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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 1934For the quarterly period ended September 30, 2003ORo
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from. . . . . . to. . . . . .


Commission file number 0-22147

ILEX ONCOLOGY, INC.

(Exact name of registrant as specified in its charter)


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


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



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or15(d)of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YesxNoo.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) YesxNoo.

The number of shares outstanding of the Registrants common stock as of
November 3, 2003 is 38,998,621.





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TABLE OF CONTENTS



|                                                 |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                   
|                                                 | Item 1. Financial Statements                                                                 
|                                                 |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                                 |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                 |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                 |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                 | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                 | Item 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                      
|                                                 | Item 1. Legal Proceedings                                                                    
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                                      
|Exhibit Index                                   
|EX-11.1 Computation of Net Loss per Share       
|EX-31.1 Certification of President and CEO - 302
|EX-31.2 Certification of Senior VP and CFO - 302
|EX-32.1 Certification Pursuant to Section 906   
|EX-32.2 Certification Pursuant to Section 906   



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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q







INDEX

PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets  September 30, 2003 and December 31, 2002
    
    
    3Consolidated Statements of Operations  Three and Nine Month Periods
Ended September 30, 2003 and 2002
    
    
    5Consolidated Statements of Cash Flows  Nine Month Periods Ended
September 30, 2003 and 2002
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    16Item 6. Exhibits and Reports on Form 8-K
    
    
    17SIGNATURES
    
    
    18


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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q










PART I. FINANCIAL INFORMATION







Item 1. Financial Statements







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

ASSETS

September 30,
    
    December 31,2003
    
    2002(unaudited)CURRENT ASSETS:Cash and cash equivalents
    
    $
    119,212
    
    
    $
    29,679Investments in marketable securities
    
    
    86,537
    
    
    
    123,591Restricted investments
    
    
    815
    
    
    
    976Accounts receivable, net of allowance for doubtful
accounts of $15 and $30 in 2003 and 2002, respectively
    
    
    319
    
    
    
    871Accounts receivable  Schering AG
    
    
    9,266
    
    
    
    4,701Other receivables
    
    
    1,699
    
    
    
    3,654Prepaid expenses and other
    
    
    2,896
    
    
    
    2,273Total current assets
    
    
    220,744
    
    
    
    165,745NON-CURRENT ASSETS:Investments in marketable securities
    
    
    19,974
    
    
    
    34,737Restricted investments
    
    
    2,017
    
    
    
    2,017Completed technology asset, net of accumulated amortization
of $8,100 and $4,629 in 2003 and 2002, respectively
    
    
    56,700
    
    
    
    60,171Other intangible assets, net of accumulated amortization of $428
and $200 in 2003 and 2002, respectively
    
    
    4,372
    
    
    
    2,600Goodwill
    
    
    
    
    
    
    213Other assets
    
    
    748
    
    
    
    283Total non-current assets
    
    
    83,811
    
    
    
    100,021PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $9,649 and $7,950 in 2003 and 2002, respectively
    
    
    4,266
    
    
    
    5,140Total assets
    
    $
    308,821
    
    
    $
    270,906


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

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




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

LIABILITIES AND STOCKHOLDERS EQUITY

September 30,
    
    December 31,2003
    
    2002(unaudited)CURRENT LIABILITIES:Accounts payable-Related parties
    
    $
    
    
    
    $
    136Other
    
    
    9,931
    
    
    
    8,214Accrued liabilities-Related parties
    
    
    470
    
    
    
    455Other
    
    
    5,709
    
    
    
    6,378Deferred revenue
    
    
    391
    
    
    
    879Advances from Schering AG
    
    
    
    
    
    
    2,577Note payable
    
    
    38,979
    
    
    
    38,099Total current liabilities
    
    
    55,480
    
    
    
    56,738NON-CURRENT LIABILITIES:Deferred revenue
    
    
    1,165
    
    
    
    Note payable
    
    
    18,561
    
    
    
    36,155Other non-current liabilities
    
    
    742
    
    
    
