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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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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, 2002            
|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
(State or other jurisdiction of
incorporation or organization)             |  | 74-2699185
(I.R.S. Employer
Identification No.)
|                                                                                    |  |                                                
|4545 Horizon Hill Blvd.
San Antonio, Texas
(Address of principal executive offices) |  | 78229
(Zip Code)                               

Registrants telephone number, including area code: (210) 949-8200

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 Noo.

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.o.

Indicate by check mark if the issuer is an accelerated filer (as defined
in Exchange Act rule 12b-2). Yes x Noo.

The aggregate market value of the common stock held by non-affiliates of
the Registrant as of June 28, 2002 was approximately $431,259,085 based upon
the closing price of $14.09 for such date reported on The Nasdaq National Stock
Market.

The number of shares outstanding of the Registrants common stock as of
March 7, 2003 is 32,546,890.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for the registrants 2003 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission not later than April 30, 2003, are incorporated by reference into Part III of this Form 10-K.





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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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TABLE OF CONTENTS




|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.                                           
|                                                   | ITEM 1. BUSINESS                                                                             
|                                                   | ITEM 2. PROPERTIES                                                                           
|                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II.                                          
|                                                   | ITEM 5. MARKET FOR THE COMPANYS COMMON STOCK AND RELATED STOCKHOLDER MATTERS                
|                                                   | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                   | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                   | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                   | ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES                                                   
|                                                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III.                                         
|                                                   | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                   | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                                   | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                   | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV.                                          
|                                                   | ITEM 14. CONTROLS AND PROCEDURES                                                             
|                                                   | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|Signatures                                        
|CERTIFICATIONS                                    
|EXHIBIT INDEX                                     
|EX-11.1 Re: Computation of Per Share Earnings     
|EX-23.1 Consent of Ernst & Young LLP              
|EX-23.2 Information re: Consent of Arthur Andersen



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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, risks associated with
preclinical and clinical developments in the biopharmaceutical industry in
general and in ILEXs compounds under development in particular; the potential
failure of the Companys compounds under development to prove safe and
effective for treatment of disease; uncertainties inherent in the early stage
of the Companys compounds under development; failure to successfully implement
or complete clinical trials; failure to receive market clearance from
regulatory agencies for our compounds under development; managements ability
to implement strategic initiatives; the ability of the Company to predict its
future expenses and capital needs; the development of competing products; the
ability of the Company to combine its disparate research capabilities and
translate them into clinical drug development programs; uncertainties related
to the Companys dependence on and relationships with third parties and
partners; general economic and market conditions; risks inherent in the
biopharmaceutical industry; stock price volatility; variability of license,
royalty and other revenue; risks related to the outcome of litigation and
claims made against us; risks related to the market acceptance of CAMPATH;
uncertainties related to protection of our intellectual property; rapid
technological change could render our technologies obsolete; one-time events
and those risks described herein, in the Companys Form S-3 filed November 15,
2001, as amended (Commission file #333-72396) and in other filings made by the
Company with the SEC. 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.

In this Annual Report on Form 10-K, ILEX, the Company, we, our or
us refer to ILEX Oncology, Inc. and its wholly owned partnership and
subsidiaries, common stock or our stock refers to ILEXs common stock, par
value $0.01 per share.




PART I.




|        |  |         
|------- |  | --------
|ITEM 1. |  | BUSINESS

Summary

We are building a product-driven biopharmaceutical company, primarily
focused on oncology, by developing and commercializing a portfolio of novel
treatments for both early and late stage cancers. We are leveraging our core
competencies in clinical drug development to identify, develop and
commercialize our proprietary product candidates. Our lead product, CAMPATH®,
has been approved in the United States and Europe for treating patients with
refractory chronic lymphocytic leukemia (CLL) and is distributed by Schering AG
and its United States (U.S.) subsidiary, Berlex Laboratories, Inc. (Berlex).
CAMPATH was developed in a 50/50 partnership with Millennium Pharmaceuticals,
Inc. (Millennium). In December 2001, we acquired Millenniums equity interest
in ILEX Pharmaceuticals, L.P. (formerly known as Millennium & ILEX Partners,
L.P. (the Partnership)). This transaction has helped streamline the process
of developing CAMPATH in additional indications including nononcology
indications. In addition to CAMPATH, we have four oncology product candidates
in clinical trials, as well as several active preclinical programs. To date, we
have built this pipeline primarily through the licensing and acquisition of
promising drug candidates. In addition to our clinical development programs, we
conduct drug discovery research, translational research and preclinical studies
in the fields of signal transduction, angiogenesis inhibition, molecular
receptor chemistry and medicinal phosphonate chemistry.

We plan to continue to invest in key research and development activities.
Since inception, we have incurred losses and have an accumulated deficit
through December 31, 2002, of $283.4 million. Our losses have resulted
primarily from research and product development activities, including licensing
of products and product and corporate acquisitions for which we incur
in-process research and development expenses, and related administrative
expenses. We expect to continue to incur losses in 2003. With the exception of
CAMPATH, none of our other drug candidates has been approved for sale. Our
revenue for the foreseeable future will be limited to our profit participation
and royalty revenue, product development revenue, interest income and other
miscellaneous income.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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In February 2001, we announced our intent to focus our in-house drug
development capabilities on our own proprietary products, including those being
jointly developed with partners. At that time, we began a transition out of
the fee-for-service CRO business, which was expected to take from two to three
years. We will continue to recognize revenue from current client projects, but
we do not intend to take on any new fee-for-service contracts, except where we
have or can obtain an ownership interest. We have and will continue to
transition certain CRO employees to develop our own products.

OUR STRATEGY

Our strategic vision is to be a product-driven biopharmaceutical company,
focused primarily on oncology. We plan to achieve this vision through our
aggressive pursuit of development and commercialization of the product
candidates in our pipeline. The key elements of our strategy to accomplish this
objective are to:



| |  |  | Establish CAMPATH as an effective treatment in oncology, autoimmune
diseases and organ transplantation. By broadening the approved label
indications, we can greatly increase our target markets for CAMPATH.
Together with Schering AG, we are sponsoring or supporting more than 40
post-marketing studies to evaluate CAMPATH in both current and new
areas.                                                                                                                                                                                
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Continue to build our commercialization strength. As products in our
pipeline reach later stages of development, we want to be aptly prepared
to maximize their potential. We have recently hired six medical science
liaisons (MSLs) and plan to hire more in 2003, to help us better
interact with the marketplace.                                                                                                                                                                                                                          
|
| |  |  | Build a diversified pipeline of product candidates. We are developing
a focused pipeline of product candidates that are in various stages of
clinical and preclinical development and that are based on different
technology platforms. We believe this strategy increases the likelihood
that we will successfully develop commercially viable pharmaceutical
products. Our approach is intended to reduce our exposure to the impact
of any single product failure and increase our flexibility to eliminate
programs we deem less promising.
|
| |  |  | License or otherwise acquire complementary products or technologies. In
addition to our internal drug discovery efforts, we plan to continue
expanding our product candidate pipeline by identifying and evaluating
potential products and technologies developed by third parties that we
believe fit within our overall pipeline strategy.                                                                                                                                                                                                   
|
| |  |  | Potentially out-license our products in areas that are not within our
main areas of focus. By utilizing the strengths of other companies, we
hope to maximize our financial returns and minimize our requirements for
additional investments.                                                                                                                                                                                                                                                                                                  

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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OUR PRODUCT CANDIDATE PIPELINE

As noted above, our product candidate pipeline includes oncology compounds
at various stages of development, with significant therapeutic targets and
unique mechanisms of action. The following chart identifies the clinical
progress of these product candidates as of December 31, 2002:

|                               |  |                         |  |                              |  |             |  |                  |  |               
|------------------------------ |  | ----------------------- |  | ---------------------------- |  | ----------- |  | ---------------- |  | --------------
|                               |  |                         |  |                              |  |             |  | MARKETING RIGHTS
|                               |  |                         |  |                              |  |             |  |                 
|PRODUCT                        |  |                         |  |                              |  |             |  |                  |  |               
|CANDIDATE                      |  | TARGET                  |  | INDICATIONS                  |  | STATUS      |  | UNITED STATES    |  | OTHER         
|                               |  |                         |  |                              |  |             |  |                  |  |               
|CAMPATH ®                      |  | CD52                    |  | Chronic lymphocytic
leukemia |  | Marketed    |  | Berlex           |  | Schering AG(1)
|                               |  |                         |  |                              |  |             |  |                  |  |               
|                               |  | CD52                    |  | Multiple sclerosis           |  | Phase II    |  | Berlex           |  | Schering AG(1)
|                               |  |                         |  |                              |  |             |  |                  |  |               
|                               |  | CD52                    |  | Non-Hodgkins
Lymphoma       |  | Phase II    |  | Berlex           |  | Schering AG(1)
|                               |  |                         |  |                              |  |             |  |                  |  |               
|Eflornithine                   |  | Ornithine Decarboxylase |  | Superficial bladder
cancer   |  | Phase III   |  | ILEX             |  | ILEX          
|                               |  |                         |  |                              |  |             |  |                  |  |               
|Clofarabine                    |  | DNA, Mitochondria       |  | Hematologic
malignancies     |  | Phase II    |  | ILEX(2)          |  | Bioenvision(2)
|                               |  |                         |  |                              |  |             |  |                  |  |               
|                               |  |                         |  | Solid tumors                 |  | Phase I     |  | ILEX(2)          |  | Bioenvision(2)
|                               |  |                         |  |                              |  |             |  |                  |  |               
|APOMINETM                      |  | HMGcoA
reductase        |  | Osteoporosis                 |  | Phase II    |  | ILEX             |  | ILEX          
|                               |  |                         |  |                              |  |             |  |                  |  |               
|ILX-651                        |  | Tubulin                 |  | Solid tumors                 |  | Phase I     |  | ILEX             |  | ILEX          
|                               |  |                         |  |                              |  |             |  |                  |  |               
|NM-3                           |  | Endothelium             |  | Solid tumors                 |  | Phase I     |  | ILEX             |  | ILEX          
|                               |  |                         |  |                              |  |             |  |                  |  |               
|Signal Transduction
Inhibitors |  | MUC1                    |  | Solid tumors                 |  | Preclinical |  | ILEX             |  | ILEX          
|                               |  |                         |  |                              |  |             |  |                  |  |               
|Angiogenesis inhibitors        |  | Multiple Growth Factors |  | Solid tumors                 |  | Preclinical |  | ILEX             |  | ILEX          



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|(1) |  | At inception of the sales and distribution agreement, Schering AG held
worldwide rights except in Japan and East Asia, which were retained by the
Partnership. In 2003, Schering AG acquired the rights in Japan and the Asian Pacific Basin, now giving them worldwide rights to marketing and distribution.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | ILEX holds marketing rights in North America and Bioenvision Inc. holds
marketing rights in the rest of the world, excluding Japan and Southeast
Asia.                                                                                                                                                       

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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CAMPATH

CAMPATH is a humanized monoclonal antibody that binds to a specific
target, CD52, on cell surfaces leading the bodys immune system to destroy
malignant cells. CAMPATH was launched in May 2001 in the United States and in
August 2001 in Europe. In its first full year on the market, CAMPATH generated
global net sales of approximately $44.1 million and we record a portion of
these sales as product profit and royalty revenue. CAMPATH is in the early
stages of commercialization. It was approved for use in leukemia but we are
now conducting trials in Non-Hodgkins Lymphoma (NHL) and multiple sclerosis
(MS) as well. CAMPATH is also being evaluated in more than 40 additional
studies in oncology and non-oncology by clinical investigators; we will
continue to support selected investigator initiatives in areas of interest
beyond our current indications.

Eflornithine

Eflornithine is an orally bioavailable compound that has demonstrated the
ability to block ornithine decarboxylase, an enzyme that is known to promote
carcinogenesis. In Phase II trials, Eflornithine exhibited the ability to
reduce the severity of premalignant lesions and thereby help prevent such
lesions from progressing to cancer. In collaboration with the National Cancer
Institute, we are conducting a randomized placebo-controlled Phase III trial to
evaluate Eflornithine as a treatment for patients at risk for recurrence of
superficial bladder cancer. We expect to complete this trial in 2003.

Clofarabine

Clofarabine is a second-generation, synthetic nucleoside analog that
interrupts the metabolism of cancer cells. It is in the same class as
fludarabine, cladribine and gemcitabine, all approved oncology drugs. Early
clinical studies of clofarabine in patients with relapsed or refractory acute
myelogenous leukemia (AML) and acute lymphocytic leukemia (ALL) showed
promising results. Based on these early studies, we initiated Phase II trials
in 2002 in both children and adults with refractory acute leukemia. In
October 2002, we launched a Phase I trial of clofarabine in combination with
the chemotherapy drug ara-C (cytarabine) in adults with a spectrum of
hematologic malignancies. We also initiated a Phase I trial in adults with
advanced solid tumors in mid-2002, based on favorable preclinical results.
Additional studies are under review and are expected to be started in 2003.

APOMINETM

APOMINETM is the first candidate from ILEXs unique class of non-hormonal
agents known as phosphonate esters. It is orally bioavailable and has been
shown, in preclinical models, to inhibit osteoclasts and block bone resorption,
like the currently marketed bisphosohonic acids such as Fosamax® and Actonel®.
Unlike the currently marketed drugs, APOMINE appears to activate osteoblasts
with potential bone-building effects. We initiated a double-blinded,
placebo-controlled PHASE I/II proof-of-principle trial in 2002 to evaluate the
effects of APOMINE in post-menopausal women with osteoporosis. Results of the
trial are expected to be available in 2003.

ILX-651

ILX-651 is a second-generation synthetic dolastatin pentapeptide
derivative that targets tubulin and interrupts cell mitosis with a different
mechanism of action than taxanes. In preclinical studies, ILX-651 was
determined to have potent anti-tumor activity against a wide range of solid
tumor types, including tumors that are resistant to treatment with taxanes. We
expect to complete and analyze Phase I trial results of this compound during the first part of
2003.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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NM-3

NM-3 is an orally bioavailable inhibitor of proliferating endothelial
cells. Preclinical studies have determined that NM-3 inhibits growth in a
variety of tumor models, both as a stand-alone therapy and as a radiation and
chemotherapy sensitizer. We are currently conducting Phase I trials with this
compound.

Drug Discovery and Preclinical Programs

In addition to our product candidates in clinical trials, we have a number
of preclinical programs, including signal transduction and angiogenesis
inhibitors.

OUR TARGET MARKET

We are currently focused primarily on the oncology market. Cancer
encompasses a large number of discrete diseases that afflict many different
parts of the human body. The diversity of cancer types and their overall
prevalence create a large need for new and improved treatments. It is estimated
that one in three Americans will be diagnosed with cancer, making it the second
leading cause of death in the United States. We have chosen to focus initially
on the oncology market because there is a great need for more effective
treatments. It is often the case that a drugs mechanistic effects may have
therapeutic relevance in other human diseases and we will continue to evaluate
these opportunities as appropriate.

INTELLECTUAL PROPERTY, PATENTS AND TRADEMARKS

Patents and other proprietary rights are vital to our business. Our policy
is to seek appropriate patent protection both in the United States and abroad
for our proprietary technologies. In addition to seeking our own patents, we
enter into license agreements with various pharmaceutical companies and
research, educational and governmental institutions to obtain patent rights
from them to develop and potentially sell products which use the compounds and
technologies protected by those patents.

CAMPATH is protected by patents issued in the U.S., European major market
countries, Australia, Canada, New Zealand, Japan and South Africa, which expire
between 2009 and 2015. The European patent was issued in February 1989 and the
U.S. patent in December 1998. We have licensed U.S. patents on the use of
Eflornithine that expire between 2008 and 2017. Our Eflornithine patent rights
also include Company-owned patent application filings in the United States and
major foreign markets directed to the D-enantiomer of Eflornithine and its
therapeutic use. In addition, we have filed patent applications for the use of
Eflornithine alone and in combination with other drugs to treat and to prevent
various cancers and in certain novel formulations. Eflornithine currently does
not have composition of matter patent protection, but we have applied for
orphan drug designation. APOMINETM is covered by an issued composition of
matter patent. In addition, numerous patent applications have been filed on our
portfolio of angiogenesis inhibitors including one issued patent in the U.S.

Additionally, as a result of an agreement with BASF Pharma (BASF), ILEX
has acquired a worldwide license for ILX-651 including composition of matter
patent coverage, which is filed in 43 countries, including the U.S. patent
expiring at the end of 2015. Clofarabine is protected by core patent rights
held by Southern Research Institute and licensed to Bioenvision, including
pharmaceutical composition and cancer treatment patent claims coverage expiring
between 2008 and 2014 in the U.S.

We have a broad patent estate. This patent estate includes patents and
patent applications directed to compositions, pharmaceutical formulations and
methods-of-use within our research and development pipeline. In addition to the
36 United States patents and approximately 290 foreign patents we have licensed
from others, we own approximately 15 issued patents in the United States and
approximately 70 issued foreign patents. We also have approximately 20 pending
patent applications in the United States and approximately 60 foreign
applications and we have licensed from others the rights to approximately 20
United States pending patent applications and over 200 foreign pending patent
applications. Patent coverage for our MUC1 program includes 3 issued United
States patents, expiring between 2013 and 2016, and 9 issued foreign patents,
all of which we have in-licensed on an exclusive basis. Also, the MUC1 patent
portfolio includes 5 pending United States patent applications and 6 foreign
patent applications to which we hold exclusive rights through both in-licensing
and co-ownership.

In December 2001, Genentech, Inc. (Genentech) announced that it was
granted a patent relating to fundamental methods and compositions for the
production of monoclonal antibodies using anti-recombinant DNA technology. The
proceeding entitled Genentech to priority over the patent held by the Celltech
Group PLC, who had first received the patent in 1989 and, to whom we are
currently paying royalty fees related to the use of this technology platform in
the manufacture of CAMPATH. Based on this decision, which was favorable to Genentech,

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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we have negotiated and are finalizing
a license from Genentech covering production of monoclonal antibodies, such as
CAMPATH, directed at the CD52 cell surface target.

Our compounds acquired pursuant to in-licensing arrangements are normally
protected by patents obtained or applied for by our licensors. This includes
U.S. patents, U.S. patent applications and foreign patents and patent
applications. We have not conducted in-depth validity and infringement studies
on the patents and patent applications that we have in-licensed from major
biotechnology and pharmaceutical companies, and it is possible that these
patents or patent applications will be challenged or will not provide
protection for our compounds.

The patent positions of biotechnology and pharmaceutical companies are
generally uncertain and involve complex legal and factual issues. No assurance
can be given that any patent issued to or licensed by us will provide
protection that has commercial significance. We cannot assure you that:



| |  | our patents will afford protection against competitors with similar compounds or technologies;          
|- |  | --------------------------------------------------------------------------------------------------------
| 
| |  | our patent applications will be issued;                                                                 
| 
| |  | others will not obtain patents claiming aspects similar to those covered by our patents or applications;
| 
| |  | the patents of others will not have an adverse effect on our ability to do business; or                 
| 
| |  | the patents issued to or licensed by us will not be infringed, challenged, invalidated or circumvented. 

Moreover, we believe that obtaining foreign patents may, in some cases, be
more difficult than obtaining domestic patents because of differences in patent
laws. We also recognize that our patent position may generally be stronger in
the U.S. than abroad. Conversely, the protection provided by foreign patents
may be weaker than that provided by domestic patents.

CAMPATH® and MABCAMPATH® are our trademarks. We have filed for trademark
protection on various other product candidates in the development pipeline,
including worldwide filings for APOMINE. Additionally, we anticipate we will
have additional filings on new product candidates entering development as they
progress through the development process.

We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain our
competitive position. We generally protect this information with
confidentiality agreements that provide that all confidential information
developed or made known to others during the course of their employment,
consulting or business relationship with us shall be kept confidential except
in specified circumstances. Agreements with employees provide that all
inventions conceived by the individual while employed by us are our exclusive
property. We cannot guarantee, however, that these agreements will be honored,
that we will have adequate remedies for breach if they are not honored or that
our trade secrets will not otherwise become known or be independently
discovered by competitors.

RECENT DEVELOPMENTS

In February 2003, Schering AG obtained exclusive rights to develop, sell
and distribute CAMPATH in Japan and the Asian Pacific Basin. We will receive an up-front
payment, which will be recognized as revenue over the life of the patent. The
Partnership will also receive payments upon completion of certain milestones
and a royalty based on net sales of CAMPATH in Japan and the Asian Pacific
Basin.

In February 2003, we finalized an amendment to the CAMPATH therapeutic
license agreement with BTG International Ltd. (BTG), whereby we gained access
to rights to develop and commercialize all remaining human therapeutic uses of
CAMPATH.

In September 2002, we acquired global, exclusive, commercial rights to
CAMPATH-related diagnostics including CD52 antigen testing from BTG. The
agreement is subject to annual maintenance payments as well as milestone payments and royalties, subject to specific terms and conditions.

On April 19, 2002, ILEX entered into a collaboration agreement with
Abgenix, Inc. (Abgenix), to identify and develop fully human monoclonal
antibody candidates to the MUC1 protein, a dominant oncogene significantly
overexpressed on a wide range of solid tumors. Abgenix will grant ILEX an
exclusive license to commercialize products comprising one or more antibodies
derived from this program. Under this agreement, ILEX paid Abgenix a minimal
technology access fee. Additionally, the Company may be required to make
future payments in accordance with the agreement if certain milestones are met.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

In October 2001, we entered into a definitive agreement to give us sole
ownership of the Partnership by acquiring Millenniums interest
in the Partnership. The transaction closed on December 31, 2001, and the terms
of the agreement include an initial cash payment of $20.0 million and an
additional $120.0 million in scheduled payments. The first payment of $40.0
million was made on December 31, 2002. Additionally, $40.0 million is due in
2003 and 2004, of which $10.0 million in each of those years may be paid in
shares of our common stock, subject to certain terms and conditions and at our
option. In addition, Millennium will be entitled to royalty payments based on
net U.S. CAMPATH sales above certain levels in 2005 and continuing through
2008.

STRATEGIC ALLIANCES

ILEX may eventually develop and commercialize its own products by forming
its own sales, marketing and distribution capabilities. However, in some
instances we may form corporate partnerships with larger pharmaceutical
companies, particularly for development of non-oncology uses and for
commercialization outside the U.S. In a typical partnership arrangement, a
corporate partner may bear the substantial cost of clinical development,
scale-up production, U.S. Food and Drug Administration (FDA) and European
Agency for the Evaluation of Medicinal Products (EMEA) approval and marketing.

We do not currently have our own sales force and we have contracted with
Schering AG for its sales and distribution capabilities. We have recently
hired six medical science liaisons to enhance our direct interface with
oncology physicians and opinion leaders. However, all CAMPATH sales
responsibilities remain with our partner, Schering AG. In August 1999, the
Partnership and Schering AG entered into a distribution and development
agreement that grants Schering AG exclusive worldwide marketing and
distribution rights to CAMPATH, except in Japan and East Asia, where the
Partnership had retained rights. However, in January 2003, Schering AG
obtained the marketing and distribution rights to CAMPATH in Japan and the Asia Pacific Basin from the Partnership.

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 continually engaged in discussions
with 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.

OTHER RELATIONSHIPS

In March 2001, we paid $1.1 million to enter a definitive agreement to
co-develop clofarabine, a nucleoside analog, with Bioenvision, Inc.
(Bioenvision). In clinical studies, clofarabine has shown promise as a
potential new treatment for patients with hematological malignancies, including
ALL and AML, and in preclinical studies, for solid tumors. ILEX has taken the
lead role in developing clofarabine in the United States and Canada, where we
will have exclusive manufacturing and marketing rights in exchange for an
in-licensing fee, milestone payments and royalties. Bioenvision retained the
lead role in developing the compound in Europe, where it will have exclusive
manufacturing and marketing rights and we will have rights to royalties.

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.

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. 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.

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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. If we default under any of these
license agreements, we may lose our right to market and sell any products based
on the licensed technology. Losing our marketing and sales rights could
materially harm our business and financial condition. 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.

All of the companys in-licensing agreements follow standard practice in
the industry with differential royalty rates for patent versus non-patent
countries and a royalty off-set if additional licenses are required from other
third parties with conflicting/complementary intellectual property rights. In
patent countries, the royalty is usually payable for the life of the patent
rights while in non-patent countries; the royalty is typically payable for a
fixed period of time after the first commercial sale.

PEOPLE

As of February 28, 2003, we had 277 employees, the majority of whom were
located at our corporate headquarters in San Antonio, Texas.

COMPETITION

Product Development

The pharmaceutical industry is characterized by rapidly evolving
technology and intense competition. Many companies of all sizes, including a
number of large pharmaceutical companies as well as several specialized
biotechnology companies, are developing cancer drugs similar to ours. There are
products on the market that will compete directly with the products that we are
seeking to develop. In addition, colleges, universities, governmental agencies
and other public and private research institutions will continue to conduct
research and are becoming more active in seeking patent protection and
licensing arrangements to collect license fees, milestone payments and
royalties in exchange for license rights to technologies that they have
developed, some of which may directly compete with our technologies. These
companies and institutions also compete with us in recruiting qualified
scientific personnel. Many of our competitors have substantially greater
financial, research and development, human and other resources than we do.
Furthermore, large pharmaceutical companies have significantly more experience
than we do in preclinical testing, human clinical trials and regulatory
approval procedures. Our competitors may:



| |  | develop safer and more effective products than ours;                                                         
|- |  | -------------------------------------------------------------------------------------------------------------
| 
| |  | obtain patent protection or intellectual property rights that limit our ability to commercialize products; or
| 
| |  | commercialize products earlier than we can.                                                                  

We expect technology developments in our industry to continue to occur at
a rapid pace. Commercial developments by our competitors may render some or all
of our potential products obsolete or non-competitive, which would materially
harm our business and financial condition.

GOVERNMENT REGULATION

The design, research, development, testing, manufacturing, labeling,
promotion, marketing, advertising and distribution of drug products are
extensively regulated by the FDA in the U.S. and similar regulatory bodies in
other countries. The regulatory process is similar for a Biologics License
Application (BLA) and a New Drug Application (NDA). The steps ordinarily
required before a new drug may be marketed in the U.S., which are similar to
steps required in most other countries, include:



| |  | preclinical laboratory tests, preclinical studies in animals, formulation studies and the submission to the FDA of an IND
application;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | adequate and well-controlled clinical trials to establish the safety and efficacy of the drug for each indication;                    
| 
| |  | the submission of a BLA/NDA to the FDA; and                                                                                           
| 
| |  | FDA review and approval of the BLA/NDA.                                                                                               

Preclinical tests include laboratory evaluation of product chemistry, Good
Laboratory Practices, toxicology studies, formulation development, animal
preclinical efficacy studies and manufacturing of current good manufacturing
practices (cGMP)

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grade clinical trial material. The results of preclinical testing are
submitted to the FDA as part of an IND application. A 30-day waiting period
after the filing of each IND application is required prior to the commencement
of clinical testing in humans. At any time during this 30-day period or at any
time thereafter, the FDA may halt proposed or ongoing clinical trials until the
FDA authorizes trials under specified terms. The IND application process may be
extremely costly and substantially delay development of our products. Moreover,
positive results of preclinical tests will not necessarily indicate positive
results in subsequent clinical trials.

Clinical trials to support BLA/NDAs are typically conducted in three
sequential phases, although the phases may overlap. During Phase I, the initial
introduction of the drug into healthy human subjects or patients, the drug is
tested to assess metabolism, pharmacokinetics and pharmacological actions and
safety, including side effects associated with increasing doses. Phase II
usually involves studies in a limited patient population to:



| |  | assess the clinical activity of the drug in specific, targeted indications;
|- |  | ---------------------------------------------------------------------------
| 
| |  | assess dosage tolerance and optimal dosage; and                            
| 
| |  | continue to identify possible adverse effects and safety risks.            

If a compound is found to be potentially effective and to have an
acceptable safety profile in Phase II evaluations, Phase III trials are
undertaken to further demonstrate clinical efficacy and to further test for
safety within an expanded patient population at geographically dispersed
clinical trial sites.

After successful completion of the required clinical trials, a BLA/NDA is
generally submitted. The FDA may request additional information before
accepting a BLA/NDA for filing, in which case the application must be
resubmitted with the additional information. Once the submission has been
accepted for filing, the FDA reviews the application and responds to the
applicant. The review process is often significantly extended by FDA requests
for additional information or clarification. The FDA may refer the BLA/NDA to
an appropriate advisory committee for review, evaluation and recommendation as
to whether the application should be approved, but the FDA is not bound by the
recommendation of an advisory committee.

