8.56
                                         ==========    ==========   ==========    ==========   ==========    ==========

Options exercisable at end of year          131,393    $     2.28      232,256    $     3.77      401,144    $     5.65
                                         ==========    ==========   ==========    ==========   ==========    ==========

Weighted average fair value of options
   granted during the year                             $     3.02                 $    10.39                 $     7.07
                                                       ==========                 ==========                 ==========
</TABLE>



                                      F-14

<PAGE>   72



The following table summarizes the information about fixed stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>

                                           Options Outstanding                      Options Exercisable
                           ---------------------------------------------------   ----------------------------
                                               Weighted                               Number         Weighted
                                                Average            Weighted       Exercisable at      Average
                              Number           Remaining           Average         December 31,      Exercise
    Exercise Prices        Outstanding     Contractual Life     Exercise Price           1998           Price
    ---------------        -----------     ----------------     --------------   -------------     ----------
<S>                       <C>            <C>                   <C>               <C>             <C>    
$0.18  - $ 3.50              301,393        2.93 years            $  2.69           227,455         $  2.42
$6.00  - $ 9.00              437,664        4.99 years            $  7.53           114,218         $  7.18
$9.50  - $13.63              245,810        4.22 years            $ 11.68            15,237         $ 11.78
$14.00 - $18.25              185,618        4.15 years            $ 15.85            42,100         $ 16.02
$18.50 - $23.00                8,251        3.40 years            $ 20.40             2,134         $ 20.49
                           ---------                                             ----------                  
                           1,178,736        4.16 years            $  8.56           401,144         $  5.65
                           =========                                             ==========                  
</TABLE>

Because the Company has elected to remain with the accounting prescribed by APB
25, no compensation cost has been recognized for its fixed stock option plans.
Had compensation cost for the Company's stock-based compensation plans been
determined on the fair value of the grant dates for awards under those plans
consistent with the method of FAS 123, the Company's net loss and loss per share
would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                                               December 31
                                                                -----------------------------------------
                                                                    1996          1997           1998
                                                                -----------    -----------    -----------
<S>                                                             <C>            <C>            <C>         
Net loss                              As reported               $      (615)   $    (8,682)   $   (21,228)

                                      Pro forma                 $      (787)   $    (9,468)   $   (22,900)

Loss per share                        As reported               $     (0.07)   $     (0.72)   $     (1.71)

                                      Pro forma                 $     (0.09)   $     (0.78)   $     (1.84)
</TABLE>

For options granted before the Company's public offering, the fair value of each
option grant was estimated on the date of the grant using the minimum value
method as the Company was a nonpublic entity when such options were granted.
This value is calculated as the current stock price less the present value of
the exercise price for a stock that does not pay dividends. The assumptions used
for the minimum value computation for the year ended December 31, 1996, was: the
risk free interest rate was 6.5 percent; the exercise price is equal to the fair
market value of the underlying common stock at the grant date; the expected life
of the option is the term to expiration; and the common stock will pay no
dividends.

For options granted in 1997 and 1998, 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 percent in
both years; expected volatility of 62.18 percent and 81.89 percent in 1997 and
1998, respectively; risk free interest rate of 6.3 percent and 4.5 percent in
1997 and 1998, respectively; expected life of the option is the term to
expiration in both years.

In connection with the private placement of Series B convertible preferred
stock, the Company issued a warrant for the purchase of 97,054 shares of common
stock at approximately $3.50 per share to the securities firm that assisted in
the private placement of Series B convertible preferred stock. The Company's
management determined the value of the warrant issued was immaterial to the
financial position and results of operations of the Company. The value of the
warrants was based on the exercise price of the warrant and the fair value of
the Company's common stock at the date of issuance as well as the terms of the
warrant issued. The warrant may be exercised in whole at any time or in part
from time to time, prior to its expiration in September 2000. As of December 31,
1998, none of these warrants had been exercised.

                                      F-15

<PAGE>   73



In connection with the private placement of Series C convertible preferred
stock, the Company issued 327,367 warrants for the purchase of common stock at
approximately $8.76 per share to the Series C convertible preferred
stockholders. The value of the warrants issued were de minimus based on the
exercise price of the warrants and the fair value of the Company's common stock
on the date the warrants were issued. As such, no amount of the Series C
convertible preferred stock was attributed to the warrants. The warrants may be
exercised in whole at any time or in part from time to time, prior to their
expiration in July 2001. During 1997, 1,412 of these warrants were exercised. No
warrants were exercised during 1998.