    771Total non-current liabilities
    
    
    20,468
    
    
    
    36,926Total liabilities
    
    
    75,948
    
    
    
    93,664COMMITMENTS AND CONTINGENCIES (see Note 8)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; 38,983,013 and 32,529,282 shares issued and
outstanding in 2003 and 2002, respectively
    
    
    390
    
    
    
    326Additional paid-in capital
    
    
    560,166
    
    
    
    460,014Deferred compensation
    
    
    (467
    )
    
    
    Accumulated deficit
    
    
    (327,767
    )
    
    
    (283,430
    )Accumulated other comprehensive income
    
    
    551
    
    
    
    332Total stockholders equity
    
    
    232,873
    
    
    
    177,242Total liabilities and stockholders equity
    
    $
    308,821
    
    
    $
    270,906


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

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q










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

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002REVENUE:Product profit and royalty
    
    $
    4,513
    
    
    $
    3,157
    
    
    $
    17,572
    
    
    $
    8,277Outlicensing revenue
    
    
    2,581
    
    
    
    
    
    
    
    2,685
    
    
    
    634Product development
    
    
    985
    
    
    
    2,378
    
    
    
    5,196
    
    
    
    6,362Contract research services
    
    
    403
    
    
    
    2,216
    
    
    
    1,497
    
    
    
    8,142Other
    
    
    244
    
    
    
    168
    
    
    
    587
    
    
    
    203Total revenue
    
    
    8,726
    
    
    
    7,919
    
    
    
    27,537
    
    
    
    23,618OPERATING EXPENSES:Research and development costs
    
    
    12,125
    
    
    
    11,339
    
    
    
    34,656
    
    
    
    34,361Licensing costs
    
    
    2,133
    
    
    
    240
    
    
    
    4,144
    
    
    
    5,374Selling, general and administrative
    
    
    2,789
    
    
    
    2,905
    
    
    
    9,663
    
    
    
    8,742Direct cost of research services
    
    
    370
    
    
    
    1,639
    
    
    
    1,119
    
    
    
    5,355Depreciation and amortization
    
    
    1,857
    
    
    
    1,834
    
    
    
    5,713
    
    
    
    5,513Impairment charge
    
    
    213
    
    
    
    
    
    
    
    213
    
    
    
    Settlement charge
    
    
    
    
    
    
    
    
    
    
    16,500
    
    
    
    Total operating expenses
    
    
    19,487
    
    
    
    17,957
    
    
    
    72,008
    
    
    
    59,345OPERATING LOSS
    
    
    (10,761
    )
    
    
    (10,038
    )
    
    
    (44,471
    )
    
    
    (35,727
    )OTHER INCOME (EXPENSE):Interest income and other, net
    
    
    1,077
    
    
    
    1,403
    
    
    
    3,440
    
    
    
    6,082Interest expense
    
    
    (997
    )
    
    
    (1,411
    )
    
    
    (3,286
    )
    
    
    (4,990
    )LOSS BEFORE INCOME TAXES
    
    
    (10,681
    )
    
    
    (10,046
    )
    
    
    (44,317
    )
    
    
    (34,635
    )Benefit/(provision) for foreign income taxes
    
    
    57
    
    
    
    (359
    )
    
    
    (20
    )
    
    
    (378
    )NET LOSS
    
    $
    (10,624
    )
    
    $
    (10,405
    )
    
    $
    (44,337
    )
    
    $
    (35,013
    )BASIC AND DILUTED NET LOSS PER SHARE
    
    $
    (0.29
    )
    
    $
    (0.32
    )
    
    $
    (1.31
    )
    
    $
    (1.08
    )WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
    
    
    36,617
    
    
    
    32,528
    
    
    
    33,862
    
    
    
    32,458


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

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q










CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Nine Months EndedSeptember 30,2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (44,337
    )
    
    $
    (35,013
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    5,713
    
    
    
    5,513Interest expense paid in stock
    
    
    929
    
    
    
    Non-cash compensation expense
    
    
    589
    
    
    