If FDA evaluations of the BLA/NDA and the manufacturing facilities are
favorable, the FDA may issue an approval letter or an approvable letter. An
approvable letter will usually contain a number of conditions that must be met
in order to secure final approval of the BLA/NDA and authorization of
commercial marketing of the drug for certain indications. The FDA may also
refuse to approve the BLA/NDA or issue a not approvable letter, outlining the
deficiencies in the submission and often requiring additional testing or
information.

The manufacturers of approved products and their manufacturing facilities
are subject to continual review and periodic inspections. Because we currently
intend to contract with third parties for commercial scale manufacturing of our
products, our ability to control compliance with FDA requirements will be
limited.

Approved drugs and manufacturing facilities are subject to ongoing
compliance requirements. Identification of certain side effects or the
occurrence of manufacturing problems after any of our drugs are on the market
could cause issuance of warning letters, subsequent withdrawal of approval,
reformulation of the drug, and additional preclinical studies or clinical
trials.

Outside the U.S., our ability to market our products will also be
contingent upon receiving marketing authorizations from the appropriate
regulatory authorities. The foreign regulatory approval process includes all of
the complexities associated with FDA approval described above. The requirements
governing the conduct of clinical trials and marketing authorization vary
widely from country to country. At present, foreign marketing authorizations
are applied for at a national level, although within the European Union, or the
EU, procedures are available to companies wishing to market a product in more
than one member state.

Under the regulatory system in the EU, marketing authorizations may be
submitted at a centralized, a decentralized or a national level. The
centralized procedure is mandatory for the approval of biotechnology products
and high technology products and available at the applicants option for other
products. The centralized procedure provides for the grant of a single
marketing authorization that is valid in all EU member states. The
decentralized procedure is available for all medicinal products that are not
subject to the centralized procedure. The decentralized procedure provides for
mutual recognition of national approval decisions, changes existing procedures
for national approvals and establishes procedures for coordinated EU actions on
products, suspensions and withdrawals. Under this procedure, the holder of a
national marketing authorization for which mutual recognition is sought may
submit an application to one or more EU member states, certify that the dossier
is identical to that on which the first approval was based or explain any
differences and certify that identical dossiers are being submitted to all
member states for which recognition is sought. Within 90 days of receiving the
application and assessment report, each EU member state must decide whether to
recognize approval. The procedure encourages member states to work with
applicants and other regulatory authorities to resolve disputes concerning
mutual recognition. Lack of objection of a given country within 90 days
automatically results in approval from the
member state.

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ILEX ONCOLOGY, INC.
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We will choose the appropriate route of European regulatory filing to
accomplish our regulatory objectives most efficiently. However, the chosen regulatory
strategy may not secure regulatory approvals or approvals of the chosen product
indications. The clinical development path for oncology agents is uncertain and
may require long-term clinical studies.

PRODUCT LIABILITY AND INSURANCE

Our business involves the risk of product liability claims. We have not
experienced any product liability claims to date. We maintain product liability
insurance consistent with industry standards and our product liability
insurance related to CAMPATH is consistent with a contractual agreement that we
have with Millennium Pharmaceuticals as a result of our purchase of its
interest in the Partnership. There can be no assurance that product liability
claims will not exceed such insurance coverage limits, which could have a
materially adverse effect on our business, financial condition or results of
operations, or that such insurance will continue to be available on
commercially reasonable terms, if at all.

ACCESS TO COMPANY INFORMATION

ILEX electronically files the annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and all amendments to those
reports with the Securities and Exchange Commission (SEC). The public may read
and copy any of the reports that are filed with the SEC at the SECs Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding issuers that file electronically, including ILEX.

ILEX makes available, free of charge, through its website, and by
responding to requests addressed to our director of investor relations office, the
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports. These reports are available as
soon as reasonably practicable after such material is electronically filed with
or furnished to the Securities and Exchange Commission. ILEXs website address
is http://www.ilexonc.com. The information contained on our website, or on
other websites linked to our website, is not part of this document.

ADDITIONAL BUSINESS RISKS

We have a limited operating history and we expect to continue to generate
losses for the foreseeable future.

We began operations in October 1994 and have only a limited operating
history upon which you can evaluate our business. We have incurred losses every
year since we began operations. As of December 31, 2002, our accumulated
deficit was approximately $283.4 million, including net losses of approximately
$46.2 million, $121.0 million and $39.0 million for the years ended December
31, 2002, 2001 and 2000, respectively. We expect to continue to incur losses in
2003. It is possible that we will never achieve profitable operations.

We may be unable to obtain additional capital if needed to accelerate our
product candidate development or for licensing or acquisition opportunities.

We believe that our existing capital will fund our activities for at least
the next year. We may use these existing resources more quickly if we decide to
accelerate the development of our pipeline or because of changes in our
research and development programs, potential licenses or acquisitions,
commercialization plans or other factors affecting our operating expenses or
capital expenditures. We may not be able to obtain any future funds that we
require, either in the public or private markets or otherwise, on acceptable
terms, or at all.

If adequate funds are not available, we may have to delay, scale back or
eliminate one or more of our development programs, or obtain funds by entering
into more arrangements with collaborative partners or others that may require
us to relinquish rights to certain of our products or technologies that we
would not otherwise relinquish.

CAMPATH is still a relatively new oncology treatment and is in a competitive
marketplace

Although CAMPATH is the only product that has been approved by the FDA and
the European Commission for treating CLL in patients who have failed
fludarabine therapy, there are other products that compete with CAMPATH.
Patients with CLL are generally treated with alkylating agents first, and, if
that treatment fails, then with fludarabine. Some of our competitors may have
greater financial resources.

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Because we have limited manufacturing capabilities, we are dependent on
third-party manufacturers to manufacture products for us. We may be required
to incur significant costs and devote significant efforts to establish our own
manufacturing capabilities.

We have limited manufacturing experience and no commercial scale
manufacturing capabilities. In order to continue to develop products, apply
for regulatory approvals and ultimately commercialize additional products, we
need to subcontract or otherwise arrange for the necessary manufacturing.

There are a limited number of manufacturers that operate under the FDAs
cGMP capable of manufacturing for us. As a result, we have experienced some
difficulty finding manufacturers with adequate capacity for our anticipated
future needs. If we are unable to arrange for third party manufacturing on
commercially reasonable terms, we may not be able to complete development of
our product candidates or market them on a timely basis, if at all.

Reliance on third party manufacturers entails risks to which we would not
be subject if we manufactured products ourselves, including reliance on the
third party for regulatory compliance and quality assurance, the possibility of
breach of the manufacturing agreement by the third party and the possibility of
termination or non-renewal of the agreement by the third party, based on its
business priorities, at a time that is costly or inconvenient for us. If our
third party manufacturers fail to maintain regulatory compliance, our product
supply will be interrupted resulting in lost or delayed revenues and delayed
clinical trials. We may not have adequate business interruption insurance.

Drug manufacturing facilities are subject to continual review and periodic
inspection and manufacturing modifications. Domestic manufacturing facilities
are subject to biennial inspections by the FDA, and foreign facilities are
inspected by the FDA less frequently. Both domestic and foreign facilities must
comply with the FDAs cGMP, and other regulations. In complying with these
regulations, manufacturers must spend funds, time and effort in the areas of
production, record keeping, personnel and quality control to ensure full
compliance. The FDA stringently applies regulatory standards for manufacturing.
Failure to comply with any of these post-approval requirements can result in,
among other things, warning letters, product seizures, recalls, fines,
injunctions, suspensions or revocations of marketing licenses, operating
restrictions and criminal prosecutions. This could interrupt our supply for our
marketed products and for our clinical trials.

We have limited marketing capabilities and we are currently dependent upon
third parties to sell and market CAMPATH. We will be required to incur
significant expense to develop our own marketing capabilities.

We depend on Schering AG and its U.S. affiliate, Berlex Laboratories, to
market and sell CAMPATH. Our reliance on Schering AG subjects us to various
risks. The terms of our contract with Schering AG may not be favorable to us in
the future. The amount and timing of resources dedicated by Schering AG to
marketing CAMPATH is not within our control, and Schering AG may not commit
enough resources to marketing CAMPATH. Schering AG could develop, independently
or with a third party, a drug that competes with CAMPATH. Schering AG may not
perform its obligations as expected and our revenues will be decreased or
delayed if Schering AG breaches or terminates its agreement with us. We will
need to develop a marketing and sales force with sufficient technical expertise
and distribution capability, which will require substantial expenditures and
management resources. The creation of infrastructure to commercialize
pharmaceutical products is an expensive and time-consuming process, and we may
be unable to develop the necessary marketing, sales and distribution
capabilities.

Our competitors may develop products superior to those we are developing.

The technological areas in which we work evolve at a rapid pace. Our
future success depends upon our ability to compete in the research, development
and commercialization of products and technologies in oncology, our area of
focus. Many of our competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial and managerial resources than do we. These competitors may develop
products that are superior to those we are developing and render our products
or technologies non-competitive or obsolete. In addition, we may not be able to
keep pace with technological change.

Significant competitive factors determining whether we will be able to
compete successfully include:



| |  |  | efficacy and safety of our product candidates;
| | - |  | ----------------------------------------------
|
| |  |  | timing and scope of regulatory approvals;     

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| |  |  | product availability;                                                         
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | marketing and sales capabilities;                                             
|
| |  |  | reimbursement coverage from insurance companies and others;                   
|
| |  |  | degree of clinical benefits of our product candidates relative to their costs;
|
| |  |  | method of administering a product;                                            
|
| |  |  | price; and                                                                    
|
| |  |  | patent protection.                                                            

There are potential limitations on third-party reimbursement and other
pricing-related matters that could reduce sales of our products and may delay
or impair our ability to generate significant revenues.

The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to reduce the cost of health care through various means. In
the United States, there have been, and we expect that there will continue to
be, a number of legislative proposals aimed at changing the nations healthcare
system. In certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. These legislative proposals
may impair our ability to raise capital, and our business could be adversely
affected if these legislative proposals are adopted. In particular, individual
pricing negotiations are often required in many countries of the European
Union, irrespective of separate government approval to market a drug.

Although third-party reimbursement is currently not an issue for us, there
is a risk that reimbursement will not be available in the future for our
products or will not be adequate. Third-party payors are increasingly
challenging the price of medical products and services. If government entities
and third-party payors do not provide adequate reimbursement levels, then our
revenues will be adversely affected and could cause our stock price to decline.

Market volatility may affect our stock price and the value of an investment in
our stock may be subject to sudden decreases.

The trading prices for securities of biotechnology companies, including
our stock, have been and are likely to continue to be volatile. Our stock
price depends upon a number of factors, including our historical and
anticipated operating results, our and our competitors preclinical and
clinical trial results, market perception of the prospects for biotechnology
companies as an industry sector and general market and economic conditions,
some of which are beyond our control. Factors such as fluctuations in our
financial and operating results, changes in government regulations affecting
product approvals, reimbursements or other aspects of our or our competitors
businesses, announcements of technological innovations or new commercial
products by us our competitors, developments concerning key personnel and our
intellectual property rights, significant collaborations or strategic alliances
and publicity regarding actual or potential performance of products under
development by us or our competitors could also cause our stock price to
fluctuate substantially. In addition, the United States securities markets,
including the NASDAQ National Market on which our stock is listed, have from
time to time experienced extreme price and volume fluctuations that are
unrelated to the operating performance of particular companies. These broad
market fluctuations may lower our stock price. Moreover, during periods of
stock market price volatility, share prices of many biotechnology companies
have often fluctuated in a manner not necessarily related to the companies
operating performance. Accordingly, our stock price may be subject to greater
volatility than the stock prices of other companies during periods of stock
market price volatility.

We do business internationally and are subject to additional political,
economic and regulatory uncertainties.

We may not be able to operate successfully in any foreign market. We
currently conduct drug discovery research in our laboratory in Geneva,
Switzerland. We also conduct drug development operations near London, England.
Schering AG sells CAMPATH in the United Kingdom (UK) and 24 other non-U.S.
countries. We believe that, because the pharmaceutical industry is global in
nature, international activities will continue to be a significant part of our
future business activities and that a substantial portion of our revenues will
be derived from outside the United States. Foreign regulatory agencies often
establish standards different from those in the United States, and an inability
to obtain foreign regulatory approvals on a timely basis could have an adverse
effect on our business. Our international operations may be limited or
disrupted by:

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| |  |  | imposition of government controls;                             
| | - |  | ---------------------------------------------------------------
|
| |  |  | political or economic instability;                             
|
| |  |  | trade restrictions;                                            
|
| |  |  | changes in tariffs;                                            
|
| |  |  | restrictions on repatriating profits;                          
|
| |  |  | taxation; and                                                  
|
| |  |  | difficulties in staffing and managing international operations.

Also, our business may be adversely affected by fluctuations in currency
exchange rates.

We may be unsuccessful in our efforts to expand the number and scope of
authorized uses of CAMPATH, which would hamper sales growth and make it more
difficult for us to attain profitability.

CAMPATH is approved for sale in the United States and Europe for use by
patients with refractory CLL. Under current FDA regulations, we are prohibited
from promoting the use of CAMPATH outside of this approved indication.

We are conducting clinical trials to examine whether or not CAMPATH can be
used to treat indications other than refractory CLL. Additional trials in these
indications are necessary before we can apply to expand the authorized uses of
CAMPATH. We do not know whether these trials will demonstrate safety and
efficacy, or if they do, whether we will succeed in receiving regulatory
approval to market CAMPATH for additional indications. If the results of these
trials are negative, or if adverse experiences are reported in these trials or
otherwise in connection with the use of CAMPATH by patients, this could
adversely affect existing regulatory approvals, undermine physician and patient
comfort with the product, reduce sales of the product and diminish the
acceptance of CAMPATH in the hematological and autoimmune markets. Even if the
results of these trials are positive, the impact on sales of CAMPATH may be
minimal unless they are accepted by the medical community and we are able to
obtain regulatory approval to expand the authorized use of CAMPATH. FDA
regulations restrict our ability to communicate the results of additional
clinical trials to patients, and to a lesser extent, physicians, without first
obtaining approval from the FDA to expand the authorized uses for this product.

If we are not able to demonstrate the safety and efficacy of our product
candidates in clinical trials or if our clinical trials are delayed, we will
not be able to obtain regulatory approval to market these drugs, or regulatory
approval to market these drugs will be delayed.

Clinical testing is a long, expensive and uncertain process. With the
exception of CAMPATH, no regulatory agency has approved any of our product
candidates and the data we collect from our clinical trials may not be
sufficient to support approval. Our clinical trials may not be completed on
schedule and the FDA may never approve our product candidates for commercial
sale. Furthermore, even if initially positive preclinical studies or clinical
trial results are achieved, it is possible that we will obtain different
results in the later clinical trials or the FDA will interpret pivotal trial
results unfavorably. Drugs in late stages of clinical development may fail to
show the desired safety and efficacy traits despite having progressed through
initial clinical testing. For example, positive results in early Phase I or
Phase II trials may not be repeated in larger Phase II or Phase III trials.

All of our product candidates are subject to the risks of failure inherent in
drug development.

Many of our research and development programs are at an early stage. In
addition to the risks described above, there is a possibility that none of our
product candidates will or can:



| |  |  | meet applicable regulatory standards;                         
| | - |  | --------------------------------------------------------------
|
| |  |  | be manufactured or produced economically and on a large scale;
|
| |  |  | be a commercially viable drug; or                             

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| |  |  | be successfully marketed, particularly if a third party introduces an equivalent or superior product.
| | - |  | -----------------------------------------------------------------------------------------------------

Delays in patient enrollment for clinical trials could increase costs and delay
regulatory approvals.

The rate of completion of our clinical trials will depend on the rate of
patient enrollment. Substantial competition to enroll patients in clinical
trials has delayed some of our clinical trials in the past. In addition, recent
improvements in existing drug therapy, particularly for some cancers, may make
it more difficult for us to enroll patients in our clinical trials as the
patient population may choose to enroll in clinical trials sponsored by other
companies or choose alternative therapies. Delays in patient enrollment can
result in increased development costs and delays in regulatory approvals.

If we fail to comply with extensive regulations enforced by the FDA and its
foreign counterparts, the commercialization of our product candidates would be
prevented or delayed.

Our products are subject to extensive government regulations related to
development, clinical trials, manufacturing and commercialization. The process
of obtaining FDA and foreign regulatory marketing and pricing approvals is
costly, time-consuming, uncertain and subject to unanticipated delays. For
example, although CAMPATH has been approved for marketing in the UK and 24
other non-U.S. countries, to market future products in Europe we must apply to
the European Commission for marketing approval. After receiving marketing
approval, we then must mutually agree on a pricing structure with each
countrys regulatory authority prior to launching sales in that particular
country. We are unable to predict how long this process will take.

The FDA will refuse to approve an application if it believes that
applicable regulatory criteria are not satisfied. The FDA may also require
additional testing for safety and efficacy. Foreign regulatory authorities may
also refuse to accept an application or grant any marketing approval.

The FDA and European Commission approvals for CAMPATH require us to
conduct a post-approval clinical trial comparing the safety and efficacy of
CAMPATH to that of chlorambucil, an alkylating agent that is a frontline
treatment for CLL. Alkylating agents work by disrupting the DNA structure and
are believed to be effective in treating CLL. The post-approval clinical trial
and report must be completed by 2006, according to the approvals given in 2001.
If we discover adverse safety or efficacy data, our marketing approvals may be
revoked.

If any of our license agreements for intellectual property underlying a product
candidate is terminated, we may lose our rights to develop or market that
product.

We have licensed intellectual property, including patents, patent
applications and know-how, from pharmaceutical companies, research institutions
and others, including the intellectual property underlying CAMPATH,
Eflornithine, clofarabine, ILX-651 and NM-3 .

Each licensor has the power to terminate its agreement with us if we fail
to meet our obligations under that license. We may not be able to meet our
obligations under these license agreements. Generally, we have to diligently
develop and commercialize the compounds we have licensed and make milestone
payments.

If we default under any of these license agreements, we may lose our right
to market and sell any products based on the licensed technology. If we were to
lose our marketing and sales rights to a compound, we would not be able to
replace the resources we used in developing the compound, and we will have to
spend additional time and capital resources in finding a replacement product
candidate.

We may not be able to obtain effective patents to protect our technologies from
use by other companies, and patents of other companies could prevent us from
developing or marketing our other product candidates.

Our success will depend to a significant degree on our ability to:



| |  |  | obtain, maintain and enforce patents;        
| | - |  | ---------------------------------------------
|
| |  |  | license rights to patents from third parties;
|
| |  |  | protect trade secrets; and                   

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| |  |  | operate without infringing on the proprietary rights of others.
| | - |  | ---------------------------------------------------------------

It is possible that we will not develop technologies, drugs or processes
that result in obtaining a patent. It is also possible that our patent position
will not provide sufficient protection against competitors, or that patents
issued to or licensed by us will be infringed or will be challenged,
invalidated or circumvented. Competitors may develop products, which compete
against our products but fall outside the scope of our patents. In addition,
competitors may have filed patent applications, may have been issued patents or
may obtain additional patents and proprietary rights relating to technologies,
drugs and processes that compete with our technologies, drugs and processes.

If we infringe on the intellectual property rights of others, we will have
to either obtain a license for the use of these intellectual property rights,
or terminate our use of these rights. We may not be able to obtain licenses to
use the technology on commercially reasonable terms, or at all.

We also rely on trade secret protection for our unpatented proprietary
technology. Trade secrets are difficult to protect. Other parties could
independently develop substantially equivalent proprietary information and
techniques or gain access to our trade secrets.

We have attempted to prevent the disclosure and use of our know-how and
trade secrets by entering into confidentiality agreements with our employees,
consultants and third parties. However, there are risks that:



| |  |  | these parties will not honor our confidentiality agreements;                                                                 
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | others will independently develop equivalent or superior technologies;                                                       
|
| |  |  | disputes will arise concerning the ownership of intellectual property or the applicability of confidentiality obligations; or
|
| |  |  | disclosure of our trade secrets will occur regardless of these contractual protections.                                      

We often work with consultants and research collaborators at universities
and other research organizations. If any of these consultants or research
collaborators use intellectual property owned by others as part of their work
with us, disputes may arise between us and these other parties as to which one
of us has the rights to intellectual property related to or resulting from the
work done.

Costly litigation might be necessary to protect our orphan drug
designations or patent positions, or to determine the scope and validity of
third-party proprietary rights. It is possible that we will not have the
required resources to pursue such litigation or to protect our patent rights.
An adverse outcome in litigation with respect to the validity of any of our
patents could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to cease using
a product or technology. Any of these results could materially harm our
business and financial condition.

We may be subject to costly and damaging liability claims

Although we take what we believe to be appropriate precautions, our
business exposes us to many liability risks, which are inherent in the testing,
manufacturing and sale of pharmaceutical products. We could face exposure to
product liability claims if the use of CAMPATH or any of our product candidates
is alleged to have harmed someone. We could also face exposure to breach of
contract claims arising in the normal course of business or claims based upon
errors or omissions in connection with our ongoing or completed CRO activities.

We currently have product
liability insurance related to CAMPATH in the aggregate limit of $25.0 million; $25.0 million
product liability insurance related to other investigational drug candidates
in the aggregate limit of $10.0 million and professional liability insurance or related to contract research organization services in the aggregate limit of $5.0 million. Adequate insurance
coverage may not be available in the future at acceptable prices or at all. It
is possible that claims against us could exceed our coverage limits. The
successful assertion of an uninsured or underinsured claim against us could
cause us to incur a significant expense, could adversely affect our product
development activities and could divert managements attention from running the
business. In addition, regardless of merit eventual outcome, product
liability claims may result in decreased demand for the applicable product or
our products in general and in injury to our general reputation. Thus,
whether or not we are adequately insured, a product liability or other claim or product
recall may result in losses that could be material.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

We are subject to influence from executive officers, directors and senior
management, and we have adopted a shareholder rights plan, which could
discourage or prevent stockholders from selling their shares at a premium.

Our rights plan provides, among other things, that if a person or group
attempts to acquire 20% or more of our common stock on terms not approved by
our Board of Directors, stockholders will be entitled to purchase additional
shares of our stock at 50% of the then-current market price. These purchase
rights would cause substantial dilution to a person or group that acquires or
attempts to acquire 20% or more of our common stock in this manner and, as a
result, could delay or prevent a change in control or other transaction that
could provide our stockholders with a premium over the then-prevailing market
price of their shares or which might otherwise be in their best interests.

Our executive officers, directors (and their affiliates) and senior
management, in the aggregate, beneficially owned or controlled approximately
5.9% of our outstanding common stock at January 31, 2003 and therefore have the
ability to exercise substantial influence over the outcome of most
stockholders actions, including the election of the members of the Board of
Directors and approval of any change in control transaction. This concentration
of ownership could have an adverse effect on the price of our common stock or
have the effect of delaying or preventing a change in control or other
transaction that could provide our stockholders with a premium over the
then-prevailing market price of their shares or which might otherwise be in
their best interests.




|        |  |           
|------- |  | ----------
|ITEM 2. |  | PROPERTIES

In July 2000, we entered into a lease that expires in November 2008 for
our corporate headquarters consisting of approximately 86,000 square feet of
office space in San Antonio, Texas.

We lease approximately 21,000 square feet of office and laboratory space,
and operate a 7,200-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. Currently, the facility is being used
for manufacturing support activities. The facility is owned by a non-profit
corporation controlled by the CTRC Research Foundation Building Corporation and
the Texas Research Park Foundation, and provides for the payment by us of fixed
monthly rent plus a percentage of gross sales generated from the facility.
These two organizations obtained a $1.5 million grant to build the facility
from the Economic Development Administration (EDA). We have a 15-year lease to
the facility with three five-year-extension options. The lease expires in
December 2010. In the event that there is an early termination of the lease or
a non-conforming use, there is a risk that we may be required to repay a
portion of the EDA grant.

Our subsidiary, ILEX Products, formerly Convergence Pharmaceuticals, Inc.,
leases approximately 9,800 square feet of office and research space in Boston,
Massachusetts. The lease expires in July 2004. Additionally, we have
approximately 2,600 square feet of leased office space in Guildford, England
utilized by our subsidiary, ILEX Services Limited. Our subsidiary ILEX Oncology
Research, Sarl, formerly Symphar, S.A., leases approximately 31,000 square feet
of office and research space in Geneva, Switzerland expiring between 2006 and
2007.

We also leased approximately 7,200 square feet of space in Annapolis,
Maryland. This lease was terminated in February 2003.




|        |  |                  
|------- |  | -----------------
|ITEM 3. |  | LEGAL PROCEEDINGS

The Company is involved in various routine legal
proceedings incidental to the company's business. The Company believes it
is unlikely that the final outcome of the legal proceedings to which
the Company is a party will have a material adverse effect on the Companys
financial position or results of operations. However, due to the inherent
uncertainty of the litigation process, there can be no assurance that the resolution of any
particular legal proceeding will not have a material adverse effect on the
Companys results of operations for the period in which such resolution occurred.




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

Not applicable.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---




PART II.




|        |  |                                                                      
|------- |  | ---------------------------------------------------------------------
|ITEM 5. |  | MARKET FOR THE COMPANYS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

As of February 12, 2003, the Company had approximately 4,944 beneficial
holders of common stock, including approximately 196 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 sales prices for the Companys common stock, as reported
by the Nasdaq National Market:

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  | 2002 |       | 2001
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 28.00 |      |  | $    | 14.30 |     |  | $ | 32.31 |  |  | $ | 11.00 | 
|Second Quarter |  |      | 17.98 |      |  |      | 12.83 |     |  |   | 31.14 |  |  |   | 13.50 | 
|Third Quarter  |  |      | 13.70 |      |  |      | 4.40  |     |  |   | 30.79 |  |  |   | 18.40 | 
|Fourth Quarter |  |      | 11.20 |      |  |      | 3.80  |     |  |   | 31.35 |  |  |   | 23.02 | 

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 7, 2003 was $7.23.

The Company has never paid dividends on its common stock and anticipates
that it will not pay such dividends in the foreseeable future.

Recent Sales of Unregistered Securities

In February 2001, we acquired Symphar, a research firm located in Geneva,
Switzerland. We acquired Symphar for $28.9 million, which included cash of
$15.0 million and 521,121 shares of our common stock. The value of the common
stock issued in connection with this merger was calculated using a fair value
of $26.6875 per share. These shares were exempt from registration
under the Securities Act of 1933, as amended, in reliance on Section
4(2), as a transaction by an issuer not involving any public offering.

In March 2000, we sold 3.0 million shares of our common stock at $45.00 per
share to selected institutional and other accredited investors. Gross proceeds
from this sale of our common stock were approximately $135.0 million. Net
proceeds were approximately $127.0 million. The issuance of
these shares was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended and Rule 506 promulgated there
under due to the fact that all of these shares were sold to
accredited investors. Prudential Vector Healthcare Group acted as the
placement agent for this transaction and received commission of
approximately $7.4 million and out-of-pocket expenses and other fees
of $200.0.