In July 1996, the Company entered into a consultation agreement with a firm for
services related to the Company's public offering (see Note 5). In connection
with this agreement, the Company issued to the firm a warrant for the purchase
of 28,546 shares of the Company's common stock at approximately $8.76 per share.
The warrant may be exercised in whole or in part from time to time, prior to its
expiration in July 2001. The Company used the same methodology and assumptions
as described for stock options accounted for under FAS 123 as noted above, for
determining the fair value of the warrant issued. The value of the warrant was
immaterial to the financial position and results of operations of the Company.
As of December 31, 1998, none of these warrants had been exercised.

In March 1998, the Company entered into an agreement with a drug development
institute to license a compound for development by the Company. The agreement
called for an initial payment of $250 and a warrant to purchase 590,113 shares
of the Company's common stock. Using the Black-Scholes pricing model, the value
of the warrant was determined to be $3,143. As of December 31, 1998, this
warrant had not been exercised.

7.  RELATED-PARTY TRANSACTIONS:

CTRC Research performs certain administrative and technical support services for
the Company. For the years ended December 31, 1996, 1997 and 1998, the Company
paid CTRC Research approximately $143, $832 and $672, respectively, for these
services and reimbursement of salaries and benefits. As described in Note 10,
the Company has lease agreements with CTRC Research for labs and the cGMP
facility. For the years ended December 31, 1996, 1997 and 1998, the Company paid
CTRC Research approximately $34, $94 and $280, respectively, related to these
lease agreements. At December 31, 1997 and 1998, the Company had payables to
CTRC Research amounting to $111 and $92, respectively, related to the
aforementioned services and lease agreements.

In March 1995, the Company entered into a subordinated option agreement with
CTRC Research. The agreement gives the Company the subordinated option to
acquire licenses or certain marketable rights, as defined in the agreement,
owned by CTRC Research. The subordinated option for any particular marketable
right is exercisable only after a third party, with which CTRC Research has
contracted, elects not to exercise its primary option on the same marketable
right. The subordinated option agreement expires in fiscal year 2000.

Subcontractors provide the Company with consulting services and preclinical and
clinical testing related to certain of its contracts. Such costs may be included
in either research and development costs or subcontractor costs in the
accompanying consolidated financial statements. For the years ended December 31,
1996, 1997 and 1998, the Company incurred the following related-party expenses
for subcontracting costs.


                                      F-16

<PAGE>   74

<TABLE>
<CAPTION>

                                                  December 31
                                           ------------------------
                                            1996     1997     1998
                                           ------   ------   ------
<S>                                        <C>      <C>      <C>   
CTRC Research                              $  371   $  486   $  699
Director of the Company                       227      388        2
Stockholders                                  433      305      384
Company owned by officer/director of the
   Company                                    378    1,654     --   
PRN                                          --        540      649
MPI                                          --         21     --   
PFK                                          --        404    1,084
                                           ------   ------   ------
                                           $1,409   $3,798   $2,818
                                           ======   ======   ======
</TABLE>

At December 31, 1997 and 1998, the following subcontractor costs were payable to
related parties:

<TABLE>
<CAPTION>

                                            December 31
                                           -------------
                                            1997    1998
                                           ------ ------
<S>                                        <C>    <C>   
CTRC Research                              $  194 $   99
Director of the Company                        29   --   
Company owned by officer/director of the
   Company                                     49   --   
PRN                                           530     95
MPI                                             4   --   
PFK                                           176     45
                                           ------ ------

                                           $  982 $  239
                                           ====== ======
</TABLE>

In December 1996, the Company sold the license for an oncology compound to
MPILEX. The Company recognized license fee revenue of $1,500 from the sale of
this license.

