<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


     (Mark One)

     [X]    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934

                For the Quarterly Period Ended September 30, 1998

                                       OR

     [ ]  Transition Report Pursuant to Section 13 or 15(d)
            of the Securities Exchange Act of 1934

        For the Transition Period From _____________ to ________________

                         Commission File Number 0-22147


                               ILEX ONCOLOGY, INC.
             (Exact name of registrant as specified in its charter)

       Delaware                                         74-2699185
    (State or other                                   (I.R.S. Employer
    jurisdiction of                                  Identification No.)
    incorporation or
    organization)

                          11550 I.H. 10 West, Suite 300
                            San Antonio, Texas 78230
                    (Address of principal executive offices)
                                   (Zip Code)

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

                                   ----------

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

         Yes   X       No
              ---          ---

                                   ----------

         Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.

         On November 4, 1998, there were outstanding 12,650,738 Common Stock,
$.01 par value, of the registrant.


<PAGE>   2

                               ILEX ONCOLOGY, INC.

                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION                                                         PAGE
                                                                                       ----

<S>      <C>                                                                          <C>
Item 1:  Financial Statements

         Consolidated Balance Sheets - December
         31, 1997 and September 30, 1998                                               3-4

         Consolidated Statements of Operations - For the three and nine
         month periods ended September 30, 1997
         and September 30, 1998                                                         5

         Consolidated Statements of Cash Flows - For the nine month
         periods ended September 30, 1997 and
         September 30, 1998                                                             6

         Notes to the Consolidated Financial Statements                                7-9

Item 2:  Management's Discussion and Analysis of Financial Condition                  10-16
         and Results of Operations


PART II. OTHER INFORMATION

Items 1-6: Other Information                                                            17


SIGNATURES                                                                              18
</TABLE>



                                      -2-
<PAGE>   3


                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                               ILEX ONCOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)



<TABLE>
<CAPTION>
                                                                             September 30,
                                                               December 31,      1998
                                         ASSETS                    1997       (unaudited)
                                                               ------------  -------------

<S>                                                            <C>           <C>
CURRENT ASSETS:
  Cash and cash equivalents                                      $ 22,655      $  3,383
  Investments in marketable securities                             10,111        23,196
  Accounts receivable, net of allowance for
     doubtful accounts of $123 and $110,
     at December 31, 1997 and September 30, 1998,
     respectively:

        Billed                                                      2,516         3,120
        Unbilled                                                      889         1,099
  Prepaid expenses and other                                          720           652
                                                                 --------      --------

             Total current assets                                  36,891        31,450
                                                                 --------      --------

NONCURRENT ASSETS:
  Investment in and advances to:
     Research and development partnerships                           (360)        1,275
     Contract research affiliate                                    1,494         1,942
  Intangible asset, net of amortization                             4,847         7,059
  Inventory                                                          --             500
  Investments in marketable securities                              9,880           425
                                                                 --------      --------

             Total noncurrent assets                               15,861        11,201
                                                                 --------      --------

PROPERTY AND EQUIPMENT, Net of accumulated
     depreciation and amortization of $562 and
     $1,142 at December 31, 1997 and September 30,
     1998, respectively

                                                                    2,559         3,983
                                                                 --------      --------

             Total assets                                        $ 55,311      $ 46,634
                                                                 ========      ========
</TABLE>



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



                                      -3-

<PAGE>   4


                               ILEX ONCOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)



<TABLE>
<CAPTION>
                                                                                   September 30, 1998
                                                              December 31, 1997        (unaudited)
                                                              -----------------    ------------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY


<S>                                                              <C>                   <C>       
CURRENT LIABILITIES:
   Accounts payable-
     Related parties                                             $    163              $    215  
     Other                                                            345                   414  
   Accrued subcontractor costs-                                                                  
     Related parties                                                  982                   701  
     Other                                                            657                 1,550  
   Accrued liabilities                                                727                   782  
   Advance billings                                                   928                   830  
                                                                 --------              --------  
                                                                                                 
              Total current liabilities                             3,802                 4,492  
                                                                 --------              --------  
                                                                                                 
OTHER LONG-TERM LIABILITIES                                           433                   409  
                                                                 --------              --------  
                                                                                                 