17



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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---




|        |  |                        
|------- |  | -----------------------
|ITEM 6. |  | SELECTED FINANCIAL DATA

The information below was derived from the audited consolidated financial
statements included in this report and in reports we have previously filed with
the SEC. This information should be read together with those consolidated
financial statements and the notes to the consolidated financial statements.
These historical results are not necessarily indicative of the results to be
expected in the future.

|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |     |        |        |         |  
|--------------------------------------------------------------------------------------------- | ----------------------------- | -------------------------------------------- | ------------- | ------------------------------------------------------------------ | ------ | ------------------------------------- | -------- | ----- | ------ | ------ | -------- | ----- | ------ | ------ | -------- | ----- | ------ | ------ | ------- | --- | ------ | ------ | ------- | -
|                                                                                              |                               |                                              |               |                                                                    |        | Years Ended December 31,             
|                                                                                              |                               |                                              |               |                                                                    |        |                                      
|                                                                                              |                               |                                              |               |                                                                    |        | 2002                                  |          | 2001  |        | 2000   |          | 1999  |        | 1998  
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |       
|                                                                                              |                               |                                              |               |                                                                    |        | (in thousands, except per share data)
|Summary of Operating Statement Data:                                                          |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|Revenue:                                                                                      |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|                                                                                              |                               | Product profit and royalty                   |               | $                                                                  | 10,843 |                                       |          | $     |       |        |          | $     |       |        |          | $     |       |        |         | $   |       |       
|                                                                                              |                               | Product development                          |               |                                                                    | 9,786  |                                       |          |       | 3,994  |        |          |       | 3,381  |        |          |       | 4,646  |        |         |     | 4,622  |       
|                                                                                              |                               | Contract research services                   |               |                                                                    | 9,400  |                                       |          |       | 25,178 |        |          |       | 29,407 |        |          |       | 17,615 |        |         |     | 12,642 |       
|                                                                                              |                               | Other                                        |               |                                                                    | 872    |                                       |          |       |       |        |          |       |       |        |          |       |       |        |         |     |       |       
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|                                                                                              |                               |                                              | Total revenue |                                                                    |        | 30,901                                |          |       |        | 29,172 |          |       |        | 32,788 |          |       |        | 22,261 |         |     |        | 17,264 |        
|Operating expenses:                                                                           |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|                                                                                              |                               | Research and development costs               |               |                                                                    | 46,449 |                                       |          |       | 33,798 |        |          |       | 24,419 |        |          |       | 16,219 |        |         |     | 12,684 |       
|                                                                                              |                               | Licensing costs                              |               |                                                                    | 5,657  |                                       |          |       | 10,281 |        |          |       | 6,116  |        |          |       | 10     |        |         |     | 3,443  |       
|                                                                                              |                               | Selling, general and administrative          |               |                                                                    | 11,805 |                                       |          |       | 11,052 |        |          |       | 5,061  |        |          |       | 1,837  |        |         |     | 3,528  |       
|                                                                                              |                               | Direct costs of research services            |               |                                                                    | 5,897  |                                       |          |       | 19,535 |        |          |       | 25,123 |        |          |       | 17,385 |        |         |     | 13,867 |       
|                                                                                              | Depreciation and amortization |                                              |               | 7,390                                                              |        |                                       |          | 2,415 |        |        |          | 2,507 |        |        |          | 2,226 |        |        |         | 826 |       
|                                                                                              |                               | In-process research and development          |               |                                                                    |       |                                       |          |       | 86,112 |        |          |       | 14,562 |        |          |       | 11,124 |        |         |     |       |       
|                                                                                              |                               | Special charges                              |               |                                                                    |       |                                       |          |       |       |        |          |       |       |        |          |       | 13,882 |        |         |     |       |       
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|                                                                                              |                               |                                              |               | Total operating expenses                                           |        |                                       | 77,198   |       |        |        | 163,193  |       |        |        | 77,788   |       |        |        | 62,683  |     |        |        | 34,348  |  
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|Operating loss                                                                                |                               |                                              | (46,297       | )                                                                  |        |                                       | (134,021 | )     |        |        | (45,000  | )     |        |        | (40,422  | )     |        |        | (17,084 | )  
|Other income (expense):                                                                       |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|                                                                                              |                               | Interest income and other, net               |               |                                                                    | 7,084  |                                       |          |       | 9,995  |        |          |       | 11,747 |        |          |       | 1,700  |        |         |     | 1,850  |       
|                                                                                              |                               | Imputed interest expense                     |               |                                                                    | (6,654 | )                                     |          |       |       |        |          |       |       |        |          |       |       |        |         |     |       |       
|                                                                                              |                               | Equity in income (losses) of joint venture   |               |                                                                    |       |                                       |          |       | 3,094  |        |          |       | (5,370 | )      |          |       | (7,134 | )      |         |     | (5,994 | )     
|                                                                                              |                               | Minority interest in consolidated subsidiary |               |                                                                    |       |                                       |          |       |       |        |          |       | (262   | )      |          |       | (82    | )      |         |     |       |       
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|Loss before income taxes                                                                      |                               |                                              | (45,867       | )                                                                  |        |                                       | (120,932 | )     |        |        | (38,885  | )     |        |        | (45,938  | )     |        |        | (21,228 | )  
|                                                                                              |                               | Provision for foreign income taxes           |               |                                                                    | (289   | )                                     |          |       | (22    | )      |          |       | (97    | )      |          |       | (117   | )      |         |     |       |       
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|Net loss                                                                                      |                               | $                                            | (46,156       | )                                                                  |        | $                                     | (120,954 | )     |        | $      | (38,982  | )     |        | $      | (46,055  | )     |        | $      | (21,228 | )  
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|Basic and diluted net loss per share(1)                                                       |                               | $                                            | (1.42         | )                                                                  |        | $                                     | (4.48    | )     |        | $      | (1.61    | )     |        | $      | (3.04    | )     |        | $      | (1.71   | )  
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|Weighted average number of shares of common stock
and common stock equivalents outstanding(1) |                               |                                              | 32,476        |                                                                    |        |                                       | 27,011   |       |        |        | 24,285   |       |        |        | 15,144   |       |        |        | 12,450  |    
|                                                                                              |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|Balance Sheet Data:                                                                           |                               |                                              |               |                                                                    |        |                                       |          |       |        |        |          |       |        |        |          |       |        |        |         |    
|                                                                                              |                               |                                              |               | Cash, cash equivalents and investments
in marketable securities(2) |        | $                                     | 191,000  |       |        | $      | 278,246  |       |        | $      | 202,772  |       |        | $      | 89,126  |     |        | $      | 26,025  |  
|                                                                                              |                               |                                              |               | Working capital                                                    |        |                                       | 109,007  |       |        |        | 104,966  |       |        |        | 152,922  |       |        |        | 77,226  |     |        |        | 23,942  |  
|                                                                                              |                               |                                              |               | Total assets                                                       |        |                                       | 270,906  |       |        |        | 368,907  |       |        |        | 216,356  |       |        |        | 100,706 |     |        |        | 42,688  |  
|                                                                                              |                               |                                              |               | Noncurrent portion of note payable                                 |        |                                       | 36,155   |       |        |        | 70,041   |       |        |        |         |       |        |        |        |     |        |        |        |  
|                                                                                              |                               |                                              |               | Accumulated deficit                                                |        |                                       | (283,430 | )     |        |        | (237,274 | )     |        |        | (116,320 | )     |        |        | (77,338 | )   |        |        | (31,283 | )
|                                                                                              |                               |                                              |               | Total stockholders equity                                         |        |                                       | 177,242  |       |        |        | 221,028  |       |        |        | 196,005  |       |        |        | 84,579  |     |        |        | 35,904  |  



---

|(1) |  | See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of net loss per share.
|--- |  | --------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes cash, cash equivalents, short and long term investments, and all
restricted investments.                         

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---




|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|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 previous three years in the
period ended December 31, 2002. The Consolidated Financial Statements and
notes thereto contain detailed information that should be referred to in
conjunction with this discussion.

GENERAL

We are building a product-driven biopharmaceutical company, focused
primarily on oncology, by developing and commercializing a portfolio of novel
treatments for both early and late stage cancers. We are leveraging our core
competencies in clinical drug development to identify, develop and
commercialize our proprietary product candidate pipeline. Our lead product,
CAMPATH, has been approved in the United States and Europe for treating
patients with refractory chronic lymphocytic leukemia and is distributed by
Schering AG and its U.S. subsidiary, Berlex Laboratories, Inc. (Berlex).
CAMPATH was developed in a 50/50 partnership with Millennium Pharmaceuticals,
Inc (Millennium). In December 2001, we acquired Millenniums equity interest
in the Partnership. This transaction has helped streamline the process of
developing CAMPATH in additional indiciations.
In addition to CAMPATH, we have four oncology product candidates in clinical
trials, as well as several active preclinical programs. To date, we have built
this pipeline primarily through the licensing and acquisition of promising drug
candidates. In addition to our clinical development programs, we conduct drug
discovery research, translational research and preclinical studies in the
fields of angiogenesis inhibition, molecular receptor chemistry and targeted
medicinal phosphonate chemistry.

We have incurred losses and had an accumulated deficit through December
31, 2002 of $283.4 million. Our losses have resulted primarily from product
research and development activities, including in-licensing of products for
which we pay fees, and related administrative expenses. We expect to continue
to incur losses in 2003. Our revenue for the foreseeable future will be
limited to our profit participation and royalty revenue, product development
revenue, interest income, and other miscellaneous income.

Currently the revenues recorded in product profit and royalty revenue
consist of our profit share from net U.S. sales of
CAMPATH and royalty revenue from rest of world sales. Participation from our
distribution and development partner for services performed and costs incurred
in connection with the development of CAMPATH for all indications are recorded
as product development revenues. Indications for which the development of
CAMPATH is ongoing include chronic lymphocytic leukemia (CLL), multiple
sclerosis (MS) and non-Hodgkins lymphoma (NHL).

Prior to January 1, 2002, we accounted for CAMPATH activities as follows:



| |  | our operating revenue included product development revenue we received from the Partnership;                                                                            
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | our research and development expenses included all of the development costs for CAMPATH, which were largely offset by the
revenue we received from the Partnership;     
| 
| |  | our portion of the profits resulting from CAMPATH sales and the other revenues and expenses of the Partnership was recorded
in equity in income (loss) of joint venture.

In November 2001, we completed an underwritten public offering of our
common stock pursuant to which we sold 5.75 million shares. The number of
shares sold includes the underwriters exercise of their overallotment option.
Proceeds, net of offering costs, to us from this offering were approximately
$128.9 million. The net proceeds from this offering have been and will
continue to be used to fund a portion of the acquisition of Millenniums
partnership interest in the Partnership. The balance of the net proceeds will
be used to expand clinical trials and preclinical research; to fund research
and development programs; for potential licenses or other acquisitions of
complementary technologies or products; for general corporate purposes and for
working capital.

On October 29, 2001, we entered into an agreement with Millennium
Pharmaceuticals, Inc. to purchase Millenniums 50% interest in the Partnership
for a total purchase price of approximately $127.6 million based on the net
present value of the required cash payments, discounted at 6.5%, our estimated
incremental borrowing rate on the date of the purchase. The terms of the
agreement required an initial cash payment of $20.0 million and an additional
$120.0 million in scheduled payments over the following three years. The first
of these scheduled payments of $40.0 million in cash was made on December 31,
2002. Additionally, $40.0 million is due in 2003 and 2004, of which $10.0
million in each of those years may be paid with our common stock, at our option
and subject to certain terms and conditions. In 2003 and 2004, $20.0 million
of the $40.0 million is due 45 days following the calendar quarter in which net
U.S. CAMPATH sales exceed a certain level. In addition, Millennium will be
entitled to royalties based upon net U.S. CAMPATH sales above certain levels in
2005 and continuing through 2008.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

In March 2001, we entered a definitive agreement to co-develop clofarabine, a nucleoside analog, with Bioenvision Inc. We
paid $1.1 million upon execution of the agreement and may be required to make
future payments in accordance with the agreement if certain drug development
milestones are met. In clinical studies, clofarabine has shown promise as a
potential new treatment for patients with hematological malignancies, including
acute lymphocytic leukemia (ALL) and acute myelogenous leukemia (AML), and in
preclinical studies, for solid tumors. We are taking the lead role in
developing clofarabine in the U.S. and Canada, where we will have exclusive
manufacturing and marketing rights in exchange for the afore-mentioned $1.1
million in-licensing fee, milestone payments and royalties. Bioenvision will
retain the lead role in developing the compound in Europe, where it will have
exclusive manufacturing and marketing rights and we will have rights to
royalties.

In February 2001, we acquired Symphar and its research platform in
medicinal chemistry and nuclear receptor biology, which has led to drug
candidates in several therapeutic fields, including cardiovascular and bone
disease. The Symphar acquisition, combined with our preclinical signal
transduction and angiogenesis inhibition programs in Boston, gives us the
capability to translate early-stage research leads into clinical drug
development programs. Under the terms of the agreement, we acquired Symphar for
$28.9 million, including $15.0 million in cash and 521,121 shares of our common
stock.

CRITICAL ACCOUNTING POLICIES

We believe that our most critical accounting issues include the process we
use to evaluate an impairment on the intangible assets acquired in the purchase
of Millenniums interest in the Partnership and the process of determining the
amount of in-process research and development obtained in an acquisition.

The amounts recorded as completed technology and trademark were determined
based on an independent appraisal of the estimated timing and amount of revenue
to be generated from sales of CAMPATH.

Amounts recorded as in-process research and development are based upon
assumptions and estimates regarding the amount and timing of projected revenues
and costs as well as the appropriate discount rates and expected trends in
technology. No assurance can be given, however, that the underlying
assumptions used to estimate revenue, development costs or profitability or the
events associated with such projects will transpire as estimated. For these
reasons, actual results may vary from projected results. The most significant
and uncertain assumptions relating to the in-process projects relate to the
projected timing of completion and revenues attributable to each project.

RESULTS OF OPERATIONS  DECEMBER 31, 2002 AND 2001

The following discussion addresses our consolidated results of operations
for 2002, 2001 and 2000 and our liquidity and capital resources. It should be
read in conjunction with our Financial Statements, the Notes thereto and other
financial information beginning on page F-1 of this report.

Operating Revenues

Total revenue increased to $30.9 million in 2002, from approximately $29.2
million in 2001. The increase of approximately $1.7 million, or 6%, was largely
due to product profit and royalty revenue, which is our share of CAMPATH net
profits on U.S. sales and a royalty on the rest of the world sales. Product
profit and royalty revenue totaled $10.8 million through December 31, 2002.
Prior to January 1, 2002, our share of CAMPATH net profits on U.S. sales and
royalties on the rest of the world sales was included in equity in income
(losses) of joint venture. Product development revenue increased to $9.8
million through December 31, 2002 from $4.0 million through December 31, 2001,
an increase of $5.8 million or 145%. This increase reflects the recognition of
our revenues from our development and distribution partner, which prior to
January 1, 2002 were included in equity in income (losses) of joint venture.
These increases were partially offset by the decrease in revenue from our
fee-for-service Contract Research Organization (CRO) business. The decrease of
63% in our CRO revenues is consistent with our plan to transition out of the
fee-for-service CRO business.

Operating Expenses

Research and Development Costs. Research and development costs increased
to $46.4 million in 2002, from approximately $33.8 million in 2001. This
increase of $12.6 million, or 37%, was due to increased development spending on
our product candidates, particularly for clofarabine and CAMPATH.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

Licensing Costs.Licensing costs decreased to $5.7 million in 2002 from
$10.3 million in 2001 or a decrease of $4.6 million
or 45%. In 2002, licensing costs consisted primarily of a license fee
expense of $4.0 million related to an exclusive, worldwide license from Knoll
AG (Abbott Laboratories) for ILX-651, a synthetic pentapeptide analog of
dolastatin. In 2001, licensing costs consisted of a $6.0 million expense
accrual, also related to the exclusive worldwide license of ILX-651.
Additionally, a payment of $1.1 million was made to Bioenvision upon our
execution of a license agreement to acquire U.S. rights to clofarabine, a
nucleoside analog. We may be required to make future payments in accordance
with these agreements if certain drug development and time-based milestones are
met.

Selling, General and Administrative Costs. Selling,general and
administrative costs increased to $11.8 million in 2002, from approximately
$11.1 million in 2001. This increase of $0.7 million, or 6%, was due in part to
our transition out of the fee-for-service CRO business, and the corresponding
transition of our internal resources to focus on new business opportunities,
build strategic relationships and develop our proprietary product candidates.
The costs associated with these management and business development activities
were previously included in direct costs of research services and are now
reflected in general and administrative costs.

Depreciation and Amortization.Depreciation and amortization increased to
$7.4 million in 2002 from $2.4 million in 2001, an increase of $5.0 million.
This increase was primarily the result of the amortization of the completed
technology asset and trademark, which we obtained through the acquisition of
Millenniums interest in the Partnership on December 31, 2001. Total
amortization expense related to these acquired intangible assets for the year
ended December 31, 2002 was $4.8 million.

Direct Cost of Research Services. Direct costs of research services
expense decreased to $5.9 million in 2002, from $19.5 million in 2001. This
decrease of $13.6 million, or 70%, is consistent with our aforementioned
transition out of the fee-for-service CRO business.

In-process Research and Development.In-process research and development
was $86.1 million in 2001, due to the acquisitions of Symphar in February 2001
and Millenniums interest in the Partnership in December 2001. The in-process
research and development charge associated with the Symphar acquisition was
$26.1 million, and the charge related to the acquisition of the 50% interest in
the Partnership was $60.0 million.

Equity in Income (Loss) of Joint Venture

Equity in income (loss) of joint venture was income of $3.1 million in
2001. This amount included the Companys profit share of CAMPATH sales, which
are now shown as product profit and royalty revenue. We purchased Millenniums
interest in the Partnership on December 31, 2001 and, as a result, activity
related to the Partnership was included in the consolidated statement of
operations of ILEX Oncology Inc. as of January 1, 2002.

Interest Income and Other, Net

Interest income and other decreased to $7.1 million in 2002, from
approximately $10.0 million in 2001, a decrease of $2.9 million, or 29%.
Included in interest income and other in 2001 is the accrual of a non-cash loss
on the impairment of a held-to-maturity marketable security of $435,000. In
2002, this investment was sold and we recorded a $435,000 gain. The decrease
of $2.9 million is primarily attributable to a decline in interest rates
throughout 2002, which offset the gain on the sale of our held-to-maturity
marketable security.

Interest Expense

Interest expense of $6.7 million relates to the imputed interest on the
note to Millennium for our purchase of their interest in the Partnership. This
transaction closed on December 31, 2001, and as such, a comparable amount does
not exist for 2001.

Net Loss

Net loss decreased $74.8 million in 2002, or 62%, to $46.2 million, from
$121.0 million in 2001. Net loss per share decreased $3.06 per share to $1.42
per share in 2002, from $4.48 per share in 2001. Excluding in-process research
and development expense, net loss increased $11.4 million, or 33%, to $46.2
million, from $34.8 million in 2001, and net loss per share increased $0.13 per
share to $1.42 per share, from $1.29 per share in 2001.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

RESULTS OF OPERATIONS  DECEMBER 31, 2001 AND 2000

Operating Revenues

Total revenue decreased to $29.2 million in 2001, from approximately $32.8
million in 2000. The decrease of approximately $3.6 million, or 11%, was due to
our decision to discontinue our fee-for-service CRO business. This decision
was announced in February 2001. We expect our revenue from contract research
services to further decrease as we complete our existing contracts. The
increase in product development revenues of $613.0 reflects an increase in
development revenue for CAMPATH in indications other than CLL.

Operating Expenses

Research and Development Costs. Research and development costs increased
to $33.8 million in 2001, from approximately $24.4 million in 2000. This
increase of $9.4 million, or 39%, was due to increased development spending on
our product candidates, particularly for clofarabine, Eflornithine and ILX-651.
Additionally, research and development costs increased due to the acquisition
of Symphar, our drug discovery research firm in Geneva, Switzerland.

Licensing Costs.Licensing costs increased to $10.3 million in 2001 from
$6.1 million in 2000 or an increase of $4.2 million or 69%. The primary reason
for the increase is a license fee expense accrual of $6.2 million related to an
exclusive, worldwide license from Knoll AG (Abbott Laboratories) for ILX-651, a
synthetic pentapeptide analog of dolastatin. Additionally, a payment of $1.1
million was made to Bioenvision upon our execution of a license agreement to
acquire U.S. rights to clofarabine a nucleoside analog.

Selling, general and Administrative Costs. Selling, general and
administrative costs increased to $11.1 million in 2001, from approximately
$5.1 million in 2000. This increase of $6.0 million, or 118%, was due in part
to our transition out of the fee-for-service CRO business, and the
corresponding transition of our internal resources to focus on
commercialization of our own products, build strategic relationships and
develop our proprietary product candidates. The costs associated with these
management and business development activities were previously included in
direct costs of research services and are now reflected in general and
administrative costs. Additionally, we incurred $1.6 million in professional
and legal fees, recorded a reserve of $750.0 for office space that is no longer
being utilized and, incurred a non-cash compensation charge for an employee
incentive program.

Direct Cost of Research Services. Direct costs of research services
expense decreased to $19.5 million in 2001, from $25.1 million in 2000. This
decrease of $5.6 million, or 22%, is attributable to the decrease in revenue
from these services. Our margins have increased as a result of shifting
various resources from the CRO business to our own products.

In-process Research and Development.In process research and development
increased to $86.1 million in 2001 from $14.6 million in 2000. This increase
of $71.5 million was due to the acquisitions of Symphar in February 2001 and
Millenniums interest in the Partnership in December 2001. The in-process
research and development charge associated with the Symphar acquisition was
$26.1 million and the charge related to the acquisition of the 50% interest in
the Partnership was $60.0 million.

Interest Income and Other, Net

Net interest income and other decreased to $10.0 million in 2001, from
approximately $11.7 million in 2000. This decrease of $1.7 million, or 15%, is
attributable to the accrual of a non-cash loss on the impairment of a
held-to-maturity marketable security of $435.0 as well as the decline in
interest rates throughout 2001.

Equity in Income (Losses) of Joint Venture

Equity in income (losses) of joint venture was income of $3.1 million in
2001, compared to a loss of $5.4 million in 2000, an improvement of $8.5
million. The income for 2001 includes pre-commercialization marketing and
selling expenses incurred by the Partnership, which are offset by the
Partnerships portion of global net earnings for the year. Global net sales of
CAMPATH for the year 2001 were $27.1 million.

Net Loss

Net loss increased $82.0 million in 2001, or 210%, to $121.0 million, from
$39.0 million in 2000. Net loss per share increased $2.87 per share to $4.48
per share in 2001, from $1.61 per share in 2000. Excluding in-process research
and development expense, net loss increased $10.4 million, or 43%, to $34.8
million, from $24.4 million in 2000, and net loss per share increased $0.28 per
share to $1.29 per share, from $1.01 per share in 2000.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations primarily through the sale of
our capital stock, through development and licensing fee revenues provided by
our collaborative partners under our collaborative agreements and through
fee-for-service or participatory revenues pursuant to contracts with our CRO
clients.

At December 31, 2002, we had cash, cash equivalents, restricted
investments and investments in marketable securities of $191.0 million and
working capital of $109.0 million. Cash, cash equivalents, restricted
investments and investments in marketable securities decreased by $87.2 million
as a result of our payment of $40.0 million to Millennium on December 31, 2002
as well as development spending on our product candidates.

In November 2001, we completed an underwritten public offering of our
common stock pursuant to which we sold 5.75 million shares. The number of
shares sold includes the underwriters exercise of their overallotment option.
Proceeds, net of offering costs, to us from this offering were approximately
$128.9 million. The net proceeds from this offering have been and will
continue to be used to fund a portion of the acquisition of Millenniums
partnership interest in the Partnership. The balance of the net proceeds will
be used to expand clinical trials and preclinical research; to fund research
and development programs; for potential licenses or other acquisitions of
complementary technologies or products; for general corporate purposes and for
working capital.

On October 29, 2001, we announced that we had entered into a definitive
agreement to purchase Millenniums 50% equity interest in the Partnership. The
acquisition closed on December 31, 2001. We estimated the purchase price at
$127.6 million based on the net present value of the required future cash
payments discounted at 6.5%, our estimated incremental borrowing rate on the
date of purchase. The terms of the agreement required an initial cash payment
of $20.0 million and an additional $120.0 million in scheduled payments over
the following three years. The first of these scheduled payments of $40.0
million in cash was made on December 31, 2002. Additionally, $40.0 million is
due in 2003 and 2004, of which $10.0 million in each of those years may be paid
with our common stock at our option and subject to certain terms and
conditions. In 2003 and 2004, $20.0 million of the $40.0 million is due
following the calendar quarter in which net U.S. CAMPATH sales exceed a certain
level. In addition, Millennium will be entitled to royalties based upon net
U.S. CAMPATH sales above certain levels in 2005 and continuing through 2008.

In February 2001, we acquired Symphar and its research platform for
approximately $30.0 million, including $15.0 million in cash and 521,121 shares
of our common stock. The agreement specifies that, subject to the viability of
performance, we agree to fund a minimum operating and capital budget between
$4.0 to $5.0 million annually for each of the three years following the
agreement date.

As previously discussed, we have numerous products in our pipeline. In
connection with these research and development efforts, the Company has entered
into agreements with certain development partners, which generally expire over
several years. The terms of these agreements require the Company to make
payments in either cash or stock if certain drug development or time-based
milestones are met. Total potential future commitments under these agreements
are approximately $25.1 million.

We have several noncancelable operating leases for office space, equipment
and the cGMP facility. One of our operating leases is with CTRC Research
Foundation, a related party. Total future commitments under these leases is
$14.5 million.

We expect our current funds will be adequate to cover all of our
obligations for at least the next year. Until our business can generate
sufficient levels of cash from product sales, we expect to continue to finance
our operations through existing cash, revenue from collaborative relationships,
and proceeds from the sale of equity securities.

We plan to continue our policy of investing available funds in government
securities and investment-grade, interest-bearing securities, none of which
matures in more than five years. We do not invest in derivative financial
instruments, as defined by Statement of Financial Accounting Standards No. 133
and 138.

Our future expenditures and capital requirements will depend on numerous
factors, including but not limited to, the progress of our research and
development programs, the progress of our 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 intellectual property rights, competing
technological and market developments, changes in or termination of existing
collaborative arrangements, the ability to establish, maintain and avoid
termination of collaborative arrangements and the purchase of capital equipment
and acquisitions of compounds, technologies or businesses. As of December 31,
2002, we did not have any material commitments for capital expenditures.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

ACCOUNTING PRONOUNCEMENTS

In 2002, reimbursable out-of-pocket costs incurred related to our contract
research organization (CRO) contracts were included in direct costs of research
services when incurred and included in contract research services revenue when
these costs were billed to the customer. The accounting for out-of-pocket
costs for the year ended December 31, 2002 is in accordance with the Emerging
Issues Task Forces (EITFs) Issue 01-14, Income Statement Characterization of
Reimbursements Received for Out of Pocket Expenses Incurred". Corresponding
amounts for the years ended December 31, 2001 and December 31, 2000 were
reclassified to conform to the 2002 presentation.

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations. This statement, which supersedes Accounting Principles Board
Opinion No. 16, Business Combinations (APB No. 16) and SFAS No. 38,
Accounting for Preacquisition Contingencies of Purchased Enterprises,
requires that all business combinations be accounted for by the purchase
method. SFAS No. 141 also required that acquired intangible assets should be
recognized as assets apart from goodwill if they meet one of two specified
criteria. Additionally, the statement adds certain disclosure requirements to
those required by APB 16, including disclosure of the primary reasons for the
business combination and the allocation of the purchase price paid to the
assets acquired and liabilities assumed by major balance sheet caption. This
statement is required to be applied to all business combinations initiated
after June 30, 2001. As previously discussed, the Company acquired Symphar
S.A. on February 13, 2001. The adoption of SFAS No. 141 requires the Company
to recognize its assembled workforce as goodwill rather than an intangible
asset as it does not meet the specified criteria for recognition apart from
goodwill.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. According to this statement, goodwill and intangible assets with
indefinite lives are no longer subject to amortization, but rather we must make
an assessment of impairment by applying a fair-value-based test at least
annually. This statement is effective for fiscal years beginning after December
15, 2001. Under the provisions of SFAS No. 142, the value of our goodwill is
no longer subject to amortization. We have reviewed our goodwill for
impairment as of December 31, 2002 and will continue to review it at least
annually for impairment. The Company believes that there is no
impairment of its goodwill as of December 31, 2002.

In November 2002, the FASB issued Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 elaborates on the existing disclosure requirements for most guarantees,
including residual value guarantees issued in conjunction with operating lease agreements. It also clarifies
that at the time a company issues a guarantee, the company must recognize an initial liability for the fair
value of the obligation it assumes under the guarantee and must disclose that information in its interim and
annual financial statements. The initial recognition and measurement provisions apply on a prospective basis
to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15, 2002. Our adoption of FIN 45 will
not have a material impact on our results of operations and financial position.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure". SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation", to provide alternate
methods of transition for an entity that changes to the fair-value method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure provisions of SFAS No. 123 to require expanded and more
prominent disclosure of the effects of an entitys accounting policy with
respect to stock-based employee compensation. The amendment of the annual
disclosure requirements of SFAS No. 123 is effective for fiscal years ending
after December 15, 2002. The Company has adopted SFAS No. 148.




|         |  |                                                           
|-------- |  | ----------------------------------------------------------
|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 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.

We are exposed to some market risk through interest rates, related to our
investment of our current cash, cash equivalents, restricted investments and
marketable securities of approximately $191.0 million at December 31, 2002.
These funds are generally invested in highly liquid treasury bills, money
market accounts and corporate bonds. As such instruments mature and the funds
are reinvested, we are exposed to changes in market interest rates. This risk
is not considered material and we manage such risk by continuing to evaluate
the best investment rates available for short- and long-term high quality
investments. If market interest rates were to increase or decrease immediately and uniformly by 50 basis paints,
we would not expect there to be a material effect on our results
of operations or on our balance sheet. We have not used derivative financial instruments in its
investment portfolio.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

Our European operations are denominated in local currency. We have
unhedged transaction exposures in these currencies that are not considered
material. We have not entered into any forward foreign exchange contracts for
speculative, trading or other purposes.




|        |  |                                   
|------- |  | ----------------------------------
|ITEM 8. |  | FINANCIAL STATEMENTS AND SCHEDULES

The report of our Independent Public Accountants, Consolidated Financial
Statements and Notes to Consolidated Financial Statements appears herein
commencing on page F-1.