During 1997 and 1998, the Company performed contract research services on behalf
of L&I and MPILEX, the Company's research and development partnerships. For the
years ended December 31, 1997 and 1998, the Company recorded the following
revenues related to these services:

<TABLE>
<CAPTION>

                                          1997     1998
                                          ----     ----
<S>                                     <C>      <C>   
                         L&I            $  952   $3,615

                         MPILEX          1,421      851
</TABLE>

8.  LICENSING AGREEMENTS:

In 1994, the Company obtained two licensing agreements for oncology compounds
from CTRC Research. During 1995 and 1996, the Company entered into six
additional licensing agreements. All of the licensing agreements grant the
Company the right to develop and market the oncology compounds covered by such
agreements and to license the rights to such compounds to other third parties.
During 1996, the Company sold one of its license agreements to MPILEX (see Note
7).

Under the terms of the agreements, the Company is required to pay upfront fees
and/or annual fees, as defined in the agreements. In addition, the Company must
also pay royalties upon commercialization of the compounds. Under certain
agreements, the Company is required to make milestone payments, as defined in
the agreements. At December 31, 1998, the Company had not attained any of the
events that require a milestone payment.


                                     F-17

<PAGE>   75



During 1998, the Company entered into an agreement with a drug development
institute to license a compound for development by the Company. The agreement
called for an initial payment of $250 and a warrant to purchase 590,113 shares
of the Company's common stock. Using the Black-Scholes pricing model, the value
of the warrant was determined to be $3,143. The agreement also requires
subsequent payments to the drug development institute at the attainment of
various milestones. At December 31, 1998, the Company had not attained any of
the events that require a milestone payment.

During 1998, the Company entered into an agreement with a customer for the
development of an oncology compound. The agreement requires the Company to
perform clinical research services valued at $3 million in exchange for a 30
percent ownership interest in the compound. The Company also has certain rights
to negotiate for additional ownership interest.

9.  EMPLOYEE BENEFITS:

The Company has 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. Employees may
elect to contribute a certain percentage of their salary on a before-tax basis.
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. The plan is a defined contribution plan with employer contributions
made solely at the discretion of the board of directors. Since adoption of the
plan, no employer contributions had been made by the Company. For the years
ended December 31, 1996, 1997 and 1998, administrative expenses incurred by the
Company related to this plan were not significant.

The Company does not provide postretirement benefits or postemployment benefits
to its employees.

10.  OPERATING LEASES:

The Company has several noncancelable operating leases for office space,
equipment and the cGMP facility. Rent expense associated with these leases was
approximately $572, $885 and $904 for the years ended December 31, 1996, 1997
and 1998, respectively. As described in Note 7, one of the leases is with CTRC
Research, a related party.

During 1995, the Company entered into a lease agreement with CTRC Research and
the Texas Research and Technology Foundation (TRTF) for the use of the cGMP
facility. The cGMP facility will be utilized for the manufacturing of oncology
drugs. Under the terms of the lease agreement, which expires in 2010, the
Company is required to make monthly payments commencing in 1998. The payments
will be based on a fixed monthly rate plus a percentage of gross sales, as
defined in the agreement.

In February 1996, the Company entered into a noncancelable lease agreement for
equipment to be used in the cGMP facility. The lease requires the Company to
make monthly payments of approximately $16 and expires in 2001. Under the terms
of the agreement, the Company maintains $575 in the form of securities as
collateral for the equipment. The collateral requirement will be reduced, as
defined in the lease agreement, through the life of the lease.

At December 31, 1998, future minimum lease payments under all operating leases
are as follows:

<TABLE>
<CAPTION>

                                                      Related Party   Other      Total
                                                      -------------  -------   --------
<S>                                                    <C>           <C>       <C>     
Year ending December 31-
  1999                                                 $  244        $ 1,060   $  1,304
  2000                                                    120          1,217      1,337
  2001                                                    120          1,035      1,155
  2002                                                    120          1,057      1,177
  2003                                                    120          1,087      1,207
  Thereafter                                              840          2,340      3,180
</TABLE>



                                      F-18

<PAGE>   76



11.  INCOME TAXES:

As of December 31, 1998, the Company had net operating loss (NOL) carryforwards
of approximately $28,187 for U.S. federal income tax purposes which are
available to reduce future taxable income of which $478, $7,722 and $19,987 will
expire in 2010, 2012 and 2018, respectively. As of December 31, 1997, the
Company had research tax credits of $233,500 that expire in varying amounts
through the year 2018. The tax effects of significant temporary differences
representing deferred income tax assets and liabilities are as follows as of
December 31, 1997 and 1998:

<TABLE>
<CAPTION>

                                                       December 31
                                                    ------------------
                                                      1997       1998
                                                    -------    -------
<S>                                                 <C>        <C>    
         Net operating loss carryforward            $ 3,065    $ 9,584
         Expense provisions                             142        182
         Other tax differences, net                     (22)        (4)
         Valuation allowance                         (3,185)    (9,762)
                                                    -------    -------

                 Total deferred income tax assets   $  --      $  --
                                                    =======    =======
</TABLE>

The valuation allowance as of December 31, 1997 and 1998, represents tax
benefits, primarily certain future NOL carryforwards, which were not realizable
at that date.