    Impairment charge
    
    
    213
    
    
    
    Gain on investments in marketable securities
    
    
    (52
    )
    
    
    (435
    )Loss on disposal of equipment
    
    
    40
    
    
    
    26Bad debt provision (reduction)
    
    
    10
    
    
    
    (57
    )Changes in operating assets and liabilities:(Increase) decrease in receivables, net
    
    
    (2,068
    )
    
    
    2,334Increase in prepaid expenses and other
    
    
    (623
    )
    
    
    (182
    )(Increase) decrease in other non-current assets
    
    
    (465
    )
    
    
    227Decrease in accounts payable and accrued liabilities
    
    
    (1,613
    )
    
    
    (7,618
    )Increase (decrease) in deferred revenue
    
    
    677
    
    
    
    (1,924
    )Increase in interest on note payable
    
    
    1,428
    
    
    
    4,990Decrease in other non-current liabilities
    
    
    (29
    )
    
    
    (3,462
    )Net cash used in operating activities
    
    
    (39,588
    )
    
    
    (35,601
    )CASH FLOWS FROM INVESTING ACTIVITIES:Net activity of marketable securities transactions
    
    
    51,869
    
    
    
    20,894Net activity in restricted investments
    
    
    161
    
    
    
    294Increase in intangible assets
    
    
    (2,000
    )
    
    
    Purchase of property and equipment
    
    
    (1,200
    )
    
    
    (1,405
    )Proceeds from sale of property and equipment
    
    
    11
    
    
    
    27Net cash provided by investing activities
    
    
    48,841
    
    
    
    19,810CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of common stock for cash, net of issuance costs
    
    
    87,476
    
    
    
    Exercise of stock options and warrants
    
    
    1,685
    
    
    
    1,566Principal payment on note payable
    
    
    (9,071
    )
    
    
    Principal payments for capital lease obligations
    
    
    (37
    )
    
    
    (59
    )Net cash provided by financing activities
    
    
    80,053
    
    
    
    1,507Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    227
    
    
    
    347NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    89,533
    
    
    
    (13,937
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    29,679
    
    
    
    84,518CASH AND CASH EQUIVALENTS, end of period
    
    $
    119,212
    
    
    $
    70,581


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

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q










NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share information, per share information or as
otherwise indicated) (unaudited)



|1. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

Principles of consolidation and basis of presentation

The accompanying interim Consolidated Financial Statements presented herein
include the accounts of ILEX Oncology, Inc. and its subsidiaries
(we, our,us or ILEX). All significant intercompany transactions and accounts have
been eliminated in consolidation. These interim consolidated financial
statements have been prepared by us, 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 consist of only normal, recurring adjustments, that are
necessary for a fair presentation of financial position and results of
operations have been made. Certain prior year amounts have been reclassified
to conform to the 2003 presentation.

It is recommended that these interim consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2002. The results
of operations for any interim period are not necessarily indicative of the
results of operations for the entire year.

Outlicensing Revenue

Outlicensing revenue is earned and recognized based on the performance
requirements of the respective outlicensing agreements. Non-refundable license fees for which no further performance
obligations exist, and no continuing involvement by us is required, are
recognized on the earlier of when the payments are received or when collection
is assured. Revenue from non-refundable upfront license fees where we
continue involvement through development collaboration or have an obligation to
supply product is recognized ratably over the applicable development period or
patent life.

Revenue associated with performance milestones is recognized based upon the
achievement of the milestones, as defined in the respective agreements. Revenue
under research and development cost reimbursement contracts is recognized as
the related costs are incurred. Advance payments received in excess of amounts
earned are classified as deferred revenue until earned.