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

A change in independent auditors from Arthur Andersen LLP to Ernst & Young
LLP was reported in a Current Report on Form 8-K/A dated
March 27, 2002.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---




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 included in our Proxy Statement for the 2003
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 our Proxy Statement for the 2003
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 our Proxy Statement for the 2003
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 our Proxy Statement for the 2003
Annual Meeting of Stockholders.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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PART IV.




|         |  |                        
|-------- |  | -----------------------
|ITEM 14. |  | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

As of Decermber 31, 2002, an evaluation was performed under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is
defined in rule 13a-14(c) and 15d-14(c) under the Securities and Exchange Act
of 1934, as amended). Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2002.

Changes in Internal Controls.

There have been no significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to
December 31, 2002.




|         |  |                                                                 
|-------- |  | ----------------------------------------------------------------
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |  |  |    |                                                                  |  |                                                   
|--- |  |  | -- | ---------------------------------------------------------------- |  | --------------------------------------------------
|(a) |  |  | 1. |                                                                  |  | Financial Statements                              
|    |  |  |    |                                                                  |  | Index to Financial Statements appears on Page F-1.
|    |  |  |    |                                                                  |  |                                                   
|(b) |  |  |    | Reports on Form 8-K                                             
|    |  |  |    | No
reports on Form 8-K were filed in the fourth quarter of 2002.
|    |  |  |    |                                                                  |  |                                                   
|(c) |  |  |    |                                                                  |  | Exhibits                                          

|        |  |                                                                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                         
|Number  |  | Identification of Exhibit                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                         
|2.1     |  | Plan of Merger and Acquisition Agreement dated July 16, 1999, by and among ILEX Oncology, Inc., Convergence
Pharmaceuticals, Inc., Vikas Sukhatme, Raghuram Kalluri, Ralph Weichselbaum, Donald Kufe, Glenn C. Rice, and
Tsuyneya Ohno (Incorporated herein by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 30, 1999)
|        |  |                                                                                                                                                                                                                                                                                                                                                         
|2.2     |  | Share Purchase Agreement between the shareholders of Symphar S.A., ILEX Oncology, Inc. and ILEX Acquisitions,
Inc., effective February 13, 2001 (Incorporated herein by reference to Exhibit 2.1 to the Companys Current
Report on Form 8-K filed February 28, 2001)                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                         
|2.3     |  | Purchase and Sale Agreement dated October 29, 2001 by and among ILEX Oncology, Inc., ILEX Acquisitions, Inc.,
Millennium Pharmaceuticals, Inc, and mHoldings Trust (Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q filed November 15, 2001)                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                         
|3.1     |  | Amended and Restated Certificate of Incorporation of the Company filed May 31, 2000 (Incorporated herein by
reference to Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q filed August 8, 2000)                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                         
|3.2     |  | Bylaws of the Company, as amended (Incorporated herein by reference to Exhibit 3.2 of the Companys
Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)                                                                                                                                                               

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1   |  | Specimen of certificate representing Common Stock, $.01 par value, of the Company (Incorporated herein by
reference to Exhibit 4.1 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12,
1996, as amended)                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.2   |  | Rights Agreement dated April 10, 2001 by and between ILEX Oncology, Inc. and American Stock Transfer & Trust
Co. which includes as Exhibit A the Form of Certificate of Designations of Series I Preferred Stock, as
Exhibit B the Form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Common Stock.
(Incorporated herein by reference to Exhibit 4.1 to the Companys Form 8-K filed April 11, 2001)
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1  |  | Services Agreement dated November 18, 1994 between CTRC Research Foundation and the Company (Incorporated
herein by reference to Exhibit 10.6 of the Companys Registration Statement No. 333-17769 on Form S-1 filed
December 12, 1996, as amended)                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2  |  | Covenant Not To Sue dated September 1995 between CTRC Research Foundation and the Company (Incorporated herein
by reference to Exhibit 10.7 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December
12, 1996, as amended)                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.3  |  | Commercial Industrial Sublease Agreement between TRTF/CTRCRF Building Corporation and the Company
(Incorporated herein by reference to Exhibit 10.11 of the Companys Registration Statement No. 333-17769 on
Form S-1 filed December 12, 1996, as amended)                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.4  |  | 1995 Stock Option Plan for the Company (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)                                                                                                                                                                                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.5  |  | Second Amended and Restated 1996 Non-Employee Director Stock Option Plan for the Company (Incorporated herein
by reference to Exhibit 10.7 of the Companys Annual Report on Form 10-K filed April 2, 2001)                                                                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.6  |  | Form of Non-Employee Director Stock Option Agreement for the Company (Incorporated herein by reference to
Exhibit 10.49 to the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
amended)                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.7  |  | 2000 Employee Stock Compensation Plan for the Company, as amended (Incorporated herein by reference to Exhibit
10.9 of the Companys Annual Report on Form 10-K filed April 2, 2001)                                                                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.8  |  | 2000 Employee Stock Purchase Plan for the Company, as amended (Incorporated herein by reference to Exhibit                                                                                                                                                                                                                                                                                                                     
|      |  | 10.10 of the Companys Annual Report on Form 10-K filed April 2, 2001)                                                                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9  |  | Form of Pledge Agreement between Cancer Therapy and Research Center Endowment and each of Gary V. Woods and
Ruskin C. Norman, M.D. (Incorporated herein by reference to Exhibit 10.55 to the Companys Registration
Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.10 |  | 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)                                                                                                                                                                                                                      

28



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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11  |  | 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)                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.12  |  | 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)                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.13  |  | Stock Purchase Agreement dated January 22, 1999 between the Company and Eli Lilly and Company (Incorporated
herein by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q filed May 17, 1999)                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.14  |  | Registration Rights Agreement dated January 22, 1999 between the Company and Eli Lilly and Company
(Incorporated herein by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q filed May 17,
1999)                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.15  |  | Registration Rights Agreement dated July 16, 1999 among ILEX Oncology, Inc., Vikas Sukhatme, Raghuram Kalluri,
Ralph Weichselbaum, Donald Kufe, Glenn C. Rice, Tsuneya Ohno, Stephen Dolezalek, Beth Israel Deaconess Medical
Center and Arch Development Corporation (incorporated herein by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K dated July 16, 1999 and filed July 30, 1999)
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.16  |  | Stock Purchase Agreement dated July 16, 1999 by and between ILEX Oncology, Inc. and each of the Investors (as
defined therein) (incorporated herein by reference to Exhibit 10.3 to the Companys Quarterly Report on Form
10-Q filed August 16, 1999)                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.17 |  | Distribution and Development Agreement between Millennium & ILEX Partners, L.P. and Schering AG dated August
24, 1999 (incorporated herein by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K/A filed
September 21, 1999)                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.18  |  | Letter agreement dated September 9, 1999, between the Company and Al J. Jecminek (Incorporated herein by
reference to Exhibit 10.41 to the Companys Annual Report on Form 10-K for the year ended December 31, 1999)                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.19  |  | Form of Purchase Agreement between ILEX Oncology, Inc. and each Purchaser (Incorporated herein by reference to
Exhibit 10.1 to the Companys Registration Statement on Form S-3 dated March 8, 2000 (Registration No.
333-32000))                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.20  |  | Office Lease Agreement dated July 14, 2000, between Orion Fountainhead Two Partners, Ltd., and ILEX Oncology,
Inc. (Incorporated herein by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q filed
November 14, 2000)                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.21  |  | Consulting Services Agreement dated July 1, 1997, between the Company and Daniel D. Von Hoff, M.D.
(Incorporated herein by reference to Exhibit 10.61 to the Companys Annual Report on Form 10-K for the year
ended December 31, 1998)                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.22 |  | Supply Agreement dated as of June 4, 1999 between Millennium & ILEX Partners, L.P. (formerly L&I Partners,
L.P.) and Boehringer Ingelheim Pharma KG. (Incorporated herein by reference to Exhibit 10.25 to the Millennium
Pharmaceuticals, Inc. 10-K for the fiscal year ending December 31, 1999)                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.23 |  | License Agreement, dated May 2, 1997, between Millennium & ILEX Partners, L.P. (formerly L&I Partners, L.P.)
and Millennium Pharmaceuticals, Inc (as successor to LeukoSite, Inc.). (Incorporated by reference to Exhibit
10.17(b) to LeukoSite, Inc.s Registration Statement on Form S-1 (No. 333-30213) filed June 27, 1997)                                                                                 

29



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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

|       |  |                                                                                                                                                                                                                                                                                                     
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24 |  | First Amended and Restated Agreement of Limited Partnership of Millennium & ILEX Partners L.P. (formerly L&I
Partners, L.P.) (Incorporated herein by reference to Exhibit 10.26 to the Millennium Pharmaceuticals, Inc.
10-K for the fiscal year ending December 31, 2000).                         
|       |  |                                                                                                                                                                                                                                                                                                     
|10.25  |  | Investor Rights Agreement dated February 13, 2001 among ILEX Oncology, Inc., Valorous Trading PTE Ltd., Craig
Bentzen, Jean-Charles Roguet, Mong Lan Nguyen and Eric Neissor. (Incorporated herein by reference to Exhibit
10.1 to the Companys current Report on Form
8-K filed February 28, 2001)
|       |  |                                                                                                                                                                                                                                                                                                     
|10.26  |  | 2001 UK Employee Stock Compensation Plan (Incorporated herein by reference to Exhibit 10.27 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2001)                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                                     
|10.27  |  | Severance agreement between ILEX Oncology, Inc. and Richard L. Love dated December 31, 2001 (Incorporated
herein by reference to Exhibit 10.28 to the Companys Annual Report on Form 10-K for the year ended December
31, 2001)                                                                    
|       |  |                                                                                                                                                                                                                                                                                                     
|10.28  |  | Employment agreement dated January 1, 2002, between the Company and Jeffrey H. Buchalter (Incorporated herein
by reference to Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q filed August 13, 2002)                                                                                    
|       |  |                                                                                                                                                                                                                                                                                                     
|11.1*  |  | Computation of Earnings Per Share                                                                                                                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                     
|21.1   |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                         

|                             |  |                     |  |                             
|---------------------------- |  | ------------------- |  | ----------------------------
|                             |  | Place of            |  | Names Under Which           
|Name                         |  | Incorporation       |  | Doing Business              
|                             |  |                     |  |                             
|ILEX Oncology Services, Inc. |  | Delaware            |  | ILEX Oncology Services, Inc.
|ILEX Products, Inc.          |  | Delaware            |  | ILEX Products, Inc.         
|ILEX Services Limited        |  | United Kingdom      |  | ILEX Services Limited       
|ILEX Oncology Research, Sarl |  | Geneva, Switzerland |  | ILEX Oncology Research, Sarl
|ILEX Acquisitions, Inc.      |  | Delaware            |  | ILEX Acquisitions, Inc.     
|ILEX Pharmaceuticals, L.P.   |  | Delaware            |  | ILEX Pharmaceuticals, L.P.  
|ILEX Pharmaceuticals, Ltd.   |  | United Kingdom      |  | ILEX Pharmaceutical, Ltd.   

|      |  |                                                     
|----- |  | ----------------------------------------------------
|23.1* |  | Consent of Ernst & Young LLP                        
|     
|23.2* |  | Information
regarding consent of Arthur Andersen LLP



---

|* |  | 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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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---




Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of San Antonio, Texas,
on March 14, 2003.

| |  |     |  |                                                                                                          
| |  | --- |  | ---------------------------------------------------------------------------------------------------------
| |  |     |  | ILEX ONCOLOGY, INC                                                                                       
| |  |     |  |                                                                                                          
| |  | By: |  | /s/ Jeffrey H. Buchalter                                                                                 
| |  |     |  |                                                                                                          
| |  |     |  | Jeffrey H. Buchalter
President and Chief Executive Officer
(Principal Executive Officer)                 
| |  |     |  |                                                                                                          
| |  | By: |  | /s/ Mark P. Mellin                                                                                       
| |  |     |  |                                                                                                          
| |  |     |  | Mark P. Mellin
Senior Vice President and Chief Financial Officer
(Chief Financial and Accounting Officer)

Pursuant to the requirements of Section 13 of 15(d) of the Securities Act of
1934, this report has been signed below on March 14, 2003 by the following
persons in the capacities indicated.

|                             |  |                                
|---------------------------- |  | -------------------------------
|Signature                    |  | Title                          
|                             |  |                                
|                             |  |                                
|/s/ Gary V. Woods            |  |                                
|                             |  |                                
|Gary V. Woods                |  | Director, Chairman of the Board
|                            
|/s/ Joy A. Amundson          |  |                                
|                             |  |                                
|Joy A. Amundson              |  | Director                       
|                            
|/s/ Joseph S. Bailes, M.D.   |  |                                
|                             |  |                                
|Joseph S. Bailes, M.D.       |  | Director                       
|                            
|/s/ Jason S. Fisherman, M.D. |  |                                
|                             |  |                                
|Jason S. Fisherman, M.D.     |  | Director                       
|                            
|/s/ Richard L. Love          |  |                                
|                             |  |                                
|Richard L. Love              |  | Director                       
|                            
|/s/ Ruskin C. Norman, M.D.   |  |                                
|                             |  |                                
|Ruskin C. Norman, M.D.       |  | Director                       
|                            
|/s/ Daniel D. Von Hoff, M.D. |  |                                
|                             |  |                                
|Daniel D. Von Hoff, M.D.     |  | Director                       

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---




CERTIFICATIONS

I, Jeffrey H. Buchalter, certify that:

1.     I have reviewed this annual report on Form 10-K of ILEX Oncology, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 14, 2003

/s/ Jeffery H. Buchalter

---

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

CERTIFICATIONS

I, Mark P. Mellin, certify that:

1.     I have reviewed this annual report on Form 10-K of ILEX Oncology, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 14, 2003

/s/ Mark P. Mellin

---

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                |  | Page
|                                                                                                                                |  |     
|Report of Independent Auditors                                                                                                  |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                                    |  |      | F-4 | 
|Consolidated Statements of Operations  For the Years Ended December 31, 2002, 2001 and 2000                                    |  |      | F-6 | 
|Consolidated Statements of Stockholders Equity and Comprehensive Income  For the Years
Ended December 31, 2002, 2001 and 2000 |  |      | F-7 | 
|Consolidated Statements of Cash Flows  For the Years Ended December 31, 2002, 2001 and 2000                                    |  |      | F-8 | 
|Notes to Consolidated Financial Statements                                                                                      |  |      | F-9 | 

F-1



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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of ILEX Oncology, Inc. and
Subsidiaries:

We have audited the consolidated balance sheet of ILEX Oncology Inc. and
subsidiaries as of December 31, 2002, and the related consolidated statements
of operations, stockholders equity and comprehensive income, and cash flows
for the year then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of ILEX Oncology Inc. and subsidiaries as of December 31, 2001 and 2000, and
for the years then ended were audited by other auditors who have ceased
operations and whose report dated February 25, 2002 expressed an unqualified
opinion on those statements before the reclassification adjustments
and conforming disclosures described
in Note 2.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ILEX Oncology,
Inc. and subsidiaries at December 31, 2002 and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 2 to the consolidated
financial statements, in 2002 the company adopted Statement of
Financial Accounting Standards No. 42, "Goodwill and other Intangible
Assets."

As discussed above, the consolidated financial statements of ILEX Oncology Inc.
and subsidiaries as of December 31, 2001 and 2000, and for the years then ended
were audited by other auditors who have ceased operations. As described in
Note 2, these financial statements have been revised. We audited the
reclassification adjustments and conforming disclosures described in Note 2 that were applied to revise
the 2001 and 2000 financial statements. In our opinion, such reclassification
adjustments and conforming disclosures are appropriate and have been properly applied. However, we were
not engaged to audit, review, or apply any procedures to the 2001 and 2000
financial statements of the Company other than with respect to such
reclassification adjustments and conforming disclosures and, accordingly, we do express an opinion or any
other form of assurance on the 2001 and 2000 financial statements taken as a
whole.



| | /s/ Ernst & Young LLP
| | ---------------------

San Antonio, Texas
January 23, 2003

F-2



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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ILEX Oncology, Inc.:

We have audited the accompanying consolidated balance sheets of ILEX Oncology,
Inc. (a Delaware corporation), and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders
equity and comprehensive income and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of ILEX Oncology, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

|                   |  |                        
|------------------ |  | -----------------------
|                   |  | /s/ ARTHUR ANDERSEN LLP
|San Antonio, Texas |  |                        
|February 25, 2002  |  |                        

THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH ILEX ONCOLOGY, INC.S FITTING ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH THIS FILING ON FORM 10-K. SEE EXHIBIT 23.2 FOR FURTHER
DISCUSSION.

F-3



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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                                                                                     |                                                                                                            |          |                      |         |             |         |         |         |       |         | 
|-------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | -------- | -------------------- | ------- | ----------- | ------- | ------- | ------- | ----- | ------- | 
|                                                                                                                     |                                                                                                            |          |                      |         | December 31
|                                                                                                                     |                                                                                                            |          |                      |         |            
|ASSETS                                                                                                               |                                                                                                            | 2002     |                      | 2001   
|                                                                                                                     |                                                                                                            |          |                      |        
|CURRENT ASSETS:                                                                                                      |                                                                                                            |          |                      |         |             |         |         |        
|                                                                                                                     | Cash and cash equivalents                                                                                  |          | $                    | 29,679  |             |         | $       | 84,518  |      
|                                                                                                                     | Investments in marketable securities                                                                       |          |                      | 123,591 |             |         |         | 74,999  |      
|                                                                                                                     | Restricted investments                                                                                     |          |                      | 976     |             |         |         | 1,331   |      
|                                                                                                                     | Accounts receivable, net of allowance for doubtful accounts of
$30 and $164 in 2002 and 2001, respectively |          |                      |         |             |         |         |         |      
|                                                                                                                     |                                                                                                            | Billed   |                      |         | 683         |         |         |         | 4,858 |        
|                                                                                                                     |                                                                                                            | Unbilled |                      |         | 188         |         |         |         | 612   |        
|                                                                                                                     |                                                                                                            | Employee |                      |         | 154         |         |         |         | 194   |        
|                                                                                                                     |                                                                                                            | Other    |                      |         | 390         |         |         |         | 772   |        
|                                                                                                                     | Accounts receivable  Schering AG                                                                          |          |                      | 4,701   |             |         |         | 3,760   |      
|                                                                                                                     | Interest receivable                                                                                        |          |                      | 3,110   |             |         |         | 3,966   |      
|                                                                                                                     | Prepaid expenses and other                                                                                 |          |                      | 2,273   |             |         |         | 2,069   |      
|                                                                                                                     |                                                                                                            |          |                      |         |             |         |         |        
|                                                                                                                     |                                                                                                            |          | Total current assets |         |             | 165,745 |         |         |       | 177,079 | 
|                                                                                                                     |                                                                                                            |          |                      |         |             |         |         |        
|NON-CURRENT ASSETS:                                                                                                  |                                                                                                            |          |                      |         |             |         |         |        
|                                                                                                                     | Investments in marketable securities                                                                       |          |                      | 34,737  |             |         |         | 114,619 |      
|                                                                                                                     | Restricted investments                                                                                     |          |                      | 2,017   |             |         |         | 2,779   |      
|                                                                                                                     | Completed technology asset, net of accumulated amortization of $4,629
in 2002                              |          |                      | 60,171  |             |         |         | 64,800  |      
|                                                                                                                     | Trademark, net of accumulated amortization of $200 in 2002                                                 |          |                      | 2,600   |             |         |         | 2,800   |      
|                                                                                                                     | Goodwill, net of accumulated amortization of $87 in 2002 and 2001                                          |          |                      | 213     |             |         |         | 213     |      
|                                                                                                                     | Other assets                                                                                               |          |                      | 283     |             |         |         | 509     |      
|                                                                                                                     |                                                                                                            |          |                      |         |             |         |         |        
|                                                                                                                     |                                                                                                            |          | 100,021              |         |             |         | 185,720 |        
|                                                                                                                     |                                                                                                            |          |                      |         |             |         |         |        
|PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $7,950 and $5,669 in 2002 and 2001, respectively |                                                                                                            |          | 5,140                |         |             |         | 6,108   |        
|                                                                                                                     |                                                                                                            |          |                      |         |             |         |         |        
|                                                                                                                     |                                                                                                            |          | Total assets         |         | $           | 270,906 |         |         | $     | 368,907 | 
|                                                                                                                     |                                                                                                            |          |                      |         |             |         |         |        

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

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##### Table of Contents



ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share amounts)

|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |          |        |        |         | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------- | --------------- | ------------------------------------------ | ------ | ----------- | ------- | -------- | ------ | ------ | ------- | 
|                                            |                                                                                                                                                                                |                               |                 |                                            |        | December 31
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |            
|LIABILITIES AND STOCKHOLDERS' EQUITY        |                                                                                                                                                                                | 2002                          |                 | 2001                                      
|                                            |                                                                                                                                                                                |                               |                 |                                           
|CURRENT LIABILITIES:                        |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            | Accounts payable-                                                                                                                                                              |                               |                 |                                            |        |             |         |          |       
|                                            |                                                                                                                                                                                |                               | Related parties |                                            | $      | 136         |         |          | $      | 35     |        
|                                            |                                                                                                                                                                                |                               | Other           |                                            |        | 8,214       |         |          |        | 16,688 |        
|                                            | Accrued subcontractor costs-                                                                                                                                                   |                               |                 |                                            |        |             |         |          |       
|                                            |                                                                                                                                                                                |                               | Related parties |                                            |        | 455         |         |          |        | 337    |        
|                                            |                                                                                                                                                                                |                               | Other           |                                            |        | 1,684       |         |          |        | 2,302  |        
|                                            | Accrued liabilities                                                                                                                                                            |                               |                 | 4,694                                      |        |             |         | 4,951    |       
|                                            | Deferred revenue                                                                                                                                                               |                               |                 | 879                                        |        |             |         | 2,537    |       
|                                            | Advances from Schering AG                                                                                                                                                      |                               |                 | 2,577                                      |        |             |         | 7,704    |       
|                                            | Note payable                                                                                                                                                                   |                               |                 | 38,099                                     |        |             |         | 37,559   |       
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            |                                                                                                                                                                                |                               |                 | Total current liabilities                  |        |             | 56,738  |          |        |        | 72,113  | 
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|NON-CURRENT LIABILITIES:                    |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            |                                                                                                                                                                                | Deferred revenue              |                 |                                            |       |             |         |          | 1,103  |       
|                                            |                                                                                                                                                                                | Note payable                  |                 |                                            | 36,155 |             |         |          | 70,041 |       
|                                            |                                                                                                                                                                                | Advances from Schering AG     |                 |                                            |       |             |         |          | 2,726  |       
|                                            |                                                                                                                                                                                | Other non-current liabilities |                 |                                            | 771    |             |         |          | 1,896  |       
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            |                                                                                                                                                                                |                               |                 | Total non-current liabilities              |        |             | 36,926  |          |        |        | 75,766  | 
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            |                                                                                                                                                                                |                               |                 | Total liabilities                          |        |             | 93,664  |          |        |        | 147,879 | 
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|COMMITMENTS AND CONTINGENCIES (see Note 15) |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|STOCKHOLDERS EQUITY:                       |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            | Convertible preferred stock, $0.01 par value; 20,000,000
shares authorized; no shares issued or outstanding                                                                    |                               |                 |                                           |        |             |         |         |       
|                                            | Common stock, $0.01 par value; 100,000,000 shares
authorized; 32,546,890 and 32,316,829 shares issued and
32,529,282 and 32,303,284 outstanding in 2002 and 2001,
respectively |                               |                 | 326                                        |        |             |         | 323      |       
|                                            | Additional paid-in capital                                                                                                                                                     |                               |                 | 460,014                                    |        |             |         | 458,171  |       
|                                            | Accumulated deficit                                                                                                                                                            |                               |                 | (283,430                                   | )      |             |         | (237,274 | )     
|                                            | Accumulated other comprehensive income (loss)                                                                                                                                  |                               |                 | 332                                        |        |             |         | (192     | )     
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            |                                                                                                                                                                                |                               |                 | Total stockholders equity                 |        |             | 177,242 |          |        |        | 221,028 | 
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         
|                                            |                                                                                                                                                                                |                               |                 | Total liabilities and stockholders equity |        | $           | 270,906 |          |        | $      | 368,907 | 
|                                            |                                                                                                                                                                                |                               |                 |                                            |        |             |         |         

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

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##### Table of Contents



ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |        |   |  |        | 
|------------------------------------------------------------- | -------------------------------------------- | - | ------- | ------------------------ | - | ----------------------- | -------- | ------ | - | ---- | ------- | ------ | - |  | ------ | 
|                                                              |                                              |   |         |                          |   | Years Ended December 31
|                                                              |                                              |   |         |                          |   |                        
|                                                              |                                              |   |         |                          |   | 2002                    |          | 2001   |   | 2000
|                                                              |                                              |   |         |                          |   |                         |          |        |   |     
|REVENUE:                                                      |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|                                                              | Product profit and royalty                   |   | $       | 10,843                   |   |                         | $        |       |   |      | $       |       |  
|                                                              | Product development                          |   |         | 9,786                    |   |                         |          | 3,994  |   |      |         | 3,381  |  
|                                                              | Contract research services                   |   |         | 9,400                    |   |                         |          | 25,178 |   |      |         | 29,407 |  
|                                                              | Other                                        |   |         | 872                      |   |                         |          |       |   |      |         |       |  
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|                                                              |                                              |   |         | Total revenue            |   |                         | 30,901   |        |   |      | 29,172  |        |   |  | 32,788 | 
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|OPERATING EXPENSES:                                           |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|                                                              | Research and development costs               |   |         | 46,449                   |   |                         |          | 33,798 |   |      |         | 24,419 |  
|                                                              | Licensing costs                              |   |         | 5,657                    |   |                         |          | 10,281 |   |      |         | 6,116  |  
|                                                              | Selling, general and administrative          |   |         | 11,805                   |   |                         |          | 11,052 |   |      |         | 5,061  |  
|                                                              | Direct costs of research services            |   |         | 5,897                    |   |                         |          | 19,535 |   |      |         | 25,123 |  
|                                                              | Depreciation & amortization                  |   |         | 7,390                    |   |                         |          | 2,415  |   |      |         | 2,507  |  
|                                                              | In-process research and development          |   |         |                         |   |                         |          | 86,112 |   |      |         | 14,562 |  
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|                                                              |                                              |   |         | Total operating expenses |   |                         | 77,198   |        |   |      | 163,193 |        |   |  | 77,788 | 
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|OPERATING LOSS                                                |                                              |   | (46,297 | )                        |   |                         | (134,021 | )      |   |      | (45,000 | )     
|OTHER INCOME (EXPENSE):                                       |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|                                                              | Interest income and other, net               |   |         | 7,084                    |   |                         |          | 9,995  |   |      |         | 11,747 |  
|                                                              | Interest expense                             |   |         | (6,654                   | ) |                         |          |       |   |      |         |       |  
|                                                              | Equity in income (loss) of joint venture     |   |         |                         |   |                         |          | 3,094  |   |      |         | (5,370 | )
|                                                              | Minority interest in consolidated subsidiary |   |         |                         |   |                         |          |       |   |      |         | (262   | )
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|LOSS BEFORE INCOME TAXES                                      |                                              |   | (45,867 | )                        |   |                         | (120,932 | )      |   |      | (38,885 | )     
|                                                              | Provision for foreign income taxes           |   |         | (289                     | ) |                         |          | (22    | ) |      |         | (97    | )
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|NET LOSS                                                      |                                              | $ | (46,156 | )                        |   | $                       | (120,954 | )      |   | $    | (38,982 | )     
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|BASIC AND DILUTED NET LOSS PER SHARE                          |                                              | $ | (1.42   | )                        |   | $                       | (4.48    | )      |   | $    | (1.61   | )     
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       
|WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING |                                              |   | 32,476  |                          |   |                         | 27,011   |        |   |      | 24,285  |       
|                                                              |                                              |   |         |                          |   |                         |          |        |   |      |         |       