The Company's income tax benefit at the statutory federal income tax rate for
the years ended December 31, 1996, 1997 and 1998, differs from the actual income
tax benefit of $0 for those periods, as the Company has provided a valuation
reserve equal to the income tax benefit amount computed at the statutory federal
tax rate.

The availability of the NOL and credit carryforwards to reduce U.S. federal
taxable income is subject to various limitations under the Internal Revenue Code
of 1986 (the Code), as amended, in the event of a greater than 50 percent
ownership change as defined in Section 382 of the Code. As of December 31, 1998,
the Company had incurred at least a 37 percent ownership change during the
applicable three-year period. The Company does not believe a change in ownership
significantly impacts the Company's ability to utilize its NOL and tax credit
carryforwards as of December 31, 1998, because the amount of the cumulative
limitation (based upon the Company's current market capitalization) during the
carryforward period exceeds the total amount of NOL and tax credit
carryforwards.

12.  COMMITMENTS AND CONTINGENCIES:

During 1998, the Company guaranteed a $615 line of credit for PFK, its European
affiliate. The guarantee is limited for a period of two years beginning in July
1998 and ending in June 2000. If the guarantee comes to redemption, the Company
will automatically obtain an additional 10 percent ownership interest in PFK. At
December 31, 1998, the guarantee had not come to redemption.

During 1998, the Company guaranteed a $1.0 million line of credit for Clinical
Research Group, Inc. (CRG). The guarantee gave the Company access to a network
of clinical sites managed by CRG. The guarantee is limited for a period of three
years beginning in May 1998 and ending in May 2001. If the guarantee comes to
redemption, the Company will obtain an ownership interest in CRG in accordance
with the guarantee agreement. At December 31, 1998, the guarantee had not come
to redemption.

                                      F-19

<PAGE>   77



13.  SEGMENT REPORTING:

The Company has two reportable segments: ILEX Products and ILEX Services. ILEX
Products is involved in the development of proprietary compounds for the
treatment and prevention of cancer. ILEX Services provides contract research
services for the development, manufacturing, and regulatory approval of oncology
compounds. The Company's reportable segments are strategic business units that
are managed separately because each business requires different technology and
marketing strategies.

The accounting policies of the segments are the same as those of the Company.
The Company evaluates performance based on the profit or loss from operations
before income taxes.

                          Selected Segment Information

<TABLE>
<CAPTION>

                                                            Services      Products     Total
                                                            ---------    ---------    ---------
<S>                                                         <C>          <C>          <C>      
For the Year Ended December 31, 1996

Revenue                                                     $   1,537    $   6,606    $   8,143

Direct costs                                                    2,169        3,637        5,806
                                                            ---------    ---------    ---------

Segment operating income (loss)                                  (632)       2,969        2,337

Equity in losses of research and development partnerships        --           (750)        (750)
                                                            ---------    ---------    ---------

Segment net income (loss)                                   $    (632)   $   2,219    $   1,587
                                                            =========    =========    =========

For the Year Ended December 31, 1997

Revenue                                                     $   5,903    $   5,327    $  11,230

Direct costs                                                    4,587        6,740       11,327
                                                            ---------    ---------    ---------

Segment operating income (loss)                                 1,316       (1,413)         (97)

Equity in losses of research and development partnerships        --         (4,295)      (4,295)
                                                            ---------    ---------    ---------

Segment net income (loss)                                   $   1,316    $  (5,708)   $  (4,392)
                                                            =========    =========    =========

For the Year Ended December 31, 1998

Revenue                                                     $   9,650    $   4,622    $  14,272

Direct costs                                                    9,313       15,509       24,822
                                                            ---------    ---------    ---------