Stock-based compensation

We use the intrinsic value method in accounting for its stock compensation
plans. Had compensation cost for our stock compensation plans been determined
based upon a fair value method consistent with Statement of Financial
Accounting Standard (SFAS) No. 123 our net loss and loss per share would have
been increased to the pro forma amounts indicated below:

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net loss
    
    As reported
    
    $
    (10,624
    )
    
    $
    (10,405
    )
    
    $
    (44,337
    )
    
    $
    (35,013
    )Stock grant compensation cost included in reported loss
    
    
    110
    
    
    
    
    
    
    
    589
    
    
    
    Fair value cost
    
    
    (2,088
    )
    
    
    (2,934
    )
    
    
    (5,544
    )
    
    
    (8,438
    )Pro forma
    
    $
    (12,602
    )
    
    $
    (13,339
    )
    
    $
    (49,292
    )
    
    $
    (43,451
    )


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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




Loss per share
basic and diluted
    
    As reported
    
    $
    (0.29
    )
    
    $
    (0.32
    )
    
    $
    (1.31
    )
    
    $
    (1.08
    )Stock grant compensation cost included in reported loss
    
    
    
    
    
    
    
    
    
    
    0.02
    
    
    
    Fair value cost
    
    
    (0.05
    )
    
    
    (0.09
    )
    
    
    (0.17
    )
    
    
    (0.26
    )Pro forma
    
    $
    (0.34
    )
    
    $
    (0.41
    )
    
    $
    (1.46
    )
    
    $
    (1.34
    )


Intangible assets and goodwill

In December 2001, Genentech announced that it was granted a patent relating to
fundamental methods and compositions for the production of monoclonal
antibodies using recombinant DNA technology, as a result of a favorable
decision in a patent interference proceeding. This proceeding entitled
Genentech to priority over the patent held by the Celltech Group PLC, who had
first received the patent in 1989. In March 2003, we finalized a license from
Genentech covering the production of its CAMPATH 1-H monoclonal antibody
against the CD52 target. Accordingly, we have recorded an intangible asset of
$2.0 million associated with the license grant fee paid to Genentech in April
2003, which is being amortized over the remaining CAMPATH patent life. We will also pay
milestones and royalties based upon net U.S. sales levels (see Note 8). As of
September 30, 2003, we have recorded accumulated amortization of $78.0 related
to this asset.

In connection with our December 31, 2001 acquisition of Millennium
Pharmaceuticals, Inc.s (Millenniums) interest in ILEX Pharmaceuticals, L.P.,
formerly known as Millennium & ILEX, L.P. (the Partnership), we have recorded
a completed technology asset and a trademark which are classified as intangible
assets in our consolidated balance sheets in the amounts of $64.8 million and
$2.8 million, respectively. These intangible assets are being
amortized under the straight-line method over 14 years. As of September 30,
2003, we have recorded accumulated amortization of $8.5 million related to
these assets.

We acquired Symphar S.A. on February 13, 2001. SFAS No. 141 required that we
recognize our assembled workforce as goodwill rather than an intangible asset
as it did not meet the specified criteria for recognition apart from goodwill.
We reviewed such goodwill as of September 30, 2003 and determined that it had
been impaired due to recent research focus changes and personnel changes. We
recorded an impairment charge of $213.0 in the third quarter of 2003.



|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. |  | STATEMENTS OF CASH FLOWS
|-- |  | ------------------------

Non-cash investing and financing activities for the nine months ended September
30, 2003 and 2002, include the following:

2003
    
    2002Deferred compensation  stock grant
    
    
    (467
    )
    
    
    Payment of principal portion of note
payable in shares of our
common stock
    
    
    (9,071
    )
    
    
    


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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




Supplemental disclosures of cash flow information for the nine months ended
September 30, 2003 and 2002 include the following:

2003
    
    2002Cash paid for interest
    
    $
    930
    
    
    $
    8




|4. |  | SETTLEMENT CHARGE
|-- |  | -----------------

In April 2003, our subsidiary, ILEX Oncology Services, Inc, (ILEX Services)
settled a dispute with a former contract research organization (CRO) customer.
As a result of this settlement, ILEX Services paid the former CRO customer
$20.0 million in June of 2003. We recorded a settlement charge in the first
quarter of 2003 of $16.5 million, which is net of insurance reimbursement of
$3.5 million, related to the settlement of this dispute.