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

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##### Table of Contents



ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

CONSOLIDATED STATEMENTS OF STOCKHODLERS EQUITY AND COMPREHENSIVE INCOME
(in thousands, except shares)

|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|---------------------------------------------------------------------- |  | ------------ | ---------- | ----- |  | ------- | --- | ------------ |  | -------- | ------- | -------- |  | ------------- | ------ | ------------- |  | - | ---- | ----------- |  | ----- | -------- | - |  | - | ---- | - |  | - | -------- | -
|                                                                       |  | Common Stock |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |  
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      | Accumulated |  |       |          |  
|                                                                       |  |              |            |       |  | $0.01   |     | Additional   |  |          |         |          |  |               |        |               |  |   |      |             |  | Other |          |   |  |  
|                                                                       |  |              |            |       |  | Par     |     | Paid-In      |  | Deferred |         | Treasury |  | Accumulated   |        | Comprehensive |  |   |      |            
|                                                                       |  | Shares       |            | Value |  | Capital |     | Compensation |  | Stock    |         | Deficit  |  | Income (Loss) |        | Total        
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |              
|BALANCES, December 31, 1999                                            |  |              | 21,551,425 |       |  | $       | 216 |              |  | $        | 163,821 |          |  | $             | (1,603 | )             |  | $ | (517 | )           |  | $     | (77,338  | ) |  | $ |     |   |  | $ | 84,579   |  
|Net loss                                                               |  |              |           |       |  |         |    |              |  |          |        |          |  |               |       |               |  |   |     |             |  |       | (38,982  | ) |  |   |     |   |  |   | (38,982  | )
|Foreign currency translation                                           |  |              |           |       |  |         |    |              |  |          |        |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   | (103 | ) |  |   | (103     | )
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|Comprehensive loss                                                     |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   | (39,085  | )
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|Exercise of stock options
and warrants                                 |  |              | 418,787    |       |  |         | 4   |              |  |          | 1,975   |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 1,979    |  
|Non-cash compensation expense                                          |  |              |           |       |  |         |    |              |  |          | 206     |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 206      |  
|Options issued for
consulting agreements                               |  |              |           |       |  |         |    |              |  |          | (381    | )        |  |               | 1,603  |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 1,222    |  
|Issuance of common shares in
private placement, net of
issuance costs  |  |              | 3,000,000  |       |  |         | 30  |              |  |          | 127,190 |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 127,220  |  
|Conversion of subsidiarys
preferred shares to common
stock            |  |              | 290,867    |       |  |         | 3   |              |  |          | 4,997   |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 5,000    |  
|Issuance of common shares
for achievement of
development milestone     |  |              | 500,000    |       |  |         | 5   |              |  |          | 14,557  |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 14,562   |  
|Issuance of common shares
for Employee Stock Purchase
Plan             |  |              | 15,164     |       |  |         |    |              |  |          | 322     |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 322      |  
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|BALANCES, December 31, 2000                                            |  |              | 25,776,243 |       |  |         | 258 |              |  |          | 312,687 |          |  |               |       |               |  |   | (517 | )           |  |       | (116,320 | ) |  |   | (103 | ) |  |   | 196,005  |  
|Net loss                                                               |  |              |           |       |  |         |    |              |  |          |        |          |  |               |       |               |  |   |     |             |  |       | (120,954 | ) |  |   |     |   |  |   | (120,954 | )
|Foreign currency translation                                           |  |              |           |       |  |         |    |              |  |          |        |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   | (89  | ) |  |   | (89      | )
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|Comprehensive loss                                                     |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   | (121,043 | )
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|Issuance of common shares
for acquisition of company                   |  |              | 521,121    |       |  |         | 5   |              |  |          | 13,902  |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 13,907   |  
|Issuance of common shares
for employee stock purchase
plan             |  |              | 23,148     |       |  |         |    |              |  |          | 491     |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 491      |  
|Exercise of stock options
and warrants                                 |  |              | 246,317    |       |  |         | 2   |              |  |          | 2,494   |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 2,496    |  
|Non-cash compensation expense                                          |  |              |           |       |  |         |    |              |  |          | 266     |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 266      |  
|Issuance of common shares in
secondary offering, net of
issuance costs |  |              | 5,750,000  |       |  |         | 58  |              |  |          | 128,331 |          |  |               |       |               |  |   | 517  |             |  |       |         |   |  |   |     |   |  |   | 128,906  |  
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|BALANCES, December 31, 2001                                            |  |              | 32,316,829 |       |  |         | 323 |              |  |          | 458,171 |          |  |               |       |               |  |   |     |             |  |       | (237,274 | ) |  |   | (192 | ) |  |   | 221,028  |  
|Net loss                                                               |  |              |           |       |  |         |    |              |  |          |        |          |  |               |       |               |  |   |     |             |  |       | (46,156  | ) |  |   |     |   |  |   | (46,156  | )
|Foreign currency translation                                           |  |              |           |       |  |         |    |              |  |          |        |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   | 524  |   |  |   | 524      |  
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|Comprehensive loss                                                     |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   | (45,632  | )
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|Issuance of common shares
for employee stock purchase
plan             |  |              | 30,576     |       |  |         | 1   |              |  |          | 270     |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 271      |  
|Exercise of stock options                                              |  |              | 199,485    |       |  |         | 2   |              |  |          | 1,573   |          |  |               |       |               |  |   |     |             |  |       |         |   |  |   |     |   |  |   | 1,575    |  
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  
|BALANCES, December 31, 2002                                            |  |              | 32,546,890 |       |  | $       | 326 |              |  | $        | 460,014 |          |  | $             |       |               |  | $ |     |             |  | $     | (283,430 | ) |  | $ | 332  |   |  | $ | 177,242  |  
|                                                                       |  |              |            |       |  |         |     |              |  |          |         |          |  |               |        |               |  |   |      |             |  |       |          |   |  |   |      |   |  |   |          |  

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

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##### Table of Contents



ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |          |         |   |          |  
|------------------------------------------------------------ | --------------------------------------------------------- | --------------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------------- | ------- | ----------------------- | ------- | ------- | -------- | ---- | ------- | -------- | ------- | - | -------- | -
|                                                             |                                                           |                                                                             |         |                                                                                       |         | Years Ended December 31
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                        
|                                                             |                                                           |                                                                             |         |                                                                                       |         | 2002                    |         | 2001    |          | 2000
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|                                                             |                                                           | Net loss                                                                    |         | $                                                                                     | (46,156 | )                       |         | $       | (120,954 | )    |         | $        | (38,982 | )
|                                                             |                                                           | Adjustments to reconcile net loss to net cash used in operating activities: |         |                                                                                       |         |                         |         |         |          |      |         |          |         |  
|                                                             |                                                           |                                                                             |         | Depreciation and amortization                                                         |         |                         | 7,390   |         |          |      | 2,415   |          |         |   | 2,507    |  
|                                                             |                                                           |                                                                             |         | In-process research and development                                                   |         |                         |        |         |          |      | 86,112  |          |         |   | 14,562   |  
|                                                             |                                                           |                                                                             |         | Net activity of research and development partnerships and contract
research affiliate |         |                         |        |         |          |      | (3,955  | )        |         |   | 4,570    |  
|                                                             |                                                           |                                                                             |         | Deferred income taxes                                                                 |         |                         |        |         |          |      | (73     | )        |         |   |         |  
|                                                             |                                                           |                                                                             |         | Minority interest in consolidated subsidiary                                          |         |                         |        |         |          |      |        |          |         |   | 262      |  
|                                                             |                                                           |                                                                             |         | Deferred compensation expense for consultants options                                |         |                         |        |         |          |      |        |          |         |   | 1,222    |  
|                                                             |                                                           |                                                                             |         | Non-cash compensation expense                                                         |         |                         |        |         |          |      | 266     |          |         |   | 206      |  
|                                                             |                                                           |                                                                             |         | Bad debt provision                                                                    |         |                         | (134    | )       |          |      | (180    | )        |         |   | 203      |  
|                                                             |                                                           |                                                                             |         | (Gain) Loss on investment in marketable securities                                    |         |                         | (435    | )       |          |      | 435     |          |         |   |         |  
|                                                             |                                                           |                                                                             |         | Loss on disposal of property and equipment                                            |         |                         | 67      |         |          |      | 173     |          |         |   | 134      |  
|                                                             |                                                           |                                                                             |         | Changes in operating assets and liabilities:                                          |         |                         |         |         |          |      |         |          |         |   |          |  
|                                                             |                                                           |                                                                             |         | Decrease (increase) in receivables, net                                               |         |                         | 5,070   |         |          |      | 3,107   |          |         |   | (4,310   | )
|                                                             |                                                           |                                                                             |         | Increase in prepaid expenses and other                                                |         |                         | (204    | )       |          |      | (640    | )        |         |   | (590     | )
|                                                             |                                                           |                                                                             |         | Decrease (increase) in other non-current assets                                       |         |                         | 226     |         |          |      | (261    | )        |         |   | (106     | )
|                                                             |                                                           |                                                                             |         | (Decrease) increase in accounts payable and accrued liabilities                       |         |                         | (13,714 | )       |          |      | 7,924   |          |         |   | 5,214    |  
|                                                             |                                                           |                                                                             |         | (Decrease) increase in accrued subcontractor costs                                    |         |                         | (500    | )       |          |      | (220    | )        |         |   | 207      |  
|                                                             |                                                           |                                                                             |         | (Decrease) increase in deferred revenue                                               |         |                         | (2,761  | )       |          |      | (2,085  | )        |         |   | 2,816    |  
|                                                             |                                                           |                                                                             |         | Increase in interest on note payable                                                  |         |                         | 4,324   |         |          |      |        |          |         |   |         |  
|                                                             |                                                           |                                                                             |         | (Decrease) increase in other non-current liabilities                                  |         |                         | (3,816  | )       |          |      | 281     |          |         |   | 876      |  
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|                                                             |                                                           |                                                                             |         | Net cash used in operating activities                                                 |         |                         | (50,643 | )       |          |      | (27,655 | )        |         |   | (11,209  | )
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|                                                             | Net activity of marketable securities transactions       |                                                                             |         | 31,725                                                                                |         |                         |         | (10,180 | )        |      |         | (135,899 | )      
|                                                             | Net activity in restricted investments                    |                                                                             |         | 1,117                                                                                 |         |                         |         | 690     |          |      |         | (3,125   | )      
|                                                             | Purchase of property and equipment                        |                                                                             |         | (1,680                                                                                | )       |                         |         | (1,992  | )        |      |         | (4,013   | )      
|                                                             | Advances to joint venture                                 |                                                                             |         |                                                                                      |         |                         |         | (3,369  | )        |      |         |         |        
|                                                             | Proceeds from sale of property and equipment              |                                                                             |         | 124                                                                                   |         |                         |         | 59      |          |      |         |         |        
|                                                             | Acquisitions, net of cash acquired                        |                                                                             |         |                                                                                      |         |                         |         | (22,875 | )        |      |         | (136     | )      
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|                                                             |                                                           |                                                                             |         | Net cash provided by (used in) investing activities                                   |         |                         | 31,286  |         |          |      | (37,667 | )        |         |   | (143,173 | )
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|                                                             | Issuance of common stock for cash, net of issuance costs  |                                                                             |         |                                                                                      |         |                         |         | 128,906 |          |      |         | 127,220  |        
|                                                             | Exercise of stock options and warrants                    |                                                                             |         | 1,575                                                                                 |         |                         |         | 2,496   |          |      |         | 1,979    |        
|                                                             | Issuance of common stock for employee stock purchase plan |                                                                             |         | 271                                                                                   |         |                         |         | 491     |          |      |         | 322      |        
|                                                             | Payment of cash dividends on subsidiarys preferred stock |                                                                             |         |                                                                                      |         |                         |         |        |          |      |         | (344     | )      
|                                                             | Principal payments for capital lease obligations          |                                                                             |         | (78                                                                                   | )       |                         |         | (78     | )        |      |         | (80      | )      
|                                                             | Principal payment on note payable                         |                                                                             |         | (37,670                                                                               | )       |                         |         |        |          |      |         |         |        
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|                                                             |                                                           |                                                                             |         | Net cash (used in) provided by financing activities                                   |         |                         | (35,902 | )       |          |      | 131,815 |          |         |   | 129,097  |  
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|Effect of Exchange Rate Changes on Cash and Cash Equivalents |                                                           |                                                                             | 420     |                                                                                       |         |                         | (74     | )       |          |      | (93     | )       
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         |                                                           | $                                                                           | (54,839 | )                                                                                     |         | $                       | 66,419  |         |          | $    | (25,378 | )       
|CASH AND CASH EQUIVALENTS, beginning of year                 |                                                           |                                                                             | 84,518  |                                                                                       |         |                         | 18,099  |         |          |      | 43,477  |         
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         
|CASH AND CASH EQUIVALENTS, end of year                       |                                                           | $                                                                           | 29,679  |                                                                                       |         | $                       | 84,518  |         |          | $    | 18,099  |         
|                                                             |                                                           |                                                                             |         |                                                                                       |         |                         |         |         |          |      |         |         

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

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##### Table of Contents



ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share information, per share information or as otherwise indicated)

1.     ORGANIZATION AND OPERATIONS

ILEX Oncology, Inc. was incorporated in December 1993 under the laws of the
State of Delaware and is a biopharmaceutical company that is focused on
oncology through its subsidiaries: ILEX Products, Inc. and its subsidiaries
(ILEX Products) and ILEX Oncology Services, Inc. and its subsidiaries (ILEX
Services). ILEX Products is focused in the areas of identification,
development, manufacturing and regulatory approval of oncology compounds to
develop cancer therapeutics and build a product platform focused primarily on
oncology. ILEX Services manages the clinical trials for oncology products
being developed by other companies. In 2001, the Company announced its intention to
transition out of the fee-for-service contract research organization (CRO)
business conducted by ILEX Services.

In July 1999, the Company acquired Convergence Pharmaceuticals, Inc.
(Convergence), a Boston, Massachusetts company, and its portfolio of
angiogenesis inhibitors. In March 2000, ILEX Services, Inc. signed a multi-year
services agreement with British Biotech plc (British Biotech) to provide
contracted drug development services to complete the ongoing clinical
development of British Biotechs drug, marimastat, in North America. In
February 2001, the Company purchased Symphar S.A. (Symphar), now ILEX Oncology
Research Sarl (Research Sarl), a research firm located in Geneva, Switzerland.
Additionally, in December of 2001, the Company acquired Millennium
Pharmaceuticals, Inc.s (Millennium) 50% equity interest in ILEX
Pharmaceuticals, L.P., formerly known as Millennium & ILEX Partners, L.P (the
Partnership). ILEX now owns 100% of the Partnership, now known as ILEX
Pharmaceuticals, L.P. See Note 6 for further details regarding these
acquisitions.

The accompanying consolidated financial statements include the accounts of ILEX
Oncology, Inc., and its subsidiaries (collectively, the Company or ILEX). All
significant intercompany transactions and accounts have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
to the 2002 presentation.

The Company has one marketed product, CAMPATH®, which was developed within the
Partnership. In August 1999, the Partnership granted Schering AG (Schering)
exclusive distribution and marketing rights to CAMPATH in the United States,
Europe and the rest of the world, other than Japan and East Asia. CAMPATH was
approved for marketing in the United States by the Food and Drug Administration
in May 2001. Berlex Laboratories, Inc., (Berlex) the U.S. affiliate of
Schering AG, is marketing CAMPATH in the United States. Sales of CAMPATH began
in the United States in May 2001. In February 2003, Schering AG obtained
marketing and distribution rights to CAMPATH in Japan and the Asian Pacific Basin from ILEX.

The European Commission issued marketing authorization for MABCAMPATH®, the
trade name for CAMPATH in Europe, in July 2001. Under this authorization, the
Partnership has the right to market MABCAMPATH in the United Kingdom and 24
other non-U.S. countries. Schering AG began selling MABCAMPATH in Europe in
August 2001.

Additionally, the Company has other drugs in clinical development and several
product candidates in late preclinical research. All product rights are either
acquired or in-licensed. The Company has not generated any revenues from
product sales of these other drugs to date, and there can be no assurance that
revenues from product sales will be achieved. The Company has incurred net
losses to date and its ability to achieve a profitable level of operations in
the future will depend in large part on the ability to complete development of
its compounds; obtain regulatory approvals for such compounds; commercialize
these potential products through marketing agreements with other companies or,
if the Company chooses, market such compounds independently; successfully
manufacture such compounds; and achieve market acceptance of such compounds.
There can be no assurance that the Company will be successful in developing
such compounds, obtaining such approvals, bringing such compounds to market,
developing sales, marketing or distribution capabilities, manufacturing such
products or generating market acceptance.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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The Company expects that its current funds will be adequate to cover all of its
obligations for at least the
next year. Until the business can generate
sufficient levels of cash from product sales, the Company expects to continue
to finance its operations through existing cash, revenues from collaborative
relationships and proceeds from the sale of equity securities.

2.     SIGNIFICANT ACCOUNTING POLICIES

Reclassifications and Conforming Disclosures



| |  | In 2002, reimbursable
out-of-pocket costs incurred related to CRO
contracts were included in direct costs of research services and contract
research service revenues when incurred. The
accounting for out-of-pocket costs for the year ended December 31, 2002 is in
accordance with the Emerging Issues Task Forces (EITFs) Issue 01-14, Income
Statement Characterization of Reimbursements Received for Out of Pocket
Expenses Incurred". Corresponding amounts for the years ended December 31,
2001 and December 31, 2000, as set forth in the table below, were reclassified
to conform to the 2002 presentation.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                |                    |   |                         |   |      |   |        |   | 
|----------------------------------------------- | ------------------ | - | ----------------------- | - | ---- | - | ------ | - | 
|                                                |                    |   | Year Ended December 31,
|                                                |                    |   |                        
|                                                |                    |   | 2001                    |   | 2000
|                                                |                    |   |                         |   |     
|Increase in contract research services revenues |                    | $ | 4,528                   |   |      | $ | 5,203  |  
|Increase in direct cost of research services    |                    |   | (4,528                  | ) |      |   | (5,203 | )
|                                                |                    |   |                         |   |      |   |        |  
|                                                | Impact on net loss |   | $                       |  |      |   | $      |  | 
|                                                |                    |   |                         |   |      |   |        |  



| |  | Depreciation has been reclassified to be presented separately on the face of
the 2001 and 2000 statements of operations. Depreciation expense was included
in the selling, general and administrative line item in the 2001 and 2000
statements of operations.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Value-added taxes of $136.0 related to the Companys sales of CAMPATH in the
European Union in 2001 have been reclassified as of December 31, 2001 from accounts
receivable  other to accounts receivable  Schering AG.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                          
| |  | Reclassifications were made to the
2001 and 2000 statements of cash flows to conform to the 2002
presentation.                                                                                                           



| |  | As disclosed in Note 14, certain
conforming disclosures of 2001 and 2000 amounts regarding income taxes have been provided.
| |  | ---------------------------------------------------------------------------------------------------------------------------

Revenue Recognition.



| |  | Product profit and royalty  These revenues represent the Companys profit
share resulting from net sales of CAMPATH and the royalties earned from
sales of CAMPATH in the rest of world. The Companys profit share from
net U.S. sales is calculated after deducting the manufacturing, marketing,
selling and distribution expenses incurred by Berlex. Product profit and
royalty revenues are recognized when the CAMPATH sale to the customer
occurs.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Product development  These revenues represent amounts received from the
Companys distribution and development partner resulting from a portion of the
costs incurred and services provided by the Company for the development of
CAMPATH for chronic lymphocytic leukemia (CLL), multiple sclerosis (MS) and
non-Hodgkins lymphoma (NHL).                                                                                                               
|
| |  | Contract research services  Revenues from contract research services are
related to both fixed-price and hourly-based customer contracts and are
recognized on a percentage-of-completion basis or as such services are
performed. Reimbursable out-of-pocket costs incurred related to such
contracts are included in direct costs of research services and contract
research service revenues when incurred.                                            

Cash and Cash Equivalents. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash and cash
equivalents.

Restricted Investments.In connection with the lease of the Companys
corporate headquarters, the Company maintains a letter of credit, with the
lessor as beneficiary, in the amount of $2.2 million. The loan is 105%
collateralized with $2.3 million in cash. The letter of credit is reduced by
$325.0 each year, which is included in the current portion of restricted
investments on the Companys consolidated balance sheets. The remainder of the
collateral is included in the noncurrent portion of restricted investments on

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

the Companys consolidated balance sheets (see Note 13). Also included in the
current portion of restricted investments is the Companys guarantee of a line
of credit for a site management organization. The Company maintained $651.0 in
securities as collateral for this guarantee as of December 31, 2002 (see Note
15).

Current Assets and Current Liabilities.The carrying value of current assets
and current liabilities, excluding investments in marketable securities,
approximates fair value due to the short maturity of these items.

Investments in Marketable Securities.At December 31, 2002 and 2001, marketable
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 securities with an original maturity of less than one
year are classified on the balance sheet as current assets, while securities
with a maturity of greater than one year are classified as non-current assets.
The fair value of marketable securities is based on currently published market
quotations (see Note 3).

Intangible Assets.Amounts recorded as the Companys completed technology and
trademark assets are based upon an independent
appraisal of the estimated timing and amount of revenue to be generated from
sales of CAMPATH.

Property and Equipment.Property and equipment are reported at cost and
depreciated over the estimated useful lives of the individual assets using the
straight-line method (see Note 5). Leasehold improvements are amortized over
the lesser of the life of the lease or the useful life of the related property.
Expenditures for maintenance and repairs are charged to expense as incurred.
The estimated lives used in computing depreciation and amortization are as
follows:

|                               |  |             
|------------------------------ |  | ------------
|Office equipment and furniture |  | 3  10 years
|Lab equipment                  |  | 5  10 years
|Leasehold improvements         |  | 2  15 years
|Leased equipment               |  | 2  3 years 

Deferred Revenue.Deferred revenue represents advances for services not yet
rendered under contract research services and billings in excess of revenue
recognized, and should be realized within the next year.

Credit Risk, Major Customer and Supplier.The Company places its excess
temporary cash and cash equivalents in a money market account with high quality
financial institutions. At times, such amounts may be in excess of the Federal
Deposit Insurance Corporations insurance limit as well as the Securities
Investor Protection Corporations limit. The Companys accounts receivable are
primarily from pharmaceutical and biotechnology companies. Based on the
Companys evaluation of the collectibility of these accounts receivable, an
allowance for doubtful accounts of $30.1 and $164.0 was necessary at December
31, 2002 and 2001, respectively. The Company believes the exposure to credit
risk related to the remaining accounts receivable is minimal.

For the years ended December 31, 2002, 2001 and 2000, the Companys top five
customers accounted for 23%, 50% and 50% of total revenue, respectively. The
following table represents total revenue in excess of 10% from significant
customers:

| |  |                   |       |                   |  |                   |    |   |  |   |       |  |  |  |    |   |  |   |       |  |  |  |    |  
| |  | ----------------- | ----- | ----------------- |  | ----------------- | -- | - |  | - | ----- |  |  |  | -- | - |  | - | ----- |  |  |  | -- | -
| |  | December 31, 2002 |       | December 31, 2001 |  | December 31, 2000
| |  |                   |       |                   |  |                  
| |  | $                 | 3,037 |                   |  |                   | 10 | % |  | $ | 4,141 |  |  |  | 14 | % |  | $ | 4,818 |  |  |  | 15 | %
| |  |                   |       |                   |  |                   |    |   |  |   | 3,376 |  |  |  | 12 | % |  |   |       |  |  |  |    |  
| |  |                   |       |                   |  |                   |    |   |  |   | 3,361 |  |  |  | 12 | % |  |   |       |  |  |  |    |  

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

Depreciation and Amortization.In connection with the acquisition of
Millenniums interest in the Partnership, the Company recorded intangible
assets of $67.6 million as of December 31, 2001. These intangible assets have
been amortized throughout the year ended December 31, 2002 based on a useful
life of 14 years. Prior to January 1, 2002, depreciation expense was included
in selling, general and administrative expenses on the Companys consolidated
statement of operations. For the year ended December 31, 2002, depreciation
and amortization expenses are stated separately on the Companys consolidated
statement of operations. Corresponding amounts for the years ended December
31, 2001 and 2000 have been reclassified to conform to the 2002 presentation.

Use of Estimates.The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from those
estimates.

Interest income and other, net.Included in 2001 interest income and other, net
is $435.0 related to the accrual of a non-cash loss on the impairment of a held
to maturity marketable security. In 2002, the Company sold this investment and
recorded a gain of $435.0, as the market value of the security had recovered.
The gain is included in interest income and other, net on the Companys 2002
consolidated statement of operations as of December 31, 2002.

Income Taxes.The Company accounts for
income taxes using the liability method. Under the liability method, deferred income taxes are recognized for the
future tax consequences attributable to the difference between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
Company has incurred losses since inception for both book and tax purposes. The
tax provisions recorded in 2002, 2001 and 2000 relate to amounts accrued for
the Companys wholly owned subsidiaries which operate in the United Kingdom and
Switzerland.

Stock-Based Compensation.The Company uses the intrinsic value method in
accounting for its stock option plans. No compensation costs have been
recognized in the financial statements for these plans (see Note 9). Had
compensation cost for the Companys stock-
based employee compensation plans been determined based upon a fair value
method consistent with Statements of Financial Accounting Standards (SFAS) No.
123, the Companys net loss and loss per share would have been increased to the
pro forma amounts indicated below:

|                                |  |             |  |                              |          |             |         |      |          |      |          |   |         |   |         |  
|------------------------------- |  | ----------- |  | ---------------------------- | -------- | ----------- | ------- | ---- | -------- | ---- | -------- | - | ------- | - | ------- | -
|                                |  |             |  |                              |          | December 31
|                                |  |             |  |                              |          |            
|                                |  |             |  |                              |          | 2002        |         | 2001 |          | 2000
|                                |  |             |  |                              |          |             |         |      |          |     
|Net loss                        |  | As reported |  | $                            | ( 46,156 | )           |         | $    | (120,954 | )    |          | $ | (38,982 | )
|                                |  |             |  | Fair value
compensation cost |          |             | (8,168  | )    |          |      | (8,024   | ) |         |   | (6,353  | )
|                                |  |             |  |                              |          |             |         |      |          |      |          |   |         |   |         |  
|                                |  |             |  | Pro forma                    |          | $           | (54,324 | )    |          | $    | (128,978 | ) |         | $ | (45,335 | )
|Loss per sharebasic and diluted |  | As reported |  | $                            | (1.42    | )           |         | $    | (4.48    | )    |          | $ | (1.61   | )
|                                |  |             |  | Fair value
compensation cost |          |             | (.25    | )    |          |      | (.30     | ) |         |   | (.26    | )
|                                |  |             |  | Pro forma                    |          | $           | (1.67   | )    |          | $    | (4.78    | ) |         | $ | (1.87   | )

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

Statement of Cash Flows.Noncash financing and investing activities for the years ended December 31, 2002, 2001 and 2000,
include the following:

|                                                             |  |      |   |      |  |      |         |  |  |   |       | 
|------------------------------------------------------------ |  | ---- | - | ---- |  | ---- | ------- |  |  | - | ----- | 
|                                                             |  | 2002 |   | 2001 |  | 2000
|                                                             |  |      |   |      |  |     
|Conversion of subsidiarys preferred stock into common stock |  | $    |  |      |  | $    |        |  |  | $ | 5,000 | 
|Purchase of equipment under capital leases                   |  |      |  |      |  |      |        |  |  |   | 273   | 
|Cashless exercise of warrants                                |  |      |  |      |  |      |        |  |  |   | 2     | 
|Issuance of common stock for acquisitions                    |  |      |  |      |  |      | 13,907  |  |  |   |      | 
|Assets acquired in acquisitions                              |  |      |  |      |  |      | 72,449  |  |  |   |      | 
|Liabilities assumed in acquisitions                          |  |      |  |      |  |      | 14,179  |  |  |   |      | 
|Liability incurred in connection with acquisition            |  |      |  |      |  |      | 107,600 |  |  |   |      | 

Supplemental disclosures of cash flow information for the years ended December 31, 2002, 2001 and 2000, include the following:

|                               |                      |  |      |       |      |  |      |    |  |  |   |    | 
|------------------------------ | -------------------- |  | ---- | ----- | ---- |  | ---- | -- |  |  | - | -- | 
|                               |                      |  | 2002 |       | 2001 |  | 2000
|                               |                      |  |      |       |      |  |     
|Cash paid during the year for- |                      |  |      |       |      |  |      |    |  |  |   |   
|                               | Interest             |  | $    | 2,340 |      |  | $    | 17 |  |  | $ | 2  | 
|                               | Foreign income taxes |  |      | 70    |      |  |      | 93 |  |  |   | 98 | 

Foreign Currency Translation.The Company has wholly owned subsidiaries based
in the United Kingdom and Switzerland. The financial statements of these
subsidiaries were prepared in British pounds and Swiss francs, respectively,
and translated to United States (U.S.) dollars based on the current exchange
rate at the end of the period for the assets and liabilities and a monthly
weighted-average rate for the period in the statements of operations. Such
translation adjustments are included in other comprehensive income or loss.
Gains or losses on foreign currency transactions are included in interest
income and other for Services Ltd. and Research Sarl.

Net Loss Per Share.Basic net loss per share was computed by dividing net loss
by the weighted average number of shares of common stock outstanding during the
year. Diluted net loss per share is equal to basic net loss per share, as the
effect of all common stock equivalents is antidilutive.