Segment operating income (loss)                                   337      (10,887)     (10,550)

Equity in losses of research and development partnerships        --         (4,453)      (4,453)
                                                            ---------    ---------    ---------

Segment net income (loss)                                   $     337    $ (15,340)   $ (15,003)
                                                            =========    =========    =========
</TABLE>


                                      F-20

<PAGE>   78



          Reconciliation of Segment Information to Consolidated Totals

<TABLE>
<CAPTION>

                                                          For the Years Ended
                                                              December 31
                                                   --------------------------------
                                                     1996        1997        1998
                                                   --------    --------    --------

<S>                                                <C>         <C>         <C>      
Operating net income (loss)-
   Reportable segment operating loss               $  2,337    $    (97)   $(10,550)
   Corporate general and administrative expenses     (2,886)     (6,691)     (6,534)
                                                   --------    --------    --------

Consolidated operating loss                        $   (549)   $ (6,788)   $(17,084)
                                                   ========    ========    ========

Net income (loss)-
   Reportable segment net loss                     $  1,587    $ (4,392)   $(15,003)
   Corporate general and administrative expenses     (2,886)     (6,691)     (6,534)
   Interest income, net                                 684       2,583       1,850
   Equity in loss of contract research affiliate       --          (182)     (1,541)
                                                   --------    --------    --------

Consolidated net loss                              $   (615)   $ (8,682)   $(21,228)
                                                   ========    ========    ========
</TABLE>


14.  SUBSEQUENT EVENT (UNAUDITED):

In January 1999, the Company entered into a development and licensing agreement
for an oncology compound with a pharmaceutical company. In March 1999, the
pharmaceutical company purchased $2.5 million of common stock of the Company.

Under the terms of the development and licensing agreement, the pharmaceutical
company has the option to further develop and commercialize the compound after
completion of specified clinical trials and, if exercised, the Company is
eligible to receive royalties. Should the pharmaceutical company decide not to
exercise its option, the Company will have to pay the pharmaceutical company
milestone payments and royalties on sales in addition to a license fee to
continue development and commercialization of the compound.


                                      F-21



<PAGE>   79
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT 
NUMBER   IDENTIFICATION OF EXHIBIT
------   -------------------------
<S>      <C>
3.1      Amended and Restated Certificate of Incorporation of the Company
         (Incorporated herein by reference to Exhibit 3.1 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

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)

10.1     Assignment of Rights and Assets dated November 1994 from CTRC Research
         Foundation to the Company (Incorporated herein by reference to Exhibit
         10.4 of the Company's Registration Statement No. 333-17769 on Form S-1
         filed December 12, 1996, as amended)

10.2     First Amendment to Assignment of Rights and Assets dated September 1995
         between ILEX Oncology, Inc. and CTRC Research Foundation (Incorporated
         herein by reference to Exhibit 10.5 of the Company's Registration
         Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
         amended)

10.3     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)

10.4     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)

10.5     Lease Agreement dated September 1, 1995 between CTRC Research
         Foundation and the Company (Incorporated herein by reference to Exhibit
         10.10 of the Company's Registration Statement No. 333-17769 on Form S-1
         filed December 12, 1996, as amended)

10.6     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)

10.7+    License Agreement [Piritrexim Isethionate] dated March 31, 1995 by and
         among BW Wellcome Co., The Wellcome Foundation Limited and the Company
         (Incorporated herein by reference to Exhibit 10.13 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.8+    License Agreement [Oxypurinol] dated March 31, 1995 by and among BW
         Wellcome Co., The Welcome Foundation Limited and the Company
         (Incorporated herein by reference to Exhibit 10.14 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.9+    License Agreement [Crisnatol Mesylate] dated November 1, 1993 by and
         among BW Wellcome Co., The Welcome Foundation Limited and CTRC Research
         Foundation (Incorporated herein by reference to Exhibit 10.15 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)
</TABLE>


<PAGE>   80

<TABLE>

<S>     <C>
10.10+   Amendment and Agreement with Respect to License Agreement [Crisnatol
         Mesylate] dated October 5, 1996 amending License Agreement dated
         November 1, 1993 by and among BW Wellcome Co., The Welcome Foundation
         Limited and CTRC Research Foundation (Incorporated herein by reference
         to Exhibit 10.16 of the Company's Registration Statement No. 333-17769
         on Form S-1 filed December 12, 1996, as amended)