|5. |  | COMPREHENSIVE LOSS
|-- |  | ------------------

Comprehensive loss is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. The
following table presents the components of our comprehensive loss:

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net loss
    
    $
    (10,624
    )
    
    $
    (10,405
    )
    
    $
    (44,337
    )
    
    $
    (35,013
    )Other comprehensive income:Foreign currency translation
adjustments
    
    
    127
    
    
    
    72
    
    
    
    219
    
    
    
    390Comprehensive loss
    
    $
    (10,497
    )
    
    $
    (10,333
    )
    
    $
    (44,118
    )
    
    $
    (34,623
    )




|6. |  | DEVELOPMENT AND DISTRIBUTION AGREEMENT
|-- |  | --------------------------------------

In January 2003, Schering AG obtained from us the exclusive development,
marketing and distribution rights to CAMPATH in Japan, China and other Asian
countries. We received an upfront payment and incurred an associated fee of
50% of such payment to the licensor, both of which are being recognized over
the life of the patent in that region. We may also receive payments upon
completion of certain milestones and a royalty based on net sales of CAMPATH in
those areas.



|7. |  | LICENSING AGREEMENTS
|-- |  | --------------------

In May 2003, we signed an agreement with QuatRx Pharmaceuticals Co. (QuatRx),
granting QuatRx an exclusive, worldwide license to certain lipid-focused
research platforms. In connection therewith, we received an upfront payment of
$2.5 million, which was recognized as revenue in September 2003, as the
associated technology transfer was completed during such period. We may also
receive payments upon the completion of certain milestones and royalties based
on net sales of a product developed from these research platforms.

In March 2001, we obtained the co-development rights to clofarabine in the U.S.
and Canada from Bioenvision, Inc. (Bioenvision). Under the co-development
agreement, we have the opportunity to obtain, after the satisfaction of certain
conditions, the exclusive commercialization rights to clofarabine in the U.S.
and Canada and an economic interest in the drug in Europe. We also share in
clinical development costs for European development.



|8. |  | COMMITMENTS AND CONTINGENCIES
|-- |  | -----------------------------

We are subject to various claims and assessments arising out of the ordinary
course of business. We believe it is unlikely that the final outcome of any of
the claims or proceedings to which we are a party will have a material adverse
effect on our financial position or results of operations. However, due to the
inherent uncertainty of litigation, there can be no assurance that the
resolution of any particular claim or proceeding would not have a material
adverse effect on our results of operations for the period in which such
resolution occurred.

On September 12, 2003, certain former shareholders of Convergence
Pharmaceuticals, Inc. (Convergence) delivered to us a demand for arbitration
under the Plan of Merger and Acquisition Agreement executed in connection with

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




our acquisition of Convergence in July 1999. The demand for arbitration
alleges that ILEX breached its obligation of good faith and fair dealing by
intentionally delaying Phase II trials of NM-3 in order to avoid making a
milestone payment of 500,000 shares of our Common Stock that would
have become due
pursuant to the Plan of Merger and Acquisition Agreement if Phase II trials
were initiated by December 31, 2002. The demand for arbitration was filed by
former shareholders of Convergence whose pro rata share of the 500,000 share
milestone payment is 210,000 shares. The parties are in the discovery phase of
the arbitration proceedings. We believe that the claims made against us are
without merit and we intend to defend the action vigorously. However, the
arbitration process is inherently uncertain and unpredictable, and accordingly
there can be no assurance as to the ultimate outcome of the
arbitration. If ILEX is required to deliver the 210,000 shares
subject to the current demand, then we may be required to deliver the
remaining 290,000 shares to the other former Convergence shareholders
in order to avoid additional disputes with other former Convergence
shareholders.

In connection with the license grant fee paid to Genentech in April 2003, we
will also pay milestones and royalties based upon net U.S. sales levels of
CAMPATH. We anticipate achievement of all sales milestones in 2003 and have
expensed approximately $2.4 million associated with these sales milestones as
of September 30, 2003.