Business Segments.SFAS No. 131 Disclosure about Segments of an Enterprise
and Related Information (SFAS No. 131) establishes standards for the way
publicly traded business enterprises report information about operating
segments in annual financial statements. SFAS No. 131 also establishes
standards for related disclosures about products, services, geographic areas
and major customers. In February 2001, the Company announced its intent to
transition out of the fee-for-service CRO business, operated by
Services, and focus its in-house drug development capabilities on its own
proprietary products, including those being jointly developed with partners. As
a result of the Companys transition out of the fee-for-service CRO business,
and subsequent transition of certain Services employees to the Companys own
products, it no longer operates in two distinct segments.

Accounting Pronouncements.In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business Combinations. This statement,
which supersedes Accounting Principles Board Opinion No. 16, Business
Combinations (APB No. 16) and SFAS No. 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises, requires that all business
combinations be accounted for by the purchase method. SFAS No. 141 also
requires that acquired intangible assets should be recognized as assets apart
from goodwill if they meet one of two specified criteria. Additionally, the
statement adds certain disclosure requirements to those required by APB 16,
including disclosure of the primary reasons for the business combination and
the allocation of the purchase price paid to the assets acquired and
liabilities assumed by major balance sheet caption. This statement is required
to be applied to all business combinations initiated after June 30, 2001. As
previously discussed, the Company acquired Symphar S.A. on February 13, 2001.
The adoption of SFAS No. 141 requires the Company to recognize its assembled

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2002 ANNUAL REPORT ON FORM 10-K

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workforce as goodwill rather than an intangible asset as it does not meet the
specified criteria for recognition apart from goodwill.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets.According to this statement, goodwill and intangible assets with
indefinite lives are no longer subject to amortization, but rather the Company
must make an assessment of impairment by applying a fair-value-based test at
least annually. This statement is effective for fiscal years beginning after
December 15, 2001. Under the provisions of SFAS No. 142, the value of the
Companys goodwill, previously referred to as the assembled workforce, is
longer subject to amortization. The Companys goodwill has been reviewed as of
December 31, 2002 and will continue to be reviewed at least annually for
impairment. The Company believes that there is no impairment of their goodwill as of December 31, 2002. The following table shows the pro forma effect of the adoption of
SFAS No. 142 on the Companys net loss for the year ended December 31, 2001 as
if the adoption had occurred on January 1, 2001:

|                                               |  |                   |          |  
|---------------------------------------------- |  | ----------------- | -------- | -
|                                               |  | Year Ended       
|                                               |  | December 31, 2001
|                                               |  |                  
|Net loss, as reported                          |  | $                 | (120,954 | )
|Amortization                                   |  |                   | 87       |  
|                                               |  |                   |          |  
|Pro forma net loss                             |  | $                 | (120,867 | )
|                                               |  |                   |          |  
|Basic and diluted pro forma
net loss per share |  | $                 | (4.47    | )
|                                               |  |                   |          |  

In connection with the Companys December 31, 2001 acquisition of Millenniums
interest in the Partnership, the Company recorded intangible assets classified
as completed technology and a trademark in the amounts of $64.8 million and
$2.8 million, respectively. These intangible assets are being amortized using
the straight-line method over 14 years. As of December 31, 2002, the Company
had accumulated amortization of $4.8 million related to these assets. The
following table shows the estimated amortization expense, in total for both the
completed technology and trademark, to be incurred for each of the next five
years:

|             |  |                        |       | 
|------------ |  | ---------------------- | ----- | 
|Year ended   |  | Estimated amortization
|December 31, |  | expense               
|             |  |                       
|2003         |  | $                      | 4,829 | 
|2004         |  |                        | 4,829 | 
|2005         |  |                        | 4,829 | 
|2006         |  |                        | 4,829 | 
|2007         |  |                        | 4,829 | 

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation", to provide alternate methods of
transition for an entity that changes to the fair-value method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure provisions of SFAS No. 123 to require expanded and more prominent
disclosure of the effects of an entitys accounting policy with respect to
stock-based employee compensation. The amendment of the annual disclosure
requirements of SFAS No. 123 are effective for fiscal years ending after
December 15, 2002. The Company has included the amended disclosure requirement
of
SFAS No. 148 in the above discussion of Stock Based Compensation.
with the amended disclosure requirements of  SFAS No. 148 in the above discussion of "Stock Based Compensation."

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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3.     INVESTMENTS IN MARKETABLE SECURITIES

Securities held to maturity at December 31, 2002 are summarized as follows:

|                                                       |                                |   |            |        |       |   |                  |     |                  |   |     |     |   |   |         |        | 
|------------------------------------------------------ | ------------------------------ | - | ---------- | ------ | ----- | - | ---------------- | --- | ---------------- | - | --- | --- | - | - | ------- | ------ | 
|                                                       |                                |   |            |        |       |   | Gross Unrealized |     | Gross Unrealized |   |     |     |  
|                                                       |                                |   | Book Value |        | Gains |   | Losses           |     | Fair Value      
|                                                       |                                |   |            |        |       |   |                  |     |                 
|Asset-backed securities:                               |                                |   |            |        |       |   |                  |     |                  |   |     |     |   |   |         |       
|                                                       | One year or less               |   | $          | 26,093 |       |   | $                | 291 |                  |   | $   |    |   |   | $       | 26,384 | 
|Government/Agency securities:                          |                                |   |            |        |       |   |                  |     |                  |   |     |     |   |   |         |       
|                                                       | One year or less               |   |            | 2,000  |       |   |                  | 41  |                  |   |     |    |   |   |         | 2,041  | 
|                                                       | > 1 year and less than 2 years |   |            | 8,000  |       |   |                  | 36  |                  |   |     |    |   |   |         | 8,036  | 
|Municipal bonds:                                       |                                |   |            |        |       |   |                  |     |                  |   |     |     |   |   |         |       
|                                                       | One year or less               |   |            | 1,450  |       |   |                  | 4   |                  |   |     |    |   |   |         | 1,454  | 
|Corporate securities:                                  |                                |   |            |        |       |   |                  |     |                  |   |     |     |   |   |         |       
|                                                       | One year or less               |   |            | 94,048 |       |   |                  | 762 |                  |   |     | (59 | ) |   |         | 94,751 | 
|                                                       | > 1 year and less than 2 years |   |            | 26,737 |       |   |                  | 440 |                  |   |     |    |   |   |         | 27,177 | 
|                                                       |                                |   |            |        |       |   |                  |     |                  |   |     |     |   |   |         |       
|Total securities held to maturity at
December 31, 2002 |                                | $ | 158,328    |        |       | $ | 1,574            |     |                  | $ | (59 | )   |   | $ | 159,843 |       
|                                                       |                                |   |            |        |       |   |                  |     |                  |   |     |     |   |   |         |       

Securities held to maturity at December 31, 2001 are summarized as follows:

|                                                       |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |        | 
|------------------------------------------------------ | ------------------------------ | - | ---------- | ------ | ----- | - | ---------------- | --- | ---------------- | - | ---- | ---- | - | - | ------- | ------ | 
|                                                       |                                |   |            |        |       |   | Gross Unrealized |     | Gross Unrealized |   |      |      |  
|                                                       |                                |   | Book Value |        | Gains |   | Losses           |     | Fair Value      
|                                                       |                                |   |            |        |       |   |                  |     |                 
|Asset-backed securities:                               |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |       
|                                                       | One year or less               |   | $          | 27,966 |       |   | $                | 192 |                  |   | $    | (2   | ) |   | $       | 28,156 | 
|                                                       | > 1 year and less than 5 years |   |            | 23,921 |       |   |                  | 2   |                  |   |      | (282 | ) |   |         | 23,641 | 
|Government/Agency securities:                          |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |       
|                                                       | > 1 year and less than 5 years |   |            | 9,500  |       |   |                  | 12  |                  |   |      | (19  | ) |   |         | 9,493  | 
|Municipal bonds:                                       |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |       
|                                                       | One year or less               |   |            | 2,000  |       |   |                  |    |                  |   |      |     |   |   |         | 2,000  | 
|                                                       | > 1 year and less than 5 years |   |            | 1,449  |       |   |                  |    |                  |   |      | (4   | ) |   |         | 1,445  | 
|Foreign government securities:                         |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |       
|                                                       | One year or less               |   |            | 1,281  |       |   |                  | 3   |                  |   |      |     |   |   |         | 1,284  | 
|Corporate securities:                                  |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |       
|                                                       | One year or less               |   |            | 43,752 |       |   |                  | 778 |                  |   |      | (3   | ) |   |         | 44,527 | 
|                                                       | > 1 year less than 5 years     |   |            | 79,749 |       |   |                  | 192 |                  |   |      | (372 | ) |   |         | 79,569 | 
|                                                       |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |       
|Total securities held to maturity
at December 31, 2001 |                                | $ | 189,618    |        |       | $ | 1,179            |     |                  | $ | (682 | )    |   | $ | 190,115 |       
|                                                       |                                |   |            |        |       |   |                  |     |                  |   |      |      |   |   |         |       

During 2002, the Company received cash proceeds of approximately $8.2 million
from the sale of five securities, classified as held-to-maturity securities,
with a book value of approximately $8.1 million prior to their stated
maturities resulting in a net gain of $14.8. The gain on the sale of these
investments is included in interest income and other, net on the Companys
consolidated statement of operations for the year ended December 31, 2002. The
decision to sell these securities was based upon the decline in the securities
credit ratings. Due to that decline, the securities no longer conformed to the
Companys investment policy. The Company has no securities with a maturity
dates greater than two years.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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4.     ILEX PHARMACEUTICALS, L.P.

In May 1997, the Company entered into an agreement with LeukoSite, Inc., now
Millennium, for an equally owned joint venture, L&I Partners, L.P., for
research collaboration endeavors. In March 2000, the joint venture changed its
name to Millennium & ILEX Partners, L.P. The Company historically accounted
for its investment in the Partnership using the equity method of accounting.
The Company entered in to an agreement to purchase Millenniums interest in the
Partnership on October 29, 2001 and the transaction was completed on December
31, 2001. Accordingly, the balance sheet of the Partnership has been
consolidated as of December 31, 2001 (see Note 6).

In August 1999, the Partnership entered into an agreement (distribution
agreement), which grants Schering AG exclusive marketing and distribution
rights to CAMPATH in the U.S., Europe and the rest of the world except Japan
and the Asian Pacific Basin, where ILEX had retained rights. In February 2003, Schering AG
obtained the marketing and distribution rights to CAMPATH in Japan
and the Asian Pacific Basin from ILEX. The distribution agreement provides that Schering AG advance
up to $30.0 million to the Partnership for the rights to CAMPATH and for the
achievement of certain regulatory milestones. Profits from the sale of CAMPATH
in the U.S. were historically shared equally among ILEX, Millennium and Berlex.
For sales made outside the U.S., Schering AG makes royalty payments to the
Partnership approximately equivalent to the rate of profit sharing in the U.S.

The distribution agreement provides for interest bearing (prime rate plus 1%)
advances to the Partnership of up to $30.0 million in up-front and milestone
payments. The Partnership has received the entire $30.0 million.
These proceeds
were initially recorded as a liability on the Partnerships balance sheet described
as Advances from Schering AG. In accordance with the distribution agreement,
the Partnership records development revenues and reduces the advance balance
for qualified development expenses which it incurs. For development expenses
incurred in CLL, the Partnership recognizes revenues and reduces the advance
balance at an amount equal to 110% of those expenses. For development expenses
incurred in MS and NHL, the Partnership again recognizes revenues at 110% of
the expenses incurred, however only 77% reduces the advance balance, while the
remaining 33% generates an additional receivable from Schering AG. As of
December 31, 2002, the remaining advance balance from Schering AG is $2.6 million.

The following is summarized financial information for the Partnership before
its consolidation with the Company:

|                                        |  |      |        |      |  |   |         |  
|--------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | -
|Summarized Income Statement Information
|                                       
|                                        |  | 2001 |        | 2000
|                                        |  |      |        |     
|Revenue                                 |  | $    | 18,072 |      |  | $ | 9,670   |  
|Operating expenses                      |  |      | 11,414 |      |  |   | 19,694  |  
|                                        |  |      |        |      |  |   |         |  
|Operating income (loss)                 |  |      | 6,658  |      |  |   | (10,024 | )
|Net income (loss)                       |  | $    | 6,188  |      |  | $ | (10,740 | )
|                                        |  |      |        |      |  |   |         |  

On December 31, 2001, the Company purchased Millenniums 50% interest in the
Partnership for a total purchase price of approximately $127.6 million (see
Note 6). The Partnership assets and liabilities are included in the Companys
consolidated financial statements, net of any intercompany eliminations as of
December 31, 2001.

5.     PROPERTY AND EQUIPMENT

During 2002 and 2001, the Company disposed of certain office furniture and
equipment with a cost of $482.0 and $716.0, respectively, and a net book value
of approximately $128.0 and $232.0. Net loss for the years ended December 31,
2002, 2001 and 2000 includes a loss of $67.0 and $173.0 and $134.0,
respectively, resulting from the disposition of furniture and equipment and has
been included in operating expenses of the Company. Depreciation expense for
the years ended December 31, 2002, 2001 and 2000 was $2.6 million, $2.4 million
and $2.5 million, respectively. Property and equipment are composed of the
following:

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2002 ANNUAL REPORT ON FORM 10-K

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|                                          |  |              |        |      |  |   |        |  
|----------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2002         |        | 2001
|                                          |  |              |        |     
|Office equipment and furniture            |  | $            | 8,455  |      |  | $ | 7,259  |  
|Lab equipment                             |  |              | 3,145  |      |  |   | 3,008  |  
|Leased equipment                          |  |              | 216    |      |  |   | 273    |  
|Leasehold improvements                    |  |              | 1,274  |      |  |   | 1,237  |  
|                                          |  |              |        |      |  |   |        |  
|                                          |  |              | 13,090 |      |  |   | 11,777 |  
|Accumulated depreciation and amortization |  |              | (7,950 | )    |  |   | (5,669 | )
|                                          |  |              |        |      |  |   |        |  
|Net property and equipment                |  | $            | 5,140  |      |  | $ | 6,108  |  
|                                          |  |              |        |      |  |   |        |  

6.     MERGERS AND ACQUISITIONS

The Partnership

On October 29, 2001, the Company announced that it had entered into a
definitive agreement to purchase Millenniums 50% equity interest in the
Partnership. The acquisition closed on December 31, 2001. The terms of the
agreement included an initial cash payment of $20.0 million and an additional
$120.0 million in scheduled payments. The first payment of $40.0 million was
made on December 31, 2002. Additionally, $40.0 million is due in 2003 and
2004, of which $10.0 million in each of those years may be paid with the
Companys common stock, subject to certain terms and conditions and at the
option of the Company. In 2003 and 2004, $20.0 million of the $40.0 million
annual payment is due 45 days after the end of the calendar quarter in which
net U.S. CAMPATH sales exceed a certain level. In addition, Millennium will be
entitled to royalty payments based on net U.S. CAMPATH sales above certain
levels in 2005 and continuing through 2008. ILEX estimated the purchase price
at $127.6 million based on the net present value of the cash payments
discounted at approximately 6.5%, the Companys estimated incremental borrowing
rate. The purchase price was allocated to the assets purchased and in-process
research and development costs based upon their respective fair values. The
purchase price was allocated as follows:

|                                    |  |   |         | 
|----------------------------------- |  | - | ------- | 
|Completed technology asset          |  | $ | 64,800  | 
|Trademark                           |  |   | 2,800   | 
|In-process research and development |  |   | 60,000  | 
|                                    |  |   |         | 
|Total purchase price                |  | $ | 127,600 | 
|                                    |  |   |         | 

The purchase price was arrived at through negotiations between the Company and
Millennium and was based on a variety of factors, including but not limited to
the prospect for commercializing certain of the assets of the Partnership.

The Company has recorded a completed technology asset and a trademark asset in
the amounts of $64.8 million and $2.8 million, respectively. These intangible
assets are being amortized over 14 years. In connection with the purchase,
the Company acquired additional assets of $14.2 million and additional
liabilities of $13.7 million.

In connection with the purchase price allocation, $60.0 million was expensed as
a charge for the purchase of in-process research and development. The Company
allocated values to the in-process research and development based on an
independent appraisal of the research and development projects. The income
approach was utilized to develop values for the Companys completed technology
and know-how, in-process research and development and trademark. In assessing
the qualification of the acquired assets as in-process research and
development, the developmental projects were evaluated in the context of SFAS
No. 2 and SFAS No. 86. Such evaluation consisted of a specific review of the
efforts, including the overall objectives of the project, progress toward the
objectives and the uniqueness of the developments of these objectives.
Further, each in-process research and development project was reviewed to
determine if technological feasibility has been achieved. The acquired
in-process research and development was confined to new products/technologies
under development that were intended to address emerging market

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2002 ANNUAL REPORT ON FORM 10-K

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needs and
requirements. No routine efforts to incrementally refine or enhance existing
products or production activities were included in the acquired in-process
research and development. It was determined that the in-process technologies
could only be used for specific and intended purposes. Due to the specialized
nature of the CAMPATH clinical trial programs, management anticipated no
alternative future value from these efforts if the projects were not completed
as planned.

As of the acquisition date, the Company was underway with several research and
development programs including post-marketing CLL trials to obtain a first line
treatment label, as well as clinical studies related to new markets such as
NHL, MS and transplant indications. Projected revenues for in-process R&D cash
flows were based on forecasts provided by ILEX and Schering AG management.
Revenues for non-CLL indications were estimated to begin anywhere from
2002-2004. Revenues were expected to peak in 2010-11 and may decline thereafter.
Approximate market share ranges for the respective indications were:
CLL:10-24%; NHL:1-12%; MS: 1-20%; and transplant indications: 5-25%. Costs of
revenue and selling, general and administrative expenses were estimated as a
percentage of revenue. Research and development expense was segregated into
(a) maintenance R&D and (b) development or cost-to-complete R&D. Maintenance
research and development was provided as a part of managements forecast, which
was estimated at $500.0 for 2001 with annual increases of 5%. These expenses
were charged to the in-process R&D cash flows based on their respective share
of overall revenue. Development R&D expense was also projected by management
for each indication.

For the purposes of the independent appraisal, only the economics related to
the lead indications for CAMPATH were considered. These indications are CLL,
NHL, MS and transplant indications.
CLL represents approximately 37% of the in-process research and development
value and approximately 77% of the completed technology asset based on discount
rates of 25% for both in-process research and development and the completed
technology asset. CLL is characterized by the abnormal accumulation of a
specific type of leukocyte, eventually leading to bone marrow dysfunction and
enlargement of the lymph nodes, liver and spleen. The Companys current FDA
approval is for third-line treatment of CLL. Preliminary research indicates
that it may be effective as a second-line or even primary agent for the
disease. Based on managements forecast, the breakdown of CLL patient
treatments approximates the following: third-line treatments (15%), second-line
treatments (35%) and first-line treatments (50%). The approximate CLL market
size in the U.S. was estimated at over $300.0 million in 2001 and is expected
to grow to nearly $400.0 million in 2005. As of the date of the acquisition,
the project was expected to generate net
cash inflows no sooner than 2003 and the Company expected to spend an
additional $19.0 million in research and development to complete ongoing
development related to the in-process research and development. Additionally,
as of the date of the acquisition, the Company had not abandoned, nor had any
plans to abandon the CAMPATH clinical trial programs related to first-line CLL
treatments.

NHL represents approximately 43% of the in-process research and development
value and 23% of the completed technology asset based on discount rates of
27.5% and 25%, respectively. NHL is a term that describes a collection of
lymphomas, or malignant tumors that develop in the lymphatic system, with
different natural courses, responses to treatment and overall survival rates.
Based on management forecast data, the approximate market size in the U.S. was
estimated at over $1.3 billion in 2001 and at nearly $1.6 billion in 2005. As
of the date of the acquisition, the project was expected to generate net cash
inflows no sooner than 2005 and the Company expected to spend an additional
$20.0 to $22.0 million in research and development to complete ongoing
development related to the in-process research and development. As of the date
of the acquisition, the Company had not abandoned, nor had any plans to abandon
CAMPATH clinical trial programs related to the NHL indication.

MS represents approximately 17% of the in-process research and development
value based on a discount rate of 30%. MS is signified by multiple areas of
inflammation and scarring of the myelin in the brain and spinal cord. Myelin
is the tissue that covers and protects nerve fibers. When this occurs, nerve
communication is disrupted. The necessity for early treatment is becoming
increasingly clearer, as such treatment appears to delay disability, presumably
by decreasing the injury to the nervous system by MS. Based on management
forecast data, the approximate MS treatment market size in the U.S. was
estimated at over $650.0 million in 2001, increasing to over $750.0 million in
2005. As of the acquisition date, this project is expected to generate net cash
inflows no sooner than 2004 and the Company expected to spend an additional
$17.0 million in research and development to complete ongoing development. Additionally,

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2002 ANNUAL REPORT ON FORM 10-K

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as of the date of the acquisition, the Company had not abandoned,
nor had any plans to abandon the CAMPATH clinical trial programs related to the
MS indication.

Transplant indications represent approximately 3% of the in-process research
and development value based on a discount rate of 40%. As of the acquisition
date, this project was expected to generate net cash inflows no sooner than
2003 and the Company expected to spend an additional amount of $100.0 to
$300.0, to complete ongoing development related to the in-process research and
development. Additionally, as of the date of the acquisition, the Company had
not abandoned, nor had any intentions to abandon the CAMPATH clinical trial
programs related to transplant indications.

A charge was assessed against the oncology projects (CLL and NHL) in-process
research and development cash flows to reflect the leverage of clinical trial
experience gained during the development and approval process for the Companys
current CAMPATH label. Based on a standard rate calculation and review of
comparable industry data, a core charge of 3% was utilized. Other charges
decreasing the in-process research and development cash flows included the
following: (i) profit-sharing expenses to Schering AG; (ii) return on working
capital and fixed assets and (iii) return on the trademark intangible asset.
According to industry analyst reports, pharmaceutical product life cycles are
generally segmented into three categories based on several characteristics:
short (product revenue peaks 5-7 years post-launch);,medium (revenue peaks 8-10
years post-launch), and long (revenue peaks 12-15 years post-launch). The
analysis utilized a medium life cycle assessing the value of the Companys
in-process research and development. Without successfully completing the
in-process research and development projects, the Company would be unable to
realize product revenue for additional indications.

The Companys completed technology resides in its right to manufacture and
market CAMPATH specifically for patients with B-cell chronic lymphocytic
leukemia who have been treated with alkylating agents and have failed
fludarabine therapy. The current CAMPATH label is considered a third-line
treatment for CLL. Since 1999 and through the date of the acquisition, the
Company has spent over $18.0 million on CAMPATH development efforts related to
the approved indication. Projected revenue for the completed technology cash
flows were based on forecasts provided by ILEX management. The forecast for
the U.S. market was a bottoms-up approach beginning with the incidence of CLL.
The forecast for the non-U.S. market was provided to ILEX from Schering AG.
Cost of revenue and selling, general and administrative expenses were projected
as a percentage of revenue. These expenses were charged to the completed
technology cash flows based on their respective share of overall revenue.
Other charges decreasing the completed technology cash flows included: profit
sharing expenses to Schering AG, return on working capital and fixed assets,
and return on the trademark intangible asset. The discount rate of 20% was
used, to reflect the lower level of risk inherent in the approved CAMPATH
label. The projected financial data used in the analysis included only cash
flows attributable to the acquired partnership assets.

The Company trademark value is attributable to CAMPATH and variations thereof,
including MabCAMPATH that is utilized in the European market. The analysis
utilized the relief from royalty method in determining the value of the CAMPATH
trademark. In applying this method, a hypothetical royalty expense is
calculated by applying a reasonable royalty rate to expected revenues.
Management anticipates using the CAMPATH trademark for oncology-related
indications. Non-oncology revenue streams will likely have different branding
and marketing. The trademark analysis considered only the CLL and NHL
projected revenues as a base for the royalty calculation. The analysis
considered several different royalty rate indications in estimating a royalty
rate that reflected the CAMPATH brands relative characteristics. In addition,
an industry accepted general rule for assessing intangible value was
considered. This rule indicates that 25% of operating income is an appropriate
royalty rate for key intellectual property. After consideration of each
indication, a pre-tax royalty of 1% was selected for the trademark analysis. A
discount rate similar to that of the overall Company was considered appropriate
for this analysis.

As of December 31, 2002, the Company had no plans to abandon any of the
projects associated with the above indications. The Company believes that the
foregoing assumptions used in the purchase price allocation were reasonable at
the time of acquisition. No assurance can be given, however, that the
underlying assumptions used to estimate revenue, development costs or
profitability or the events

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2002 ANNUAL REPORT ON FORM 10-K

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associated with such projects will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion and revenues attributable
to each project.

Symphar

On February 13, 2001, the Company acquired Symphar, a research firm located in
Geneva, Switzerland. The acquisition has been accounted for using the purchase
method of accounting. Under the terms of the agreement, ILEX acquired Symphar
for approximately $28.9 million, which included cash of $15.0 million and
521,121 shares of the Companys common stock. The value of the common stock
issued in connection with this merger was calculated using a fair value of
$26.6875 per share. This per share fair value represents the closing price of
the Companys stock on the day the merger was announced.

The Symphar purchase price was allocated to the assets purchased, liabilities
assumed, goodwill and in-process research and development expense based upon
their respective fair values as follows:

|                                    |                      |   |        |        | 
|----------------------------------- | -------------------- | - | ------ | ------ | 
|Current assets                      |                      | $ | 2,744  |       
|Property and equipment              |                      |   | 215    |       
|Goodwill                            |                      |   | 300    |       
|Current liabilities                 |                      |   | (464   | )     
|In-process research and development |                      |   | 26,112 |       
|                                    |                      |   |        |       
|                                    | Total purchase price |   | $      | 28,907 | 
|                                    |                      |   |        |       

The cash portion of the purchase price came from the Companys working capital.
The amount paid by the Company was arrived at through negotiations between the
Company and the shareholders of Symphar and was based on a variety of factors,
including but not limited to, the prospect for commercializing certain of the
assets of Symphar and the nature of the research-based pharmaceutical industry.
The entity now operates under the name ILEX Oncology Research, Sarl (Research
Sarl). Concurrent with the acquisition, Research Sarl entered into a
three-year employment agreement with one of the founders of Symphar.

Of the $15.0 million cash payment, the Company placed $4.5 million in escrow as
a reserve for possible indemnification against certain future claims. As of
December 31, 2002, the entire $4.5 million has been released from escrow.
Additionally, under the terms of the agreement, $5.0 million of the purchase
price was held as a contingent payment. The additional contingent payment was
earned in December 2001 and, accordingly, the Company recorded an additional
$5.0 million in-process research and development expense, which is included in
the total purchase price of approximately $28.9 million. The agreement also
specifies that, subject to the viability of performance, the Company agrees to
fund a minimum operating and capital budget between $4.0 to $5.0 million
annually for each of the three years following the acquisition.

Additionally, the Company has recorded goodwill in the amount of $300.0
related to an assembled work force. This asset was amortized throughout 2001
based on an estimated useful life of three years. In accordance with SFAS No.
142, the Company ceased amortization on January 1, 2002 and will review the
asset for impairment at least annually. In accordance with purchase
accounting, the Company has included the results of operations for Research
Sarl from the date of acquisition.

In connection with the purchase price allocation, $26.1 million was expensed as
a charge for the purchase of in-process research and development. The Company
allocated values to the in-process research and development based on an
independent appraisal of the research and development projects. The income
approach was the primary technique utilized in valuing the purchased research
and development projects. The value assigned was limited to significant
research projects for which technological feasibility had not been established,
including development, testing and regulatory activities associated with the
introduction of Research Sarls projected product launches. The value assigned
to purchased in-process technology was

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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determined by estimating the costs to
develop the purchased in-process technology into commercially viable products,
estimating the resulting net cash flows from the projects and discounting the
net cash flows to their present value. Due to the complexity of the acquired
research and development, the
technologies under development could, once completed, only be economically used
for their specific and intended purposes in the targeted disease segments. If
the Company were to fail in its efforts to commercialize its developmental drug
candidates, no alternative economic value is envisioned. Given the
very specific nature of the development, it was determined that there were no
alternative economic uses for the acquired research and development outside of
those originally envisioned by the Company. The assembled work force was valued
using the cost approach. Under this approach, the work force is valued by
calculating the savings realized by the Company through obtaining a
pre-existing, trained and fully efficient operations and administrative team
rather than incurring the costs to assemble and train an equivalent workforce.

The independent appraisal also considered the fact that the existing know-how
diminishes in value over time as new technologies are completed and changes in
market conditions render current products and methodologies obsolete. The
assumptions underlying the cash flow projections used were derived primarily
from investment banking reports, historical results, company records and
discussions with management.