10.11+   License Agreement [Eflornithine] between ILEX Oncology, Inc. and Marion
         Merrell Dow Inc. and its subsidiaries Merrell Dow Pharmaceuticals Inc.
         and Marion Merrell Dow France Et Cie (Incorporated herein by reference
         to Exhibit 10.17 of the Company's Registration Statement No. 333-17769
         on Form S-1 filed December 12, 1996, as amended)

10.12+   Development and License Agreement [Crisnatol Mesylate] dated October
         11, 1996 by and among the Company and Janssen Pharmaceutica, N.V.
         (Incorporated herein by reference to Exhibit 10.18 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.13+   License Agreement [Farnesyl Transferase Inhibitors] dated July 1, 1996
         by and between Sother Limited and the Company (Incorporated herein by
         reference to Exhibit 10.19 of the Company's Registration Statement No.
         333-17769 on Form S-1 filed December 12, 1996, as amended)

10.14+   License Agreement [RP 60475] dated November 18, 1994 between
         Rhone-Poulenc Rorer S.A. and the Company (Incorporated herein by
         reference to Exhibit 10.20 of the Company's Registration Statement No.
         333-17769 on Form S-1 filed December 12, 1996, as amended)

10.15+   Agreement dated November 25, 1996 between Hoffmann-La Roche, Inc. and
         the Company [RO23-7553] (Incorporated herein by reference to Exhibit
         10.21 of the Company's Registration Statement No. 333-17769 on Form S-1
         filed December 12, 1996, as amended)

10.16+   Research Collaboration Agreement dated December 12, 1995 between CTRC
         Research Foundation and Sanofi (Incorporated herein by reference to
         Exhibit 10.23 of the Company's Registration Statement No. 333-17769 on
         Form S-1 filed December 12, 1996, as amended)

10.17    Consent, Acknowledgement and Waiver Agreement dated September 1994 by
         and among CTRC Research Foundation, Sterling Winthrop Inc. and the
         Company (Incorporated herein by reference to Exhibit 10.24 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.18+   Drug Development Project Agreement [4-hydroperoxycyclophosphamide]
         effective April 1, 1993 between CTRC Research Foundation and MGI
         Pharma, Inc. (Incorporated herein by reference to Exhibit 10.25 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.19    Material Transfer Agreement [Dihydro-5-Azacytidine] dated March 9, 1995
         between the Company and the National Institutes of Health (Incorporated
         herein by reference to Exhibit 10.26 of the Company's Registration
         Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
         amended)
</TABLE>

<PAGE>   81

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<S>     <C>
10.20+   Patent License Agreement--Exclusive [Methyl-Glyoxal
         Bix-Guanylhydrazone] dated September 8, 1991 between the National
         Institutes of Health and Cancer Therapy and Research Center
         (Incorporated herein by reference to Exhibit 10.27 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.21    Master Services Agreement (Non-clinical Services) dated June 11, 1996
         by and between the Company and Lipitek International, Inc.
         (Incorporated herein by reference to Exhibit 10.30 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.22    Warrant for the purchase of shares of Common Stock dated September 1995
         between the Company and Vector Securities International, Inc.
         (Incorporated herein by reference to Exhibit 10,32 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.23    Warrant for the purchase of shares of Common Stock dated July 1996
         between the Company and Chestnut Partners, Inc. (Incorporated herein by
         reference to Exhibit 10.33 of the Company's Registration Statement No.
         333-17769 on Form S-1 filed December 12, 1996, as amended)

10.24    Institute for Drug Development Program Agreement dated September 20,
         1994 between CTRC Research Foundation and The University of Texas
         Health Science Center at San Antonio (Incorporated herein by reference
         to Exhibit 10.34 of the Company's Registration Statement No. 333-17769
         on Form S-1 filed December 12, 1996, as amended)

10.25    Subordinated Option Agreement dated March 27, 1995 between CTRC
         Research Foundation and the Company (Incorporated herein by reference
         to Exhibit 10.35 of the Company's Registration Statement No. 333-17769
         on Form S-1 filed December 12, 1996, as amended)