During 1998, we guaranteed a line of credit for Clinical Research Group, Inc.
(CRG). The guarantee gave us access to a network of clinical sites managed by
CRG. If the guarantee comes to redemption, we will obtain an ownership
interest in CRG in accordance with the guarantee agreement. Under the terms of
the agreement, we have maintained $492.0 in the form of securities as
collateral for the guarantee as of September 30, 2003. As of September 30,
2003 we had yet to fund the guarantee, however it has been reserved for in
prior financial statements.



|9. |  | STOCKHOLDERS EQUITY
|-- |  | --------------------

On August 4, 2003, we completed an underwritten public offering of our common
stock, pursuant to which we sold 5.5 million shares. In addition, the Cancer
Therapy and Research Center Endowment, an ILEX shareholder, offered 500,000
shares of our common stock. Proceeds, net of costs to us, from this
offering were approximately $87.5 million. We anticipate that the net
proceeds from this offering will be used to fund clinical trials of our lead
product candidates; for clinical and preclinical studies for our other product
candidates; for potential licenses and acquisitions of other businesses or
complementary products and technologies; and for working capital, capital
expenditures and other general corporate purposes.







ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Forward-Looking Statements  Cautionary Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements
as such term is defined in the Private Securities Litigation Reform Act of 1995
and information relating to us and our subsidiaries that are based on the
beliefs of our management as well as assumptions made by and information
currently available to our 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 us,our subsidiaries or our
management, are intended to identify forward-looking statements. All
statements other than statements of historical fact included in this Quarterly
Report on Form 10-Q regarding our financial position, business strategy and
plans or objectives for future operations are forward-looking statements. We
cannot guarantee the accuracy of the forward-looking statements, and you should
be aware that our actual results could differ materially from those contained
in the forward-looking statements due to a number of factors, including: risks
associated with preclinical and clinical developments in the biopharmaceutical
industry in general and in our compounds under development in particular; the
potential failure of our compounds under development to prove safe and
effective for treatment of disease; uncertainties inherent in the early stage
of our 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; our ability to predict our future expenses and
capital needs; the development of competing products; our ability to combine
our disparate research capabilities and translate them into clinical drug
development programs; uncertainties related to our 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; failure to satisfy performance obligations in our
licenses or other contracts; uncertainty regarding our patents and patent
rights (including the risk that we may be forced to engage in costly litigation
to protect such patent rights and the material harm to us if there were an
unfavorable outcome of any such litigation); rapid technological change could
render our technologies obsolete; one-time events and those risks described
herein, in our Report on Form 10-K filed March 14, 2003, and in other

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




filings made by us 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. We
do not intend to update these forward-looking statements.

The following discussion describes our financial position and results of
operations for the three and nine-month periods ended September 30, 2003. The
consolidated financial statements and notes thereto contain detailed
information that should be referred to in conjunction with this discussion.

OUR BUSINESS

We are a product-driven biopharmaceutical company focused on developing and
commercializing a portfolio of novel therapeutic treatments primarily in
oncology. We have leveraged our core competencies in clinical drug development
to identify, develop and commercialize our proprietary product candidates. Our
lead product is marketed in the United States as CAMPATH® and in Europe and
other countries as MABCAMPATH® for the treatment of patients with B-cell
chronic lymphocytic leukemia (CLL) who have been treated with alkylating agents
and who have failed fludarabine therapy. CLL is a type of blood cancer
characterized by progressive accumulation of B-lymphocytes, a type of immune
system cell formed in the bone marrow. In addition to CAMPATH, we have
product candidates in clinical trials, principally addressing oncology, as well
as several active preclinical and drug discovery programs. Our pipeline
comprises product candidates at various stages of clinical development,
including monoclonal antibodies, agents that have toxic effects on certain
cells (cytotoxic agents) or inhibit cellular growth (cytostatic agents) with
novel mechanisms of action, agents that inhibit the formation of new blood
vessels (angiogenesis inhibitors) and agents which block cellular messaging
associated with cancer growth and metastasis (signal transduction inhibitors).