The revenue projection used to value the in-process research and development
was based on estimates of relevant market sizes and growth factors, expected
trends in technology and the nature and expected timing of new product
introductions by the Company and competitors. Future royalty revenue estimates
were aggregated for the APOMINE cancer indications and Lp(a) inhibitor based on
managements estimate of the following: (i) addressable number of patients in
the US market, (ii) market penetration, (iii) average sales price, (iv)
estimate of remaining worldwide market and (v) the Companys projected royalty
rate received from its partner. The discount rate selected for the in-process
technology was 30% for both APOMINE and Lp(a). Due to the aggressive nature of
managements forecast and the high level of risk associated with the Company
achieving the projected cash flows, the discount rate was calculated using
venture capital-type rates of return. The rate was determined based on analysis
of three venture capital studies utilizing rates appropriate to start-up type
companies.

For the purposes of the independent appraisal, only the economics related to
Research Sarls lead drug candidates, APOMINE and Lp(a) were considered. It was
determined that forecasting cash flows for Research Sarls other developmental
projects was not feasible at the time of acquisition due to their early stage
of development. At the time of acquisition, management estimated that
approximately $14.0 million to $15.0 million had been spent on APOMINE and
Lp(a) to date, and an additional $17.0 million to $20.0 million was expected to
be incurred to complete clinical testing and gain marketing approval.

APOMINE, targeted at oncology as well as osteoporosis, represented
approximately 45% of the in-process research and development value. As of the
date of the acquisition, the project was expected to be completed and
commercially available in the U.S. no sooner than 2007 for its first cancer
indication, with an estimated cost to complete of approximately $12.0 million
to $14.0 million. Management believes that the Company may be able to license
APOMINE to a major pharmaceutical company or marketing partner in 2003 and
begin receiving up-front licensing, milestone, collaborative research revenue
and royalties if the product is successful. As of December 31, 2002, the
Company continues to pursue and invest resources in the development of APOMINE
for osteoporosis, however the Company has determined that it will no longer
pursue the development of APOMINE in cancer.

Lp(a), an inhibitor that may lead to a reduction in coronary heart disease,
represented approximately 55% of the in-process research and development value.
As of the date of the acquisition, the Lp(a) project was expected to be
completed and commercially available in the U.S. no sooner than 2007, with an
estimated cost to complete of approximately $5.0 million to $6.0 million.
Additionally, management believed that the Company may be able to license its
product to a major pharmaceutical company or marketing partner for up-front
licensing fees in addition to milestone and royalty fees if the product is
successful. As of December 31, 2002, the Company has no plan to abandon their
cardiovascular program and continues to pursue outlicensing
opportunities for this program.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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The Company believes that the foregoing assumptions used in the purchase price
allocation were reasonable at the time of the acquisition. No assurance can be
given, however, that the underlying assumptions used to estimate revenue,
development costs or profitability or the events associated with such projects
will transpire as estimated. For these reasons, actual results may vary from
projected results. The most significant and uncertain assumptions relating to
the in-process projects relate to the projected timing of completion and
revenues attributable to each project.

The following table reflects unaudited pro forma combined results of operations
of ILEX and Research Sarl., as if the acquisition had occurred on January 1,
2001 and 2000. Included in pro forma results is amortization of the goodwill of
$100.0 for the each of the years ended December 31, 2001 and 2000. Also
included in the pro forma results is $26.1 million recorded as in-process
research and development for the year ended December 31, 2001. Such pro forma
information is presented for informational purposes only and is not necessarily
indicative of the consolidated results that would have been achieved had the
acquisition actually been consummated at January 1, 2001 or January 1, 2000.

|                                     |  |              |          |      |  |   |         |  
|------------------------------------ |  | ------------ | -------- | ---- |  | - | ------- | -
|                                     |  | December 31,
|                                     |  |             
|                                     |  | 2001         |          | 2000
|                                     |  |              |          |     
|Total revenue                        |  | $            | 29,567   |      |  | $ | 35,886  |  
|Net loss                             |  |              | (120,967 | )    |  |   | (38,995 | )
|                                     |  |              |          |      |  |   |         |  
|Basic and diluted net loss per share |  | $            | (4.47    | )    |  | $ | (1.57   | )
|                                     |  |              |          |      |  |   |         |  

7.     MINORITY INTEREST

On September 23, 1999, ILEX Services issued 290,867 shares of Series A
convertible preferred stock for $5.0 million to IMPATH, Inc. (IMPATH). The
preferred stock was convertible to the Companys common stock based upon a
computation set forth in the certificate of designation for the preferred
stock. The preferred stock was entitled to liquidation preferences over the
ILEX Services common stock. The preferred stock was eligible for dividends at
an annual rate of $1.031 per share. Dividends were accrued monthly and were to
be paid to the stockholders annually in arrears beginning in September 2000,
when and as declared by ILEX Services board of directors. A former member of
the Companys board of directors also served as a member of the board of
directors of IMPATH.

In November 2000, IMPATH elected to convert its convertible preferred stock,
previously reflected as minority interest on the Companys consolidated balance
sheet to 290,867 shares of the Companys common stock.

8.     STOCKHOLDERS EQUITY

In November 2001, the Company completed an underwritten public offering of its
common stock pursuant to which the Company sold 5.75 million shares. The
number of shares sold included the underwriters exercise of their
overallotment option. Proceeds, net of offering costs, to the Company from
this offering were approximately $128.9 million, which includes the reissuance
of the Companys 39,000 treasury shares. The net proceeds from this offering
have been and will continue to be used to fund a portion of the acquisition of
Millenniums partnership interest in the Partnership. The balance of the net
proceeds will be used to expand clinical trials and preclinical research, to
fund research and development programs, for potential licenses or other
acquisitions of complementary technologies or products, for general corporate
purposes and for working capital.

On March 30, 2001, the Board of Directors of the Company declared a dividend of
one Preferred Share purchase right (Right) for each outstanding share of common
stock, par value $.01 per share (the Common Shares), of the Company and
authorized the issuance of one Right for each Common Share which shall become
outstanding between April 20, 2001, the Record Date and the earlier of the
Distribution Date or the final expiration date of the Rights. The dividend was
payable on, April 20, 2001, to the stockholders of record on that date. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth interest in one share of Series I Preferred Stock, par value
$.01 per share (the Preferred Shares),

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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of the Company at a price of $120 per
one one-thousandth interest in a Preferred Share (the Purchase Price), subject
to adjustment. The Rights will become exercisable ten days after (i) an
Acquiring Party (as defined in the Rights Agreement, filed with the Securities
and Exchange Commission as an exhibit to a Current Report on Form 8-K dated
April 1, 2001) accumulates beneficial ownership of 20% or more of the Companys
common stock or (ii) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in an Acquiring Party accumulating 20% or more of the common
stock. In the event the Company is, in effect, acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power is sold, proper provision will be made so that each holder of a
Right will thereafter generally have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction
will have a market value of two times the then current Purchase Price of the
Right. The description and terms of the Rights are set forth in a Rights
Agreement between the Company and American Stock Transfer & Trust Co., as
Rights Agent. The plan was not adopted in response to any unsolicited offer or
takeover attempt.

In November 2000, as a result of achieving a development milestone related to
the acquisition of Convergence, the Company issued 500,000 shares of its common
stock. In connection therewith, the Company recorded a non-cash in-process
research and development charge of $14.6 million.

In March 2000, the Company sold 3.0 million shares of its common stock at
$45.00 per share to selected
institutional and other accredited investors. Gross proceeds to the Company
were approximately $135.0 million. Net proceeds to the Company were
approximately $127.0 million.

9.     STOCK OPTIONS AND STOCK PURCHASE WARRANTS

SFAS No. 123, Accounting for Stock-Based Compensation defines a fair value
based method of accounting for employee stock options or similar equity
instruments and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. Under the fair value based
method, compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period of the award, which is
usually the vesting period. However, SFAS No. 123 also allows entities to
continue to measure compensation costs for employee stock compensation plans
using the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). The Company has adopted SFAS No. 123 and has elected to remain with
the accounting prescribed by APB 25. The Company has made the required
disclosures prescribed by SFAS No. 123.

During 2001, the Company adopted the 2001 UK Stock Option Plan (the UK Plan).
Under the UK Plan, stock options may be granted to key employees and directors
of the Company. The total number of shares of stock with respect to which
awards may be granted under the UK Plan shall be equal to the number of shares
reserved for issuance under the Companys 2000 Plan. Stock options vest
pursuant to the individual stock option agreements, usually 25% per year
beginning one year from the date of grant, with unexercised options expiring
ten years from the date of grant. As of December 31, 2002, options covering
2,640 shares have been forfeited and all options remain unexercised.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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During 1995, the Company adopted a stock option plan (the Plan). Under the
Plan, 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 May 1998, the Company increased the
number of authorized shares of common stock reserved for issuance under the
Plan to 1.8 million. Stock options vest pursuant to the individual stock
option agreements, usually 25% per year beginning one year from the date of
grant, with unexercised options expiring ten years from the date of grant. As
of December 31, 2002, 183,209 shares were available for grant under the Plan.

In October 1996, the Company adopted a nonemployee directors stock option plan
(the Directors Plan). The total number of options that may be granted under
the Directors Plan is 225,000. Under the Directors Plan, each nonemployee
director is granted an option for up to 17,500 shares of common stock upon
appointment to the board. As of December 31, 2002, nonemployee directors had
been granted a total of 154,896 options upon appointment to the board with an
exercise price of between $7.01 and $29.75, which vest at 1/48 per month.
Additionally, each nonemployee director will be eligible to receive up to 6,000
stock options annually, which will be fully vested at the time of grant and
based upon the participation of the director. As of December 31, 2002,
nonemployee directors had been granted 81,000 of these options for
participation with an exercise price of between $8.63 and $28.00 per share. All
options issued under the Directors Plan expire ten years from the date of
grant. As of December 31, 2002, 17,768 options were available for grant under the Directors' Plan.

In May 2000, shareholders approved a proposal to ratify the adoption of the
2000 Employee Stock Compensation Plan (the 2000 Plan). The 2000 Plan
authorizes a committee of the Board of Directors to issue options intended to
qualify as incentive stock options (ISOs) as defined in Section 422 of the
Internal Revenue Code of 1986 (the Code), stock options that are not intended
to conform to the requirements of Section 422 of the Code (Non-ISOs), and
restricted stock awards. Originally, the Company had reserved 3.0 million
shares of commons stock for issuance under the 2000 Plan. In 2002, the Company
increased the authorized number of shares of common stock reserved for issuance
under the 2000 Plan to 3.25 million, and in January 2003, the authorized number of
shares was increased to 4.25 million. Stock options vest pursuant to the
individual stock option agreements, usually 25% per year beginning one year
from the date of grant, with unexercised options expiring ten years from the
date of grant. As of December 31, 2002, 271,187 shares were available for grant under the 2000 Plan.

In connection with a prior private placement of convertible preferred stock,
the Company issued a warrant for the purchase of 97,044 shares of common stock
at approximately $3.50 per share. As of December 31, 2000, all outstanding
warrants associated with this private placement were exercised.

Additionally, in connection with another prior private placement of convertible
preferred stock, the Company issued 355,913 warrants for the purchase of common
stock at approximately $8.76 per share. As a result of the Companys private
placement in July 1999, the exercise price of the warrants was adjusted to
$8.71. In July 2001, all outstanding warrants associated with this
private placement were exercised.

A summary of the status of the Companys fixed stock option plans for the years
ended December 31, 2002, 2001 and 2000, and changes during these years on those
dates is presented below:

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

|                                                               |  |                   |           |                   |  |                   |       |       |  |        |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|-------------------------------------------------------------- |  | ----------------- | --------- | ----------------- |  | ----------------- | ----- | ----- |  | ------ | --------- | -------- |  | - | ----- |  |  | -------- | --------- | - |  | - | ----- | 
|                                                               |  | December 31, 2002 |           | December 31, 2001 |  | December 31, 2000
|                                                               |  |                   |           |                   |  |                  
|                                                               |  |                   |           |                   |  | Weighted          |       |       |  |        |           | Weighted |  |   |       |  |  | Weighted
|                                                               |  |                   |           |                   |  | Average           |       |       |  |        |           | Average  |  |   |       |  |  | Average 
|                                                               |  |                   |           |                   |  | Exercise          |       |       |  |        |           | Exercise |  |   |       |  |  | Exercise
|                                                               |  | Shares            |           | Price             |  | Shares            |       | Price |  | Shares |           | Price   
|                                                               |  |                   |           |                   |  |                   |       |       |  |        |           |         
|Outstanding, beginning of year                                 |  |                   | 3,153,343 |                   |  | $                 | 22.99 |       |  |        | 2,476,424 |          |  | $ | 21.72 |  |  |          | 1,293,360 |   |  | $ | 9.64  | 
|Granted                                                        |  |                   | 1,459,416 |                   |  |                   | 9.37  |       |  |        | 1,208,100 |          |  |   | 24.91 |  |  |          | 1,542,198 |   |  |   | 30.22 | 
|Exercised                                                      |  |                   | (199,485  | )                 |  |                   | 7.83  |       |  |        | (212,772  | )        |  |   | 11.09 |  |  |          | (221,649  | ) |  |   | 8.93  | 
|Forfeited                                                      |  |                   | (555,962  | )                 |  |                   | 26.06 |       |  |        | (318,409  | )        |  |   | 28.27 |  |  |          | (137,485  | ) |  |   | 24.18 | 
|                                                               |  |                   |           |                   |  |                   |       |       |  |        |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Outstanding, end of year                                       |  |                   | 3,857,312 |                   |  | $                 | 18.18 |       |  |        | 3,153,343 |          |  | $ | 22.99 |  |  |          | 2,476,424 |   |  | $ | 21.71 | 
|                                                               |  |                   |           |                   |  |                   |       |       |  |        |           |          |  |   |       |  |  |          |           |   |  |   |      
|Options exercisable at end of year                             |  |                   | 1,387,432 |                   |  | $                 | 21.19 |       |  |        | 1,111,908 |          |  | $ | 18.24 |  |  |          | 725,467   |   |  | $ | 12.41 | 
|                                                               |  |                   |           |                   |  |                   |       |       |  |        |           |          |  |   |       |  |  |          |           |   |  |   |      
|Weighted average fair value of
options granted during the year |  |                   |           |                   |  | $                 | 5.67  |       |  |        |           |          |  | $ | 14.96 |  |  |          |           |   |  | $ | 18.55 | 
|                                                               |  |                   |           |                   |  |                   |       |       |  |        |           |          |  |   |       |  |  |          |           |   |  |   |      

The following table summarizes the information about fixed stock options
outstanding at December 31, 2002:

| |  |                 |                |             |  |                     |           |                     |  |           |  |              |       |             |  |          |           |  |  |   |       |  |  | 
| |  | --------------- | -------------- | ----------- |  | ------------------- | --------- | ------------------- |  | --------- |  | ------------ | ----- | ----------- |  | -------- | --------- |  |  | - | ----- |  |  | 
| |  |                 |                |             |  | Options Outstanding |           | Options Exercisable
| |  |                 |                |             |  |                     |           |                    
| |  |                 |                |             |  |                     |           |                     |  | Weighted  |  |              |       |             |  | Number   |           |  |  |  
| |  |                 |                |             |  |                     |           |                     |  | Average   |  | Weighted     |       | Exercisable |  | Weighted
| |  |                 |                |             |  |                     |           |                     |  | Remaining |  | Average      |       | at          |  | Average 
| |  |                 |                |             |  | Number              |           | Contractual         |  | Exercise  |  | December 31, |       | Exercise   
| |  | Exercise Prices |                | Outstanding |  | Life                |           | Price               |  | 2002      |  | Price       
| |  |                 |                |             |  |                     |           |                     |  |           |  |             
| |  | $               | 3.50 - $5.05   |             |  |                     | 63,725    |                     |  | 3.8 years |  | $            | 3.70  |             |  |          | 55,525    |  |  | $ | 3.50  | 
| |  | $               | 5.78 - $8.63   |             |  |                     | 1,229,846 |                     |  | 9.1 years |  | $            | 6.90  |             |  |          | 113,646   |  |  | $ | 7.56  | 
| |  | $               | 8.75 - $13.09  |             |  |                     | 326,437   |                     |  | 5.0 years |  | $            | 10.73 |             |  |          | 275,983   |  |  | $ | 10.64 | 
| |  | $               | 13.13 - $19.38 |             |  |                     | 325,515   |                     |  | 8.0 years |  | $            | 16.85 |             |  |          | 92,410    |  |  | $ | 16.67 | 
| |  | $               | 20.00 - $29.75 |             |  |                     | 1,702,995 |                     |  | 7.7 years |  | $            | 26.44 |             |  |          | 744,841   |  |  | $ | 27.07 | 
| |  | $               | 30.13 - $43.00 |             |  |                     | 194,304   |                     |  | 7.4 years |  | $            | 34.29 |             |  |          | 97,782    |  |  | $ | 34.31 | 
| |  | $               | 49.13 - $50.00 |             |  |                     | 14,490    |                     |  | 7.2 years |  | $            | 49.57 |             |  |          | 7,245     |  |  | $ | 49.57 | 
| |  |                 |                |             |  |                     |           |                     |  |           |  |              |       |             |  |          |           |  |  |   |       | 
| |  |                 |                |             |  |                     | 3,857,312 |                     |  | 7.9 years |  | $            | 18.18 |             |  |          | 1,387,432 |  |  |   | 21.19 | 
| |  |                 |                |             |  |                     |           |                     |  |           |  |              |       |             |  |          |           |  |  |   |       | 

Had compensation cost for the Companys stock-based employee compensation plans
been determined based upon a fair value method consistent with SFAS No. 123,
the Companys net loss and loss per share would have been increased to the pro
forma amounts indicated below:

|                                |  |             |  |                              |          |             |         |      |          |      |          |   |         |   |         |  
|------------------------------- |  | ----------- |  | ---------------------------- | -------- | ----------- | ------- | ---- | -------- | ---- | -------- | - | ------- | - | ------- | -
|                                |  |             |  |                              |          | December 31
|                                |  |             |  |                              |          |            
|                                |  |             |  |                              |          | 2002        |         | 2001 |          | 2000
|                                |  |             |  |                              |          |             |         |      |          |     
|Net loss                        |  | As reported |  | $                            | ( 46,156 | )           |         | $    | (120,954 | )    |          | $ | (38,982 | )
|                                |  |             |  | Fair value
compensation cost |          |             | (8,168  | )    |          |      | (8,024   | ) |         |   | (6,353  | )
|                                |  |             |  |                              |          |             |         |      |          |      |          |   |         |   |         |  
|                                |  |             |  | Pro forma                    |          | $           | (54,324 | )    |          | $    | (128,978 | ) |         | $ | (45,335 | )
|Loss per sharebasic and diluted |  | As reported |  | $                            | (1.42    | )           |         | $    | (4.48    | )    |          | $ | (1.61   | )
|                                |  |             |  | Fair value
compensation cost |          |             | (.25    | )    |          |      | (.30     | ) |         |   | (.26    | )
|                                |  |             |  | Pro forma                    |          | $           | (1.67   | )    |          | $    | (4.78    | ) |         | $ | (1.87   | )

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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For options granted in 2002, 2001 and 2000, the fair value of each option grant
was estimated on the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions: dividend yield of 0% for
all years; expected volatility of 80.0%, 78.4% and 77.7% in 2002, 2001 and
2000, respectively; risk free interest rate of 3.2%, 4.0% and 5.9% in 2002,
2001 and 2000, respectively. The expected life of the options granted for 2002,
2001 and 2000 is 4.0 years.

10.     RELATED-PARTY TRANSACTIONS

CTRC Research Foundation, a stockholder of the Company, performs certain
administrative and technical support services for the Company. For the years
ended December 31, 2002, 2001 and 2000, the Company paid CTRC Research
Foundation approximately $651.1, $273.0 and $570.0, respectively, for these
services and reimbursement of salaries and benefits. As described in Note 13,
the Company has lease agreements with CTRC Research Foundation Building
Corporation, a joint venture comprised of CTRC Research Foundation and the Texas Research Park Foundation, for the cGMP facility. For the years ended December 31, 2002, 2001
and 2000, the Company paid CTRC Research approximately $240.0, $231.0 and
$248.0, respectively, related to these lease agreements. At December 31, 2002,
the Company had payables to CTRC Research amounting to $156.0 related to the
aforementioned services and lease agreements. These services are provided at
fair value. Additionally, the chairman of the Board of Directors of
the company is the chairman of the Board of Directors of CTRC.

U.S. Oncology, Inc. provides clinical trial patients for trials conducted by
the Company on behalf of its CRO sponsors, as well as the Companys own
proprietary product pipeline. A Director of the Company is currently the Executive Vice President, Clinical Affairs at U.S. Oncology.

In May 2001, the Company entered into an agreement with the Arizona Board of
Regents for the University of Arizona for pancreatic cancer research. In
December 2002, this agreement was amended to require the Company to pay $750.0
through June 2003 or until completion of certain milestones set forth in the
agreement, whichever event occurs later. As of December 31, 2002, the Company
had expensed the full amount of the contract. Additional amounts paid to the
University of Arizona relate to payments to investigators. A Director of the Company is the Director of the Arizona Cancer Center
and Professor of Medicine at the University of Arizona Health Science Center in
Tucson.

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 developments costs or direct costs of research
services in the accompanying consolidated financial statements.

For the years ended December 31, 2002, 2001 and 2000, the Company incurred the
following related party expenses:

|                                                                           |  |             |       |      |  |      |       |   |  |   |       | 
|-------------------------------------------------------------------------- |  | ----------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                                                           |  | December 31
|                                                                           |  |            
|                                                                           |  | 2002        |       | 2001 |  | 2000
|                                                                           |  |             |       |      |  |     
|CTRC Research Foundation and CTRC
Research Foundation Building Corporation |  | $           | 744   |      |  | $    | 390   |   |  | $ | 402   | 
|Director of the Company                                                    |  |             | 342   |      |  |      | 403   |   |  |   | 365   | 
|Stockholders                                                               |  |             |      |      |  |      | 291   |   |  |   | 264   | 
|US Oncology                                                                |  |             | 512   |      |  |      | (82   | ) |  |   | 5     | 
|University of Arizona                                                      |  |             | 856   |      |  |      | 485   |   |  |   |      | 
|                                                                           |  |             |       |      |  |      |       |   |  |   |       | 
|                                                                           |  | $           | 2,454 |      |  | $    | 1,487 |   |  | $ | 1,036 | 
|                                                                           |  |             |       |      |  |      |       |   |  |   |       | 

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

At December 31, 2002 and 2001, the following subcontractor costs were payable
to related parties:

|                                                               |  |             |     |      |  |   |     | 
|-------------------------------------------------------------- |  | ----------- | --- | ---- |  | - | --- | 
|                                                               |  | December 31
|                                                               |  |            
|                                                               |  | 2002        |     | 2001
|                                                               |  |             |     |     
|CTRC Research Foundation and CTRC Research Building
Foundation |  | $           | 156 |      |  | $ | 271 | 
|University of Arizona                                          |  |             | 206 |      |  |   |    | 
|US Oncology                                                    |  |             | 93  |      |  |   | 66  | 
|                                                               |  |             |     |      |  |   |     | 
|                                                               |  | $           | 455 |      |  | $ | 337 | 
|                                                               |  |             |     |      |  |   |     | 

During 2001 and 2000, the Company performed contract research services on
behalf of the Partnership, at its standard billing rates. For the years ended
December 31, 2001 and 2000, the Company recorded associated revenues in the
amounts of $3.9 million and $3.3 million. Subsequent to the purchase of
Millenniums interest in the Partnership, intercompany revenues are
eliminated.

11.     LICENSING AGREEMENTS

In September 2002, ILEX acquired global, exclusive, commercial rights to
CAMPATH-related diagnostics, including CD52 antigen testing, from BTG
International Ltd. The agreement is subject to annual maintenance payments as well as certain milestone payments and royalties, subject
to specific terms and conditions. An amendment was finalized in February 2003,
whereby the Partnership gained access to rights to develop and commercialize
all remaining human therapeutic uses of CAMPATH.

On April 19, 2002, ILEX entered into a collaboration agreement with Abgenix,
Inc. (Abgenix) to identify and develop fully human monoclonal antibody
candidates to the MUC1 protein, a dominant oncogene significantly overexpressed
on a wide range of solid tumors. Abgenix will grant ILEX an exclusive license
to commercialize products comprising one or more antibodies derived from this
program. Under this agreement, ILEX paid Abgenix $100.0 for a technology
access fee. Additionally, the Company may be required to make future payments
in accordance with the agreement if certain milestones are met.

On December 19, 2001, ILEX entered into an agreement with Paralex, Inc.
(Paralex) whereby ILEX has granted to Paralex an exclusive sublicense to all of
ILEXs rights to oxypurinol under an original license agreement between ILEX,
GlaxoSmithKline (GSK), and The Wellcome Foundation (TWF) for the treatment of
symptomatic hyperuricemia (gout) in patients who are intolerant of allopurinol.
In the first quarter of 2002, Paralex was purchased by Cardiome Pharma
Corporation (Cardiome). Under the agreement, ILEX granted Paralex, now
Cardiome, an exclusive license to develop and commercialize oxypurinol in all
fields under data and technology owned by ILEX, subject only to the terms of
the original license agreement with GSK and TWF. Cardiome exercised its option
to acquire ownership of the clinical trial data package derived from the Phase
II clinical study for the treatment of gout patients who are intolerant to
allopurinol. In the event oxypurinol is commercialized, ILEX will receive a
royalty from sales of oxypurinol. Additionally, Cardiome is committed to
purchasing supplies from ILEX between 2002 and 2004.

In July 2001, the Company entered into an agreement with the Dana-Farber Cancer
Institute at Harvard Medical School (DFCI) for an exclusive, worldwide license
for patent rights and technology relating to the MUC1 protein. The agreement
requires the Company to pay approximately $200.0 in past patent expenses and up
to $1.0 million in license fees, payable in a series of payments with the last
payment occurring the second quarter of 2003. As of December 31, 2002, the
Company expensed approximately $850.0 in license fees and past patent expenses
in accordance with the agreement. The Company may be required to make future
payments in accordance with the agreement if certain drug development
milestones are met.

In March 2001, ILEX paid $1.1 million to enter a definitive agreement to
co-develop clofarabine, a nucleoside analog, with Bioenvision, Inc.
(Bioenvision). In clinical studies, clofarabine has shown promise as a
potential new treatment for patients with hematological malignancies, including
acute lymphocytic leukemia (ALL) and acute myelogenous leukemia (AML), and in
preclinical studies, for solid tumors. ILEX will take the lead role in
developing clofarabine in the United States and Canada, where it will have
exclusive manufacturing and marketing rights in exchange for an in-licensing
fee, milestone payments and

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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royalties. Bioenvision will retain the lead role in
developing the compound in Europe, where it will have exclusive
manufacturing and marketing rights and the Company will have rights to
royalties.

In July 2000, the Company entered into an agreement with Knoll AG (Abbott
Laboratories) for an exclusive, worldwide license of ILX-651, a synthetic
pentapeptide analog of dolastatin. As of December 31, 2002, the Company had
paid $16.0 million in license fees. The Company may be required to pay future
license maintenance fees in either cash or unrestricted stock in accordance
with the agreement if certain drug development and time-based milestones are
met.

12.     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 up to 15% of their salary on a before-tax
basis. The plan is a defined contribution plan with employer contributions made
solely at the discretion of the board of directors. For the years ended
December 31, 2002, 2001 and 2000, administrative expenses incurred by the
Company related to this plan were not significant. In January 2000, the
Company elected to begin making contributions of up to 3% of an employees
salary. The Companys contributions to the plan were $397.7 and $418.0 and
$357.0 for the years ended December 31, 2002, 2001 and 2000, respectively.
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 Company does not provide postretirement benefits or
postemployment benefits to its employees.

In 2001, The Company adopted the ILEX Oncology Executive Deferred Compensation
Plan (the Deferred Compensation Plan) effective in 2002. The Deferred
Compensation Plan is a nonqualified deferred compensation plan available to a
select group of ILEX officers and other key employees. Participants in the
Deferred Compensation Plan are able to defer current federal income taxes on an
unlimited amount of compensation. The Company matches 50% of the first 6% of
each participants contribution. The Companys contribution to plan was $80.0
for the year ended December 31, 2002. The Deferred Compensation Plan is
unfunded for tax purposes and for purposes of Title I of ERISA. Participation
in the Deferred Compensation Plan constitutes a promise by ILEX to make
payments in accordance with the terms of the Plan, and Particpants and
beneficiaries shall have the status of general unsecured creditors of the
Company.