10.26    Employment Agreement dated November 2, 1994 between Richard L. Love and
         the Company (Incorporated herein by reference to Exhibit 10.36 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.27    Amendment to Employment Agreement dated April 4, 1995 between Richard
         L. Love and the Company (Incorporated herein by reference to Exhibit
         10.37 of the Company's Registration Statement No. 333-17769 on Form S-1
         filed December 12, 1996, as amended)

10.28    Amendment to Employment Agreement dated September 27, 1995 between
         Richard L. Love and the Company (Incorporated herein by reference to
         Exhibit 10.38 of the Company's Registration Statement No. 333-17769 on
         Form S-1 filed December 12, 1996, as amended)

10.29    Employment Agreement dated November 2, 1994 between Alexander L. Weis,
         Ph.D. and the Company (Incorporated herein by reference to Exhibit
         10.39 of the Company's Registration Statement No. 333-17769 on Form S-1
         filed December 12, 1996, as amended)
</TABLE>


<PAGE>   82

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<S>     <C>
10.30    Amendment to Employment Agreement dated April 10, 1995 between
         Alexander L. Weis, Ph.D. and the Company (Incorporated herein by
         reference to Exhibit 10.40 of the Company's Registration Statement No.
         333-17769 on Form S-1 filed December 12, 1996, as amended)

10.31    Amendment to Employment Agreement dated September 27, 1995 between
         Alexander L. Weis, Ph.D. and the Company (Incorporated herein by
         reference to Exhibit 10.41 of the Company's Registration Statement No.
         333-17769 on Form S-1 filed December 12, 1996, as amended)

10.32    Employment Agreement Dated August 13, 1996 between James R. Koch and
         the Company (Incorporated herein by reference to Exhibit 10.42 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.33    Employment Agreement dated August 27, 1996 between Pedro Santabarbara,
         M.D., Ph.D. and the Company (Incorporated herein by reference to
         Exhibit 10.43 of the Company's Registration Statement No. 333-17769 on
         Form S-1 filed December 12, 1996, as amended)

10.34    Letter Agreement dated November 2, 1994 between Alexander L. Weis,
         Ph.D. and the Company (Incorporated herein by reference to Exhibit
         10.44 of the Company's Registration Statement No. 333-17769 on Form S-1
         filed December 12, 1996, as amended)

10.35    Consulting Services Agreement dated March 16, 1995 between the Company
         and Charles A. Coltman, Jr., M.D. (Incorporated herein by reference to
         Exhibit 10.45 of the Company's Registration Statement No. 333-17769 on
         Form S-1 filed December 12, 1996, as amended)

10.36    1995 Stock Option Plan for the Company (Incorporated herein by
         reference to Exhibit 10.47 of the Company's Registration Statement No.
         333-17769 on Form S-1 filed December 12, 1996, as amended)

10.37    1996 Non-Employee Director Stock Option Plan for the Company
         (Incorporated herein by reference to Exhibit 10.48 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.38    Form of Non-Employee Director Stock Option Agreement (Incorporated
         herein by reference to Exhibit 10.49 of the Company's Registration
         Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
         amended)

10.39    Third Amended and Restated Registration Rights Agreement between the
         Company, CTRC and the holders of the Series B, C, D and E Preferred
         Stock (Incorporated herein by reference to Exhibit 10.50 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.40    Form of Pledge Agreement between Cancer Therapy and Research Center
         Endowment and each of Gary V. Woods, Ruskin C. Norman, M.D. and Robert
         V. West, Jr., Ph.D. (Incorporated herein by reference to Exhibit 10.55
         of the Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.41+   Exclusive License Agreement [Oxypurinol] dated November 27, 1996
         between MGI Pharma, Inc. and the Company (Incorporated herein by
         reference to Exhibit 10.56 of the Company's Registration Statement No.
         333-17769 on Form S-1 filed December 12, 1996, as amended)
</TABLE>

<PAGE>   83

<TABLE>

<S>     <C>
10.42+   Exclusive License Agreement [DHAC] dated November 7, 1996 between MGI
         Pharma, Inc. and the Company (Incorporated herein by reference to
         Exhibit 10.57 of the Company's Registration Statement No. 333-17769 on
         Form S-1 filed December 12, 1996, as amended)