COMMITMENTS AND CONTINGENCIES (Note 4)                                                           
                                                                                                 
STOCKHOLDERS' EQUITY:                                                                            
   Common stock, $0.01 par value; 40,000 shares                                                  
     authorized; 12,280 and 12,650 shares issued and                                             
     outstanding at December 31, 1997 and                                                        
     September 30, 1998, respectively                                                            
                                                                                                 
                                                                      123                   126  
   Additional paid-in capital                                      61,090                67,604  
   Receivables on sale of common stock                                (82)                  (76) 
   Accumulated deficit                                            (10,055)              (25,921) 
                                                                 --------              --------  
                                                                                                 
              Total stockholders' equity                           51,076                41,733  
                                                                 --------              --------  
                                                                                                 
              Total liabilities and stockholders' equity         $ 55,311              $ 46,634  
                                                                 ========              ========  
</TABLE>


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



                                       -4-
<PAGE>   5

                               ILEX ONCOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                    (In Thousands, Except Per Share Amounts)



<TABLE>
<CAPTION>
                                                         Three Months                   Nine Months
                                                             ended                         ended
                                                         September 30,                 September 30,
                                                         -------------                 -------------
                                                      1997           1998           1997           1998
                                                      ----           ----           ----           ----

<S>                                                <C>            <C>            <C>            <C>
REVENUE:
  Product development                              $  1,622       $  1,400       $  4,456       $  3,490
  Contract research services, net                     1,212          2,190          3,830          7,113
                                                   --------       --------       --------       --------

           Total revenue                              2,834          3,590          8,286         10,603
                                                   --------       --------       --------       --------

OPERATING EXPENSES:
  Research and development costs                      2,394          3,051          6,308          8,961
  Direct costs of research services                   1,493          2,422          3,662          7,036
  General and administrative                          1,313          1,885          2,980          5,071
  Licensing fees                                       --             --             --            3,443
                                                   --------       --------       --------       --------

           Total operating expenses                   5,200          7,358         12,950         24,511
                                                   --------       --------       --------       --------

OPERATING LOSS                                       (2,366)        (3,768)        (4,664)       (13,908)
                                                   --------       --------       --------       --------

OTHER INCOME (EXPENSE):
  Equity in income (losses) of:
   Research and development partnerships             (2,067)        (1,031)        (2,613)        (3,390)
   Contract research affiliate                          (83)          (150)           (83)           (71)
  Interest income                                       657            438          1,708          1,453
  Gain on sale of securities                           --               49           --               49
                                                   --------       --------       --------       --------

NET LOSS                                           $ (3,859)      $ (4,462)      $ (5,652)      $(15,867)
                                                   ========       ========       ========       ========

BASIC AND DILUTED NET LOSS PER SHARE               $   (.31)      $   (.35)      $   (.47)      $  (1.28)
                                                   ========       ========       ========       ========

WEIGHTED AVERAGE SHARES USED IN
   COMPUTING BASIC AND DILUTED LOSS PER
   SHARE OF COMMON STOCK
                                                     12,503         12,640         11,971         12,423
                                                   ========       ========       ========       ========
</TABLE>



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



                                      -5-
<PAGE>   6

                               ILEX ONCOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                                  September 30,
                                                                            -------------------------
                                                                               1997           1998
                                                                               ----           ----

<S>                                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                $ (5,652)      $(15,867)
    Adjustments to reconcile net loss to net cash used in
      operating activities-
       Depreciation and amortization                                             233          1,480
       Net activity of research and development partnerships and
         contract research affiliate                                             998         (1,564)
       Valuation of warrants issued in payment as licensing fees                --            3,143
       Change in assets and liabilities-
         (Increase) decrease in assets-
           Accounts receivable, net                                             (540)          (814)
           Inventory                                                            --             (500)
           Prepaid expenses and other                                           (178)            68
         Increase (decrease) in liabilities-
          Accounts payable                                                      (382)           121
          Accrued liabilities                                                    634            667
          Advance billings                                                       479            (98)
          Other long-term liabilities                                            168            (24)
                                                                            --------       --------

       Net cash used in operating activities                                  (4,240)       (13,388)
                                                                            --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of marketable securities                                          (7,008)       (65,880)
  Maturities of marketable securities                                          1,220         62,250
  Purchase of property and equipment                                          (1,781)        (2,009)
  Investments in research and development partnerships and
    contract research affiliate                                               (2,051)          (519)
                                                                            --------       --------

     Net cash provided by (used in) investing activities                      (9,620)        (6,158)
                                                                            --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock for cash, net of issuance cost                     29,865            268
  Payments of receivables on sale of common stock                                 69              6
                                                                            --------       --------

     Net cash provided by financing activities                                29,934            274
                                                                            --------       --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          16,074        (19,272)

CASH AND CASH EQUIVALENTS, beginning of period                                 5,037         22,655
                                                                            --------       --------
CASH AND CASH EQUIVALENTS, end of period                                    $ 21,111       $  3,383
                                                                            ========       ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for-
       Interest                                                             $   --             --
       Income taxes                                                             --             --
     Non-cash financing and investing activities-
       Issuance of common stock to Physician Reliance Network,
         Inc. ("PRN") for collaborative agreement                              5,116          3,107
</TABLE>


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



                                      -6-
<PAGE>   7

                               ILEX ONCOLOGY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                               September 30, 1998

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



1.   PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:

The accompanying interim consolidated financial statements presented herein
include the accounts of ILEX Oncology, Inc. and its wholly-owned
subsidiaries("the Company"). All significant intercompany transactions and
accounts have been eliminated in consolidation. These interim consolidated
financial statements have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In management's
opinion, all adjustments which are necessary for a fair presentation of
financial position and results of operations have been made. It is recommended
that these interim consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The results of
operations for any interim period are not necessarily indicative of the results
of operations for the entire year. Certain prior period amounts have been
reclassified to conform to the current period presentation.


2.   LOSS PER SHARE:

Diluted net loss per share is equal to basic net loss per share as the effect of
all common stock equivalents is antidilutive.


3.   INVESTMENTS IN AND ADVANCES TO RESEARCH AND DEVELOPMENT PARTNERSHIPS AND
     CONTRACT RESEARCH AFFILIATE:

In August 1998, the Company acquired an additional 10% of the ownership interest
of P.F.K. Pharma Forschung Kaufbeuren GmbH ("PFK"), a European clinical research
organization, for a cash payment of $519, bringing the Company's total ownership
interest in PFK to 40%.

In May 1997, the Company entered into an agreement with LeukoSite, Inc.
("LeukoSite"), for an equally owned joint venture, L&I Partners, L.P. ("L&I"),
for research collaboration endeavors. The following is summarized information
for L&I as of and for the three months and nine months ended September 30, 1998
(unaudited):



                                      -7-
<PAGE>   8

<TABLE>
<CAPTION>
                                                                               Three Months             Nine Months
                                                                                   Ended                   Ended
                                                                            September 30, 1998       September 30,1998
                                                                            ------------------       -----------------

                     Summarized Income Statement Information

<S>                                                                              <C>                      <C>    
          Revenue                                                                $    --                  $    --
          Research and development expenses                                         1,729                    5,856
          Other income                                                                  3                       11
                                                                                 --------                 --------
          Net loss                                                               $ (1,726)                $ (5,845)
                                                                                 ========                 ========

                      Summarized Balance Sheet Information

                               September 30, 1998

          Assets                                                                 $    334
          Liabilities                                                               5,021
                                                                                 --------
          Partners' equity (deficit)                                             $ (4,687)
                                                                                 ========
</TABLE>

4.   STOCKHOLDERS' EQUITY:

In accordance with the terms of the collaborative agreements between the Company
and Physician Reliance Network, Inc. ("PRN") the Company issued 314,600 shares
of Common Stock to PRN in July 1998. The Company recorded the cost of the shares
at market value on the date issued as an intangible asset and is amortizing this
amount over the remaining nine-year term of the agreements.

5.   COMMITMENTS & CONTINGENCIES:

In March 1998, the Company entered into an agreement with The Burnham Institute
to license a compound for development by the Company. The agreement called for
an initial payment of $250 and a warrant to purchase 590,113 shares of the
Company's common stock. Using a pricing model, the value of the warrant was
determined to be $3,100. The agreement also requires subsequent payments to The
Burnham Institute at the attainment of various milestones. The first of these
milestones is expected to be reached in the fourth quarter of 1998.

In September 1998, the Company entered into an agreement a customer for the
development of the compound SR-45023A. The agreement requires the Company to
perform clinical development services valued at $3 million in exchange for a 30%
ownership interest in the compound SR-45023A. The Company also has certain
rights to negotiate for additional ownership interest.

6.   SEGMENT INFORMATION:

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



                                      -8-

<PAGE>   9

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

                          Selected Segment Information


<TABLE>
<CAPTION>
                                                   For the three months ended          For the three months ended
                                                        September 30, 1997                  September 30, 1998
                                                        ------------------                  ------------------
                                                Services    Products      Total     Services    Products      Total
                                                --------    --------      -----     --------    --------      -----

<S>                                             <C>         <C>         <C>         <C>         <C>         <C>     
Revenues                                        $  1,212    $  1,622    $  2,834    $  2,190    $  1,400    $  3,590
Direct costs                                       1,493       2,394       3,887       2,422       3,051       5,473
                                                --------    --------    --------    --------    --------    --------
Segment operating income (loss)                     (281)       (772)     (1,053)       (232)     (1,651)     (1,883)
Equity in income (losses) in research and
  development partnerships and clinical
  research affiliate
                                                    --        (2,067)     (2,067)       --        (1,031)     (1,031)
                                                --------    --------    --------    --------    --------    --------
Segment income (loss)                           $   (281)   $ (2,839)   $ (3,120)   $   (232)   $ (2,682)   $ (2,914)
                                                ========    ========    ========    ========    ========    ========
</TABLE>


<TABLE>
<CAPTION>
                                                   For the nine months ended           For the nine months ended
                                                        September 30, 1997                  September 30, 1998
                                                        ------------------                  ------------------
                                                Services    Products      Total     Services    Products      Total
                                                --------    --------      -----     --------    --------      -----

<S>                                             <C>         <C>         <C>         <C>         <C>         <C>     
Revenues                                        $  3,830    $  4,456    $  8,286    $  7,113    $  3,490    $ 10,603
Direct costs                                       3,662       6,308       9,970       7,036      12,404      19,440
                                                --------    --------    --------    --------    --------    --------
Segment operating income (loss)                      168      (1,852)     (1,684)         77      (8,914)     (8,837)
Equity in income (losses) in research and
  development partnerships
                                                    --        (2,613)     (2,613)       --        (3,390)     (3,390)
                                                --------    --------    --------    --------    --------    --------
Segment income (loss)                           $    168    $ (4,465)   $ (4,297)   $     77    $(12,304)   $(12,227)
                                                ========    ========    ========    ========    ========    ========
</TABLE>


                      Reconciliation of Segment Information
                             To Consolidated Totals

<TABLE>
<CAPTION>
                                                        Three months ended          Nine months ended
                                                            September 30              September 30
                                                            ------------              ------------
                                                         1997         1998         1997         1998
                                                         ----         ----         ----         ----

<S>                                                  <C>          <C>          <C>          <C>       
OPERATING LOSS:
  Reportable segment operating loss                  $  (1,053)   $  (1,883)   $  (1,684)   $  (8,837)
  Corporate general and administrative expense          (1,313)      (1,885)      (2,980)      (5,071)
                                                     ---------    ---------    ---------    ---------
Consolidated operating loss                          $  (2,366)   $  (3,768)   $  (4,664)   $ (13,908)
                                                     =========    =========    =========    =========

NET LOSS:
  Reportable segment net loss                        $  (3,120)   $  (2,914)   $  (4,297)   $ (12,227)
  Corporate general and administrative expense          (1,313)      (1,885)      (2,980)      (5,071)
  Gain on sale of marketable securities                     49         --             49
  Interest income                                          657          438        1,708        1,453
  Equity in loss of contract research affiliate            (83)        (150)         (83)         (71)
                                                     ---------    ---------    ---------    ---------
Consolidated net loss                                $  (3,859)   $  (4,462)   $  (5,652)   $ (15,867)
                                                     =========    =========    =========    =========
</TABLE>



                                      -9-
<PAGE>   10


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS

         Certain statements contained in this Quarterly Report on Form 10-Q,
including statements regarding the anticipated development and expansion of the
Company's business, expenditures, the intent, belief or current expectations of
the Company, its directors or its officers, primarily with respect to the future
operating performance of the Company and other statements contained herein
regarding matters that are not historical fact, are "forward-looking statements"
(as such term is defined in the Private Securities Litigation Reform Act of
1995). Because such statements include risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, those discussed in other filings including those contained in
the Company's Registration Statement on Form S-1 (File No. 333-17769), the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, and
in other reports filed with the Securities and Exchange Commission. The Company
does not intend to update these forward-looking statements.

GENERAL

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

         In September 1998, the Company entered into an agreement a customer for
the development of the compound SR-45023A. The agreement requires the Company to
perform clinical development services valued at $3 million in exchange for a 30%
ownership interest in the compound SR-45023A. The Company also has certain
rights to negotiate for additional ownership interest.

         In August 1998, the Company acquired an additional 10% of the ownership
interests of P.F.K. Pharma Forschung Kaufbeuren GmbH ("PFK"), a European
clinical research organization, for a cash payment of $519,000, bringing the
Company's total ownership interest in PFK to 40%.

         In accordance with the terms of the collaborative agreements between
the Company and Physician Reliance Network, Inc. ("PRN") the Company issued
314,600 shares of Common Stock to PRN in July 1998. The Company recorded the
cost of the shares at market value on the date issued as an intangible asset and
is amortizing this amount over the remaining nine-year term of the agreements.

         The Company has no products available for sale and does not expect to
have any products resulting from its drug development efforts, including its
collaborations with others, commercially available for several years, if at all.
The Company has incurred losses and expects to incur additional losses for the
foreseeable future as the Company continues to invest in research and
development. The Company's revenue for the foreseeable future will be 



                                      -10-
<PAGE>   11

limited to development funding under its collaborative relationships,
fee-for-service revenues pursuant to contracts with its clients, interest income
and other miscellaneous income.

         The following is a discussion of the financial condition and results of
operations for the Company for the three-month and nine-month periods ended
September 30, 1997 and 1998. It should be read in conjunction with the Interim
Consolidated Financial Statements of the Company, the Notes thereto and other
financial information included elsewhere in this report and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.

RESULTS OF OPERATIONS

         THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998

Operating Revenues

         Total revenue increased from approximately $2.8 million in the third
quarter of 1997 to $3.6 million in the third quarter of 1998. The increase of
approximately $0.8 million, or 29%, was due to an additional $1.0 million of
contract research revenues offset by a reduction of $0.2 million in product
development revenues. The reduction in product development revenues to
approximately $1.4 million compares to $1.6 million in the third quarter of
1997. The decrease reflects the elimination of revenue from the development of
two drugs, crisnatol and mitoguazone. The $1.0 million, or 83%, increase in
contract research services revenues to $2.2 million, compared to approximately
$1.2 million in third quarter 1997, reflects an increase in both the number of
contracts underway as well as in the size and duration of the contract research
projects.

Operating Expenses

         Research and Development Costs. Research and development costs
increased from approximately $2.4 million in the third quarter of 1997 to $3.1
million in the third quarter of 1998. This increase of $0.7 million, or 29%, was
primarily attributable to increased spending for the development of five
compounds, CAMPATH-1H, DFMO, piritrexim, THP-Dox, and ILX23-7553 (Vitamin D3
analogue).

         General and Administrative Costs. General and administrative costs
increased from approximately $1.3 million in the third quarter of 1997 to $1.9
million in the third quarter 1998. This increase of $0.6 million, or 46%, is
primarily attributable to increases in rental expense and other facilities
costs, legal costs, and compensation related to additional administrative staff.

         Direct Costs of Research Services. Direct costs of research services
increased from $1.5 million in the third quarter of 1997 to $2.4 million in the
third quarter of 1998. This increase of $0.9 million, or 60%, is primarily
attributable to increases in expenditures required to support growth in the
number and size of contract research contracts, including staffing expenses and
facility and equipment expansion.

Equity in Income (Losses) of Research and Development Partnerships and Contract
Research Affiliate

         Equity in losses of research and development partnerships decreased
from $2.1 million in the third quarter of 1997 to $1.0 million in the third



                                      -11-
<PAGE>   12

quarter 1998. The decrease of $1.1 million is due to the reduction of
manufacturing costs for CAMPATH-1H, which is being developed in a joint venture
with LeukoSite Inc. During the third quarter of 1997, the joint venture incurred
substantial expense for the manufacturing of CAMPATH-1H for use in the ongoing
clinical trials. No manufacturing expense was incurred in the third quarter of
1998.

         The Company recorded a loss of $83,000 from its investment in its
affiliate, PFK, for the third quarter of 1997, compared to a loss of $150,000
for the third quarter of 1998. The increase of $67,000, or 81%, reflects the
expenses incurred by PFK in expanding its operations into additional countries
in Europe.

Net Interest Income

         Net interest income decreased from approximately $0.7 million in the
third quarter of 1997 to $0.4 million in the third quarter of 1998. This
decrease of $0.3 million, or 43%, is attributable to a decrease in aggregate
average balances of cash, cash equivalents and investments in marketable
securities.

Net Loss Per Share

         The net loss per share increased $.04 from $.31 in the third quarter of
1997 to $.35 in the third quarter of 1998 due to the reasons set forth above.

         NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997

Operating Revenues

         Total revenue increased from approximately $8.3 million in the first
nine months of 1997 to $10.6 million in the first nine months of 1998. The
increase of approximately $2.3 million, or 28%, was due to an additional $3.3
million of contract research revenues offset by a reduction of $1.0 million in
product development revenues. The reduction in product development revenues to
approximately $3.5 million from $4.5 million in the first nine months of 1997
reflects the elimination of revenue from the development of crisnatol and
mitoguazone, which was partially offset by the addition of development revenue
for CAMPATH-1H, and an increase in the development funding for piritrexim. The
$3.3 million, or 87%, increase in contract research services revenues to $7.1
million, from approximately $3.8 million in the first nine months of 1997,
reflects an increase in both the number of contracts underway as well as in the
size and complexity of the contract research projects.

Operating Expenses

         Total Operating Expenses. Total operating expenses increased from
approximately $13.0 million in the first nine months of 1997 to $24.5 million in
the first nine months of 1998. This increase of approximately $11.5 million
includes a one-time, non-cash expense for $3.1 million for the value of a
warrant to purchase shares of common stock of the Company issued to The Burnham
Institute in exchange for the licensing rights to THP-Dox. The remaining
increase of $8.4 million, or 65%, reflects increases in research and development
costs, general and administrative costs, licensing fees, and direct costs of
research services.



                                      -12-
<PAGE>   13

         Research and Development Costs. Research and development costs
increased from approximately $6.3 million in the first nine months of 1997 to
$9.0 million in the first nine months of 1998. This increase of $2.7 million, or
43%, was primarily attributable to increased spending for the development of
CAMPATH-1H, DFMO, piritrexim, THP-Dox, and ILX23-7553 (Vitamin D3 analogue).

         General and Administrative Costs. General and administrative costs
increased from approximately $3.0 million in the first nine months of 1997 to
$5.1 million in the first nine months of 1998. This increase of $2.1 million, or
70%, is primarily attributable to increases in rental expense and other
facilities costs, legal costs, and compensation related to additional
administrative staff.

         Direct Costs of Research Services. Direct costs of research services
increased from $3.7 million in the first nine months of 1997 to $7.0 million in
the first nine months of 1998. This increase of $3.3 million, or 89%, is
primarily attributable to increases in expenditures required to support growth
in the number and size of contract research contracts, including staffing
expenses and facility expansion.

         Licensing Fees. Licensing fees of $3.4 million for the first nine
months of 1998 relate to the acquisition of a license for THP-Dox from The
Burnham Institute. Payment of the fee was $250,000 in cash and issuance to The
Burnham Institute of a warrant to purchase 590,113 shares of the Company's
common stock, which was valued at $3.1 million using a pricing model. Also in
the first nine months of 1998, the Company paid a $50,000 fee in connection with
the acquisition of the licensing rights for oxypurinol. Additional payments will
be due upon attainment of specific milestones. No licensing fees were incurred
in the first nine months of 1997.

Operating Loss

         The loss from operations increased from $4.7 million in the first nine
months of 1997 to $14.0 million in the first nine months of 1998. This increase
of $9.3 million includes a one-time, non-cash charge for the value of a warrant
to purchase shares of common stock of the Company issued to The Burnham
Institute for payment, in part, of a licensing fee for the compound THP-Dox, in
the amount of $3.1 million. Additionally, spending by the Company on its
products portfolio, which was not reimbursed by the Company's collaborative
partners, increased by $3.6 million.

Equity in Income (Losses) of Research and Development Partnerships and Contract
Research Affiliate

         Equity in losses of research and development partnerships increased
from $2.6 million in the first nine months of 1997 to $3.4 million in the first
nine months of 1998. The increase of $0.8 million relates to increased
development costs for CAMPATH-1H and piritrexim, which are being developed by
the Company's joint ventures with LeukoSite Inc. and MPI Enterprises, L.L.C.,
respectively.

         The Company recorded a loss of $83,000 from its investment in its
affiliate, PFK, for the first nine months of 1997, compared to a loss of $71,000
for the first nine months of 1998. The increase of $12,000, or 14%, reflects the
expansion expenses incurred by PFK in expanding its operations into additional
countries in Europe.


                                      -13-
<PAGE>   14

Net Interest Income

         Net interest income decreased from approximately $1.7 million in the
first nine months of 1997 to $1.5 million in the first nine months of 1998. This
decrease of $0.2 million, or 12%, is attributable to a decrease in average
aggregate balances of cash, cash equivalents and investments in marketable
securities.

Net Loss

         The net loss increased $10.2 million from $5.7 million in the first
nine months of 1997 to $15.9 million in the first nine months of 1998 for the
reasons set forth above.

Net Loss Per Share

         The net loss per share increased $.81 from $.47 in the first nine
months of 1997 to $1.28 in the first nine months of 1998 for the reasons set
forth above.

SEASONALITY

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

INCOME TAXES

     The availability of net operating loss carryforwards to reduce U.S. federal
taxable income is subject to various limitations under the Internal Revenue Code
of 1986 (the "Code"), as amended, in the event of an ownership change as defined
in Section 382 of the Code. As of December 31, 1997, the Company had incurred at
least a 31 percent ownership change during the applicable three-year period. The
Company does not believe that this change in ownership significantly impacts the
Company's ability to utilize its net operating loss and tax credit carryforwards
as of December 31, 1997, because the amount of the annual limitation under the
Code of such carryforwards, during the remaining carryforward periods, is in
excess of the total amount of net operating loss and tax credit carryforwards.
There was no material ownership change during the nine-month period ended
September 30, 1998.



                                      -14-
<PAGE>   15
LIQUIDITY AND CAPITAL RESOURCES

         ILEX has financed its operations primarily through the sale of its
capital stock, through development and licensing fee revenues provided by its
partners under its collaborative agreements and through fee-for-service or
participatory revenues pursuant to contracts with its contract research services
customers. The Company receives payments under collaborative agreements
primarily in the form of development funding, milestone payments if milestones
are achieved, and royalties if products are commercialized. The Company does not
expect to receive royalties or other revenues based upon net sales of compounds
that may be developed for several years, if at all.

         To date, the majority of the Company's expenditures have been for
research and development activities. ILEX expects research and development
expenses to be significant for the next several years as its development
programs progress. As of September 30, 1998, the Company had cash, cash
equivalents and investments in marketable securities of approximately $27.0
million and working capital of approximately $27.0 million. The Company believes
that such amounts will be used primarily to support continued research and
development of its compounds, expand its contract research services business,
for general and administrative expenses and for other general corporate
purposes.

         As of September 30, 1998, the Company had no material commitments for
capital expenditures.

         ILEX's future expenditures and capital requirements will depend on
numerous factors including, without limitation, the progress of its research and
development programs, the progress of its preclinical 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 of the Company to establish, maintain
and avoid termination of collaborative arrangements, and the purchase of capital
equipment and acquisitions of compounds, technologies or businesses. The
Company's cash requirements are expected to increase each year as the Company
expands its activities and operations. There can be no assurance that the
Company will ever be able to generate product revenue or achieve or sustain
profitability.

YEAR 2000 COMPLIANCE

         The efficient operation of the Company's business is dependent on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business including information management services, scientific data
compilation and financial reporting, as well as in various administrative
functions. The Company has begun an ongoing evaluation of its Programs and
Systems to identify potential year 2000 compliance problems, as well as manual
processes, external interfaces with customers, and services supplied by vendors
to coordinate year 2000 compliance and conversion. The year 2000 problem refers
to the limitations of the programming code in certain existing software programs
to recognize date sensitive information for the year 2000 and beyond. Unless
modified prior to December 31, 1999, such software may not properly recognize
date sensitive information and could generate erroneous data or cause a system
to fail to operate properly. Based on current information, the Company expects
to attain year 2000 compliance and 



                                      -15-
<PAGE>   16

institute appropriate testing of its modifications and replacements in a timely
fashion and in advance of the year 2000 date change. All necessary modification
or replacement of the Company's Programs and Systems is being performed in-house
by company personnel.

         The Company believes that, with modifications to existing software and
conversions to new software, the year 2000 problem will not pose a significant
operational problem for the Company. Management of the Company currently
anticipates that the expenses and capital expenditures associated with its year
2000 compliance project, including costs associated with modifying the Programs
and Systems as well as the cost of purchasing or leasing certain hardware and
software, will not have a material effect on its business, financial condition
or results of operations and are expenses and capital expenditures the Company
anticipated incurring in the ordinary course of business regardless of the year
2000 problem. Purchased hardware and software has been and will continue to be
capitalized in accordance with normal policy. Personnel and other costs related
to this process are being expensed as incurred.

         The costs of year 2000 compliance and the expected completion dates are
the best estimates of Company management and are believed to be reasonably
accurate. In the event the Company's plan to address the year 2000 problem is
not successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's financial
condition and results of operations.

         In the event the Company determines, following the year 2000 date
change, that its Programs and Systems are not year 2000 compliant, the Company
will likely experience delays in processing and compiling scientific data,
processing customer orders and invoices, compiling information required for
financial reporting and performing various administrative functions. In the
event of such occurrence, the Company's contingency plan calls for it to switch
vendors or obtain hardware and/or software that is year 2000 compliant, and
until such hardware and/or software can be obtained, the Company will plan to
use non-computer systems for its business, including scientific data
compilation, information management services and financial reporting, as well as
its various administrative functions.

YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT

         To the maximum extent permitted by applicable law, the above
information is being designated as "Year 2000 Readiness Disclosure" pursuant to
the "Year 200 Information and Readiness disclosure Act" which was signed into
law on October 19, 1998.



                                      -16-
<PAGE>   17

                           PART II - OTHER INFORMATION

   Item 1.  Legal Proceedings: Not Applicable

   Item 2.  Changes in Securities: Not Applicable

   Item 3.  Defaults Upon Senior Securities: Not Applicable

   Item 4.  Submission of Matters to a Vote of Security Holders: Not Applicable

   Item 5.  Other Information: Not Applicable

   Item 6.  Exhibits and Reports on Form 8-K

            (a)    Exhibit 11.1:   Computation of Net Loss Per Share
                   Exhibit 27.1:   Financial Data Schedule

            (b)    Reports on Form 8-K: Not Applicable



                                      -17-
<PAGE>   18

                                   SIGNATURES


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


                                  ILEX ONCOLOGY, INC.
                                  (Registrant)



Dated:  November 13, 1998         By:     /s/ Richard L. Love
      -------------------            ------------------------------------------
                                       Richard L. Love
                                       President and Chief Executive Officer
                                         (Principal Executive Officer)



Dated:  November 13, 1998         By:     /s/ Michael T. Dwyer
      -------------------            ------------------------------------------
                                       Michael T. Dwyer
                                       Vice President and Chief Financial
                                         Officer
                                            (Principal Financial and Accounting
                                             Officer)



                                      -18-
<PAGE>   19
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>

 11.1          Computation of Net Loss Per Share

 27.1          Financial Data Schedule
</TABLE>