13.     LEASES

The Company has several noncancelable operating leases for office space,
equipment and the cGMP facility. Rent expense associated with these leases was
approximately $3.9 million, $4.0 million and $3.5 million for the years ended
December 31, 2002, 2001 and 2000, respectively. One of the leases is with CTRC
Research, a related party (see Note 10).

At December 31, 2002, future minimum lease payments under all leases are as
follows:

|                         |            |  |         |       |       |  |       |        |  |  |   |        | 
|------------------------ | ---------- |  | ------- | ----- | ----- |  | ----- | ------ |  |  | - | ------ | 
|                         |            |  | Related |       |       |  |       |        |  |  |  
|                         |            |  | Party   |       | Other |  | Total
|                         |            |  |         |       |       |  |      
|Year ending December 31, |            |  |         |       |       |  |       |        |  |  |   |       
|                         | 2003       |  | $       | 240   |       |  | $     | 2,788  |  |  | $ | 3,028  | 
|                         | 2004       |  |         | 240   |       |  |       | 2,275  |  |  |   | 2,515  | 
|                         | 2005       |  |         | 240   |       |  |       | 1,897  |  |  |   | 2,137  | 
|                         | 2006       |  |         | 240   |       |  |       | 1,892  |  |  |   | 2,132  | 
|                         | 2007       |  |         | 240   |       |  |       | 1,878  |  |  |   | 2,118  | 
|                         | Thereafter |  |         | 720   |       |  |       | 1,876  |  |  |   | 2,596  | 
|                         |            |  |         |       |       |  |       |        |  |  |   |       
|                         | Total      |  | $       | 1,920 |       |  | $     | 12,606 |  |  | $ | 14,526 | 

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

In July 2000, the Company entered into an agreement to lease its new corporate
headquarters. The commencement date of the operating lease was October 20,
2000, with a lease term of eight years. Future minimum lease payments under
this new lease agreement are between $1.2 million and $1.3 million per year
through November 1, 2008. The lease required a deposit of approximately $140.0,
which was recorded as other non-current assets. Additionally, in connection
with the lease, the Company maintains a letter of credit, with the lessor as
beneficiary, in the amount of $2.2 million. The letter of credit is 105%
collateralized with $2.3 million in restricted cash.

In 2000, the Company entered into capital lease agreements for office
equipment, with lease terms between 30 and 36 months and minimum lease payments
of $7.0 per month. As of December 31, 2002 and 2001, the Company had recorded
$273.0 as capital equipment. Amortization and interest expense was $106.0 and
$10.0, respectively, for the year ended December 31, 2002. Amortization and
interest expense was $105.0 and $13.0, respectively, for the year ended
December 31, 2001. At December 31, 2002, the Company had capital lease
obligations of approximately $35.0, all of which are payable within one year.

In February 1996, the Company entered into a noncancelable lease agreement for
equipment to be used in the cGMP facility. The lease required the Company to
make monthly payments of approximately $16.0 and was to expire in 2001. Under
the terms of the
agreement, the Company maintained $425.0 in the form of securities as
collateral for the equipment. During 1999, the Company expensed the remaining
balance of the lease commitment. Additionally, in January 2000, the Company
paid the balance of the lease commitment, and the securities held as collateral
were released to the Company.

During 1995, the Company entered into a lease agreement with a non-profit
corporation controlled by CTRC Research and the Texas Research Park Foundation
for the use of the cGMP facility. The facility is owned by a non-profit
corporation controlled by CTRC Research and the Texas Research Park Foundation.
These two organizations obtained a grant to build the facility from the
Economic Development Administration (EDA). The cGMP facility allows for the
manufacturing of oncology drugs. Currently, the facility is being used for
manufacturing support activities. Under the terms of the lease agreement,
which expires in 2010, and includes three additional five-year extension
options, the Company is required to make monthly payments, which commenced in
1998. The payments are based on a fixed monthly rate plus a percentage of
gross sales, as defined in the agreement. This facility has produced no
product sales subject to such payments. In the event that there is an early
termination of the lease or a non-conforming use, there is a risk that the
Company may be required to repay a portion of the EDA grant.

14.     INCOME TAXES

As of December 31, 2002, the Company had net operating loss (NOL) carryforwards
of approximately $171.0 million for U.S. federal income tax purposes, which are
available to reduce future taxable income and which will expire in 2010 through
2022. As of December 31, 2002, the Company had federal research and development
credit carryforwards of $4.8 million that will expire in 2011 through 2022.
Included below in other tax differences, net is a gross capital loss
carryforward of $2.2 million, which will expire, in 2004 if not utilized
against capital gains.

In addition, as of December 31, 2001, the Company had Swiss NOLs of
approximately $3.0 million, which were used to reduce December 31, 2002 Swiss
taxable income. The tax effects of significant temporary differences
representing deferred income tax assets and liabilities are as follows as of
December 31, 2002 and 2001:

|                                                      |                                  |   |              |   |      |   |         |   | 
|----------------------------------------------------- | -------------------------------- | - | ------------ | - | ---- | - | ------- | - | 
|                                                      |                                  |   | December 31,
|                                                      |                                  |   |             
|                                                      |                                  |   | 2002         |   | 2001
|                                                      |                                  |   |              |   |     
|Net operating loss carryforward                       |                                  | $ | 59,899       |   |      | $ | 39,224  |  
|Carrying value of technology                          |                                  |   | 19,708       |   |      |   | 20,400  |  
|Expense provisions                                    |                                  |   | 438          |   |      |   | 2,106   |  
|Federal research and development credit
carryforwards |                                  |   | 4,811        |   |      |   | 2,574   |  
|Other tax differences, net                            |                                  |   | 733          |   |      |   | 1,549   |  
|Valuation allowance                                   |                                  |   | (85,589      | ) |      |   | (65,853 | )
|                                                      |                                  |   |              |   |      |   |         |  
|                                                      | Total deferred income tax assets |   | $            |  |      |   | $       |  | 
|                                                      |                                  |   |              |   |      |   |         |  

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

The valuation allowance as of December 31, 2002 and 2001, provides a reserve
against the above deferred tax assets, which were not realizable at the above
dates.

The Companys loss before income taxes for financial reporting purposes
consists of the following:

|                         |  |              |         |      |  |      |          |   |  |   |         |  
|------------------------ |  | ------------ | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                         |  | December 31,
|                         |  |             
|                         |  | 2002         |         | 2001 |  | 2000
|                         |  |              |         |      |  |     
|Domestic                 |  | $            | (48,017 | )    |  | $    | (91,873  | ) |  | $ | (39,220 | )
|Foreign                  |  |              | 2,150   |      |  |      | (29,059  | ) |  |   | 335     |  
|                         |  |              |         |      |  |      |          |   |  |   |         |  
|Loss before
income taxes |  | $            | (45,867 | )    |  | $    | (120,932 | ) |  | $ | (38,885 | )

For December 31, 2002, 2001, and 2000 the
Companys tax provisions of $289.0, $22.0, and
$97.0 respectively, relate primarily to current income taxes on foreign operations. The Company has not
provided any U.S. deferred income taxes or UK withholding taxes on the
undistributed earnings of its UK subsidiary based on the determination that
such earnings will be indefinitely reinvested.

Income tax expense attributable to income from continuing operations differed
from the amounts computed by applying the statutory tax rate of 35% to pre-tax
loss from continuing operations as a result of the following:

|                                                                             |                                    |   |                         |     |      |   |         |    |  |   |         |    | 
|---------------------------------------------------------------------------- | ---------------------------------- | - | ----------------------- | --- | ---- | - | ------- | -- |  | - | ------- | -- | 
|                                                                             |                                    |   | Year Ended December 31,
|                                                                             |                                    |   |                        
|                                                                             |                                    |   | 2002                    |     | 2001 |   | 2000   
|                                                                             |                                    |   |                         |     |      |   |        
|Computed expected tax expense                                              |                                    | $ | (16,053                 | )   |      | $ | (42,327 | )  |  | $ | (13,610 | ) 
|Write-off of in-process research and
development for book purposes           |                                    |   |                        |     |      |   | 9,136   |    |  |   | 5,097   |   
|Other permanent items                                                        |                                    |   | (127                    | )   |      |   | 86      |    |  |   | 74      |   
|Change in valuation allowance                                                |                                    |   | 19,735                  |     |      |   | 32,271  |    |  |   | 9,825   |   
|Research and development credit                                              |                                    |   | (2,237                  | )   |      |   | (1,208  | )  |  |   | (716    | ) 
|Foreign income (loss) taxed at other
than U.S. rates and
other foreign items |                                    |   | (464                    | )   |      |   | 1,058   |    |  |   | (20     | ) 
|Other, net                                                                   |                                    |   | (565                    | )   |      |   | 1,006   |    |  |   | (553    | ) 
|                                                                             |                                    |   |                         |     |      |   |         |    |  |   |         |   
|                                                                             | Provision for foreign income taxes |   | $                       | 289 |      |   | $       | 22 |  |   | $       | 97 | 
|                                                                             |                                    |   |                         |     |      |   |         |    |  |   |         |   

15.     COMMITMENTS AND CONTINGENCIES

In December 2002, the Company received correspondence from a contract research
services client of ILEX Oncology Services, Inc. (Services). Services is a
wholly-owned subsidiary of the Company. In its correspondence with the company, the client contends that Services
was negligent in meeting the professional standards of the contract research
industry and the client also contends that services breached certain contractual obligations. The Company and
Services believe that the contentions are without merit and the Company and services intend to vigorously defend
themselves if the client pursues these contentions further. The Company and Services cannot predict the outcome of
this matter
nor can they reasonably estimate a range of possible loss given
the status of this matter.

In December 2001, Genentech, Inc. (Genentech) announced that it was granted a
patent relating to fundamental methods and compositions for the production of
monoclonal antibodies using anti-recombinant DNA technology. This proceeding
entitled Genentech to priority over the patent held by the Celltech Group PLC,
who had first received the patent in 1989 and, to whom we are currently paying
royalty fees related to the use of this technology platform in the manufacture
of CAMPATH. Based on Genentechs favorable decision to license the patent,
the Company has negotiated and is finalizing a license from Genentech for
production of monoclonal antibodies against the CD52 target.

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

On August 16, 2000, Cytokine Pharmasciences Inc. filed a lawsuit against
Convergence Pharmaceuticals, Inc., a Delaware corporation and wholly owned
indirect subsidiary of the Company, and Glenn Rice, Ph.D. in the Superior Court
Department of Trial Court of the Commonwealth of Massachusetts. The lawsuit
claims were settled effective July 2, 2001 and the lawsuit has been dismissed
with prejudice. The settlement had an immaterial financial effect on the
Companys consolidated financial statements.

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 original guarantee was limited for a
period of three years beginning in May 1998 and ending in May 2001. In June
2001, the company extended the existing guarantee until June 30, 2002 and in
June 2002, the guarantee was extended to June 30, 2003. If the guarantee
comes to redemption, the Company will obtain an ownership interest in CRG in
accordance with the guarantee agreement. Under the terms of the agreement, the
Company maintained $651.0 in the form of securities as collateral for the
guarantee as of December 31, 2002. During 1999, the Company expensed $750.0
related to this guarantee as part of a special charge. At December 31, 2002,
the Company had yet to fund the guarantee, however management believes that it
will be funded during 2003, and considers it to be uncollectible.

In addition to matters described above, the Company and its subsidiaries are
subject to various other claims and assessments arising out of the ordinary
course of business. The Company believes it is unlikely that the final outcome
of any such ordinary course of business claims or proceedings to which the
Company is a party will have a material adverse effect on the Companys
financial position or results of operations. However, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
such claim or proceeding would not have a material adverse effect on the
Companys results of operations for the period in which such resolution
occurred.

In connection with research and development efforts associated with their
product pipeline, the Company has entered into agreements with certain
development partners, which generally expire over several years. The terms of
these agreements require the Company to make payments in either cash or stock
if certain drug development or time-based milestones are met. Total potential
commitments for the next five years under these agreements, based upon the assumption that all
milestones are achieved, are approximately $25.1 million and are due as
follows:

|                         |       |  |           |        | 
|------------------------ | ----- |  | --------- | ------ | 
|                         |       |  | Milestone
|                         |       |  | payments 
|                         |       |  |          
|Year ending December 31, |       |  |           |       
|                         | 2003  |  | $         | 1,726  | 
|                         | 2004  |  |           | 4,215  | 
|                         | 2005  |  |           | 1,050  | 
|                         | 2006  |  |           | 50     | 
|                         | 2007  |  |           | 18,050 | 
|                         |       |  |           |       
|                         | Total |  | $         | 25,091 | 
|                         |       |  |           |       

Additionally, depending upon clinical trial results, the Company is subject to
issue an additional 500,000 earn-out shares in connection with the acquisition
of Convergence. As Phase I testing of the Convergence molecule continues, the
Company is considering the extension of the second milestone date.

16.     NOTE PAYABLE

In connection with the purchase price of Millenniums interest in the
Partnership the Company was obligated to pay approximately $140.0 million. The
first two payments of $20.0 and $40.0 million were made on December 31, 2001
and 2002, respectively and the additional $80.0 million will be made in
scheduled payments over the next two years. The $69.9 million in the table
below represents the present value of the future payments to be made to
Millennium. The Company used an imputed interest rate of

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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

---

6.2%, which
represents the Companys current estimated incremental borrowing rate.
Maturities of the principal portion of the note payable are as follows:

|                                             |                                    |                    |        |        |        | 
|-------------------------------------------- | ---------------------------------- | ------------------ | ------ | ------ | ------ | 
|                                             |                                    |                    |        | Future
|Year Ended December 31,                      |                                    | payments          
|                                             |                                    |                   
|Current principal portion of note payable    |                                    | $                  | 35,881 |       
|Current portion of interest payable          |                                    |                    | 2,218  |       
|                                             |                                    |                    |        |       
|                                             | Current portion of note payable    |                    |        | 38,099 |       
|Noncurrent principal portion of note payable |                                    |                    | 34,049 |       
|Noncurrent portion of interest payable       |                                    |                    | 2,106  |       
|                                             |                                    |                    |        |       
|                                             | Noncurrent portion of note payable |                    |        | 36,155 |       
|                                             |                                    |                    |        |       
|                                             |                                    | Total note payable |        | $      | 74,254 | 
|                                             |                                    |                    |        |       

17.     QUARTERLY FINANCIAL DATA (UNAUDITED)

The tables below show the Companys results of operations by quarter for the
years ended December 31, 2002 and 2001. Included in these results are certain
prior year reclassifications to conform to the current year presentation (see
Note 2). Amounts are in thousands, except per share amounts.

|                    |                   |   |                    |      |         |   |              |      |             |   |         |      |   |   |         |      |   |   |         |       |  
|------------------- | ----------------- | - | ------------------ | ---- | ------- | - | ------------ | ---- | ----------- | - | ------- | ---- | - | - | ------- | ---- | - | - | ------- | ----- | -
|                    |                   |   | 2002 Quarter Ended
|                    |                   |   |                   
|                    |                   |   | March 31           |      | June 30 |   | September 30 |      | December 31 |   | Year   
|                    |                   |   |                    |      |         |   |              |      |             |   |        
|Revenue             |                   | $ | 8,271              |      |         | $ | 7,428        |      |             | $ | 7,919   |      |   | $ | 7,283   |      |   | $ | 30,901  |      
|Operating loss      |                   |   | (9,860             | )    |         |   | (15,829      | )    |             |   | (10,038 | )    |   |   | (10,570 | )    |   |   | (46,297 | )    
|Net loss            |                   | $ | (9,122             | )    |         | $ | (15,486      | )    |             | $ | (10,405 | )    |   | $ | (11,143 | )    |   | $ | (46,156 | )    
|                    |                   |   |                    |      |         |   |              |      |             |   |         |      |   |   |         |      |   |   |         |      
|Net loss per share: |                   |   |                    |      |         |   |              |      |             |   |         |      |   |   |         |      |   |   |         |      
|                    | Basic and diluted |   | $                  | (.28 | )       |   | $            | (.48 | )           |   | $       | (.32 | ) |   | $       | (.34 | ) |   | $       | (1.42 | )
|                    |                   |   |                    |      |         |   |              |      |             |   |         |      |   |   |         |      |   |   |         |      

|                            |                   |   |                    |       |         |   |              |       |             |   |         |       |   |   |         |       |   |   |          |       |  
|--------------------------- | ----------------- | - | ------------------ | ----- | ------- | - | ------------ | ----- | ----------- | - | ------- | ----- | - | - | ------- | ----- | - | - | -------- | ----- | -
|                            |                   |   | 2001 Quarter Ended
|                            |                   |   |                   
|                            |                   |   | March 31           |       | June 30 |   | September 30 |       | December 31 |   | Year   
|                            |                   |   |                    |       |         |   |              |       |             |   |        
|Revenue, as reported        |                   | $ | 6,308              |       |         | $ | 7,011        |       |             | $ | 5,829   |       |   | $ | 5,496   |       |   | $ | 24,644   |      
|Reclassification adjustment |                   |   | 1,784              |       |         |   | 838          |       |             |   | 1,011   |       |   |   | 895     |       |   |   | 4,528    |      
|                            |                   |   |                    |       |         |   |              |       |             |   |         |       |   |   |         |       |   |   |          |      
|Revenue, as adjusted        |                   |   | 8,092              |       |         |   | 7,849        |       |             |   | 6,840   |       |   |   | 6,391   |       |   |   | 29,172   |      
|Operating loss              |                   |   | (30,509            | )     |         |   | (16,073      | )     |             |   | (11,799 | )     |   |   | (75,640 | )     |   |   | (134,021 | )    
|Net loss                    |                   | $ | (28,450            | )     |         | $ | (13,281      | )     |             | $ | (7,448  | )     |   | $ | (71,775 | )     |   | $ | (120,954 | )    
|                            |                   |   |                    |       |         |   |              |       |             |   |         |       |   |   |         |       |   |   |          |      
|Net loss per share:         |                   |   |                    |       |         |   |              |       |             |   |         |       |   |   |         |       |   |   |          |      
|                            | Basic and diluted |   | $                  | (1.09 | )       |   | $            | (0.50 | )           |   | $       | (0.28 | ) |   | $       | (2.47 | ) |   | $        | (4.48 | )
|                            |                   |   |                    |       |         |   |              |       |             |   |         |       |   |   |         |       |   |   |          |      

18.     SUBSEQUENT EVENT (UNAUDITED)

In February 2003, the Company assigned its lease on the facility in Annapolis,
Maryland. The Company ceased operations at this facility in February 2002 and
planned to sublease it for the remainder of the lease term. Accordingly, the
Company recorded an expense accrual in its consolidated statement of operations
as of December 31, 2002 for the estimated costs to be incurred as a result of
exiting the lease. As the Company has assigned the lease, the Company has no
future commitments related to the lease agreement.

In January 2003, Schering AG obtained exclusive rights to develop, sell and
distribute CAMPATH in Japan and the Asian Pacific Basin. The Company will receive an
up-front payment, which will be recognized over the life of the patent in that
region. The Company will also receive payments upon completion of certain
milestones and a royalty based on net sales of CAMPATH in Japan and
the Asia Pacific Basin.

F-32



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2002 ANNUAL REPORT ON FORM 10-K

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Identification of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.1     |  | Plan of Merger and Acquisition Agreement dated July 16, 1999, by and among ILEX Oncology, Inc., Convergence
Pharmaceuticals, Inc., Vikas Sukhatme, Raghuram Kalluri, Ralph Weichselbaum, Donald Kufe, Glenn C. Rice, and
Tsuyneya Ohno (Incorporated herein by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 30, 1999)                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.2     |  | Share Purchase Agreement between the shareholders of Symphar S.A., ILEX Oncology, Inc. and ILEX Acquisitions,
Inc., effective February 13, 2001 (Incorporated herein by reference to Exhibit 2.1 to the Companys Current
Report on Form 8-K filed February 28, 2001)                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.3     |  | Purchase and Sale Agreement dated October 29, 2001 by and among ILEX Oncology, Inc., ILEX Acquisitions, Inc.,
Millennium Pharmaceuticals, Inc, and mHoldings Trust (Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q filed November 15, 2001)                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.1     |  | Amended and Restated Certificate of Incorporation of the Company filed May 31, 2000 (Incorporated herein by
reference to Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q filed August 8, 2000)                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.2     |  | Bylaws of the Company, as amended (Incorporated herein by reference to Exhibit 3.2 of the Companys
Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.1     |  | Specimen of certificate representing Common Stock, $.01 par value, of the Company (Incorporated herein by
reference to Exhibit 4.1 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12,
1996, as amended)                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.2     |  | Rights Agreement dated April 10, 2001 by and between ILEX Oncology, Inc. and American Stock Transfer & Trust
Co. which includes as Exhibit A the Form of Certificate of Designations of Series I Preferred Stock, as
Exhibit B the Form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Common Stock.
(Incorporated herein by reference to Exhibit 4.1 to the Companys Form 8-K filed April 11, 2001)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1    |  | Services Agreement dated November 18, 1994 between CTRC Research Foundation and the Company (Incorporated
herein by reference to Exhibit 10.6 of the Companys Registration Statement No. 333-17769 on Form S-1 filed
December 12, 1996, as amended)                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2    |  | Covenant Not To Sue dated September 1995 between CTRC Research Foundation and the Company (Incorporated herein
by reference to Exhibit 10.7 of the Companys Registration Statement No. 333-17769 on Form S-1 filed December
12, 1996, as amended)                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.3    |  | Commercial Industrial Sublease Agreement between TRTF/CTRCRF Building Corporation and the Company
(Incorporated herein by reference to Exhibit 10.11 of the Companys Registration Statement No. 333-17769 on
Form S-1 filed December 12, 1996, as amended)                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.4    |  | 1995 Stock Option Plan for the Company (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)                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.5    |  | Second Amended and Restated 1996 Non-Employee Director Stock Option Plan for the Company (Incorporated herein
by reference to Exhibit 10.7 of the Companys Annual Report on Form 10-K filed April 2, 2001)                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.6    |  | Form of Non-Employee Director Stock Option Agreement for the Company (Incorporated herein by reference to
Exhibit 10.49 to the Companys Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
amended)                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.7    |  | 2000 Employee Stock Compensation Plan for the Company, as amended (Incorporated herein by reference to Exhibit
10.9 of the Companys Annual Report on Form 10-K filed April 2, 2001)                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.8    |  | 2000 Employee Stock Purchase Plan for the Company, as amended (Incorporated herein by reference to Exhibit                                                                                                                                                                                                                                                                                                                     
|        |  | 10.10 of the Companys Annual Report on Form 10-K filed April 2, 2001)                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9    |  | Form of Pledge Agreement between Cancer Therapy and Research Center Endowment and each of Gary V. Woods and
Ruskin C. Norman, M.D. (Incorporated herein by reference to Exhibit 10.55 to the Companys Registration
Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.10   |  | 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)                                                                                                                                                                                                                      





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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11  |  | 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)                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.12  |  | 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)                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.13  |  | Stock Purchase Agreement dated January 22, 1999 between the Company and Eli Lilly and Company (Incorporated
herein by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q filed May 17, 1999)                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.14  |  | Registration Rights Agreement dated January 22, 1999 between the Company and Eli Lilly and Company
(Incorporated herein by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q filed May 17,
1999)                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.15  |  | Registration Rights Agreement dated July 16, 1999 among ILEX Oncology, Inc., Vikas Sukhatme, Raghuram Kalluri,
Ralph Weichselbaum, Donald Kufe, Glenn C. Rice, Tsuneya Ohno, Stephen Dolezalek, Beth Israel Deaconess Medical
Center and Arch Development Corporation (incorporated herein by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K dated July 16, 1999 and filed July 30, 1999)
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.16  |  | Stock Purchase Agreement dated July 16, 1999 by and between ILEX Oncology, Inc. and each of the Investors (as
defined therein) (incorporated herein by reference to Exhibit 10.3 to the Companys Quarterly Report on Form
10-Q filed August 16, 1999)                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.17 |  | Distribution and Development Agreement between Millennium & ILEX Partners, L.P. and Schering AG dated August
24, 1999 (incorporated herein by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K/A filed
September 21, 1999)                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.18  |  | Letter agreement dated September 9, 1999, between the Company and Al J. Jecminek (Incorporated herein by
reference to Exhibit 10.41 to the Companys Annual Report on Form 10-K for the year ended December 31, 1999)                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.19  |  | Form of Purchase Agreement between ILEX Oncology, Inc. and each Purchaser (Incorporated herein by reference to
Exhibit 10.1 to the Companys Registration Statement on Form S-3 dated March 8, 2000 (Registration No.
333-32000))                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.20  |  | Office Lease Agreement dated July 14, 2000, between Orion Fountainhead Two Partners, Ltd., and ILEX Oncology,
Inc. (Incorporated herein by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q filed
November 14, 2000)                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.21  |  | Consulting Services Agreement dated July 1, 1997, between the Company and Daniel D. Von Hoff, M.D.
(Incorporated herein by reference to Exhibit 10.61 to the Companys Annual Report on Form 10-K for the year
ended December 31, 1998)                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.22 |  | Supply Agreement dated as of June 4, 1999 between Millennium & ILEX Partners, L.P. (formerly L&I Partners,
L.P.) and Boehringer Ingelheim Pharma KG. (Incorporated herein by reference to Exhibit 10.25 to the Millennium
Pharmaceuticals, Inc. 10-K for the fiscal year ending December 31, 1999)                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.23 |  | License Agreement, dated May 2, 1997, between Millennium & ILEX Partners, L.P. (formerly L&I Partners, L.P.)
and Millennium Pharmaceuticals, Inc (as successor to LeukoSite, Inc.). (Incorporated by reference to Exhibit
10.17(b) to LeukoSite, Inc.s Registration Statement on Form S-1 (No. 333-30213) filed June 27, 1997)                                                                                 





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ILEX ONCOLOGY, INC.
2002 ANNUAL REPORT ON FORM 10-K

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|       |  |                                                                                                                                                                                                                                                                                                     
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24 |  | First Amended and Restated Agreement of Limited Partnership of Millennium & ILEX Partners L.P. (formerly L&I
Partners, L.P.) (Incorporated herein by reference to Exhibit 10.26 to the Millennium Pharmaceuticals, Inc.
10-K for the fiscal year ending December 31, 2000).                         
|       |  |                                                                                                                                                                                                                                                                                                     
|10.25  |  | Investor Rights Agreement dated February 13, 2001 among ILEX Oncology, Inc., Valorous Trading PTE Ltd., Craig
Bentzen, Jean-Charles Roguet, Mong Lan Nguyen and Eric Neissor. (Incorporated herein by reference to Exhibit
10.1 to the Companys current Report on Form
8-K filed February 28, 2001)
|       |  |                                                                                                                                                                                                                                                                                                     
|10.26  |  | 2001 UK Employee Stock Compensation Plan (Incorporated herein by reference to Exhibit 10.27 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2001)                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                                     
|10.27  |  | Severance agreement between ILEX Oncology, Inc. and Richard L. Love dated December 31, 2001 (Incorporated
herein by reference to Exhibit 10.28 to the Companys Annual Report on Form 10-K for the year ended December
31, 2001)                                                                    
|       |  |                                                                                                                                                                                                                                                                                                     
|10.28  |  | Employment agreement dated January 1, 2002, between the Company and Jeffrey H. Buchalter (Incorporated herein
by reference to Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q filed August 13, 2002)                                                                                    
|       |  |                                                                                                                                                                                                                                                                                                     
|11.1*  |  | Computation of Earnings Per Share                                                                                                                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                     
|21.1   |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                         

|                             |  |                     |  |                             
|---------------------------- |  | ------------------- |  | ----------------------------
|                             |  | Place of            |  | Names Under Which           
|Name                         |  | Incorporation       |  | Doing Business              
|                             |  |                     |  |                             
|ILEX Oncology Services, Inc. |  | Delaware            |  | ILEX Oncology Services, Inc.
|ILEX Products, Inc.          |  | Delaware            |  | ILEX Products, Inc.         
|ILEX Services Limited        |  | United Kingdom      |  | ILEX Services Limited       
|ILEX Oncology Research, Sarl |  | Geneva, Switzerland |  | ILEX Oncology Research, Sarl
|ILEX Acquisitions, Inc.      |  | Delaware            |  | ILEX Acquisitions, Inc.     
|ILEX Pharmaceuticals, L.P.   |  | Delaware            |  | ILEX Pharmaceuticals, L.P.  
|ILEX Pharmaceuticals, Ltd.   |  | United Kingdom      |  | ILEX Pharmaceutical, Ltd.   

|      |  |                                                     
|----- |  | ----------------------------------------------------
|23.1* |  | Consent of Ernst & Young LLP                        
|     
|23.2* |  | Information
regarding consent of Arthur Andersen LLP



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|* |  | 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.