10.43    Stock Purchase Agreement dated April 11, 1995 between Daniel Von Hoff
         and the Company (Incorporated herein by reference to Exhibit 10.58 of
         the Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.44    Stock Purchase Agreement dated April 11, 1995 between Alexander L. Weis
         and the Company (Incorporated herein by reference to Exhibit 10.59 of
         the Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.45    Stock Purchase Agreement dated April 11, 1995 between Richard L. Love
         and the Company (Incorporated herein by reference to Exhibit 10.60 of
         the Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.46    Stock Purchase Agreement dated April 11, 1995 between Charles A.
         Coltman, Jr., and the Company (Incorporated herein by reference to
         Exhibit 10.61 of the Company's Registration Statement No. 333-17769 on
         Form S-1 filed December 12, 1996, as amended)

10.47    Promissory Note dated April 12, 1995 between Daniel Von Hoff and the
         Company (Incorporated herein by reference to Exhibit 10.62 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.48    Promissory Note dated April 12, 1995 between Richard L. Love and the
         Company (Incorporated herein by reference to Exhibit 10.63 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.49    Promissory Note dated April 12, 1995 between Charles A. Coltman, Jr.
         and the Company (Incorporated herein by reference to Exhibit 10.64 of
         the Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.50    Promissory Note dated April 12, 1995 between Alexander L. Weis and the
         Company (Incorporated herein by reference to Exhibit 10.65 of the
         Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.51    Ownership Restriction Agreement dated December 11, 1996 between MPILEX
         Management, L.L.C., MPILEX Partners, L.P. and holders of units thereof
         (Incorporated herein by reference to Exhibit 10.66 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)

10.52    Agreement of Limited Partnership of MPILEX Partners, L.P. among MPILEX
         Management, L.L.C. (Incorporated herein by reference to Exhibit 10.67
         of the Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.53    Regulations of MPILEX Management, L.L.C. dated December 1996
         (Incorporated herein by reference to Exhibit 10.68 of the Company's
         Registration Statement No. 333-17769 on Form S-1 filed December 12,
         1996, as amended)
</TABLE>



<PAGE>   84

<TABLE>

<S>     <C>
10.54+   License Agreement dated December 11, 1996 between MPILEX Partners, L.P.
         and the Company (Incorporated herein by reference to Exhibit 10.69 of
         the Company's Registration Statement No. 333-17769 on Form S-1 filed
         December 12, 1996, as amended)

10.55    Lease Agreement between the Company and N.W.A. Limited Partnership,
         dated October 15, 1996 (Incorporated herein by reference to Exhibit
         10.1 to the Company's Quarterly Report on Form 10-Q filed August 14,
         1997)

10.56    First Amendment to Lease Agreement between the Company and N.W.A.
         Limited Partnership, dated March 26, 1997 (Incorporated herein by
         reference to Exhibit 10.2 to the Company's Quarterly Report on Form
         10-Q filed August 14, 1997)

10.57    Registration Rights Agreement dated July 9, 1997, between the Company
         and PRN Research, Inc. (Incorporated herein by reference to Exhibit
         10.3 to the Company's Quarterly Report on Form 10-Q filed August 14,
         1997)

10.58    Service Agreement dated June 30, 1997, between the Company and PRN
         Research, Inc. (Incorporated herein by reference to Exhibit 10.4 to the
         Company's Quarterly Report on Form 10-Q filed August 14, 1997)

10.59    Drug Development and Commercialization Agreement dated March 27, 1998,
         between the Company and The Burnham Institute, Inc. (Incorporated
         herein by reference to Exhibit 10.1 to the Company's Quarterly Report
         on Form 10-Q filed May 15, 1998)

10.60    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)

10.61*   Consulting Services Agreement dated July 1, 1997, between the Company
         and Dr. Daniel D. Von Hoff, M.D.

11.1*    Computation of Earnings Per Share

21.1     Subsidiaries of the Company

                                      State of Names Under
                Name                     Incorporation      Which Doing Business
                ----                     -------------      --------------------
         ILEX Oncology Services, Inc.     Delaware          ILEX Services, Inc.
         ILEX Products, Inc.              Delaware          ILEX Products, Inc.

23*      Consent of Arthur Andersen LLP

24.1*    Power of Attorney (included on signature page)

27*      Financial Data Schedule

99.1*    Financial Statements of L&I Partners, L.P.
</TABLE>

-------------------

*        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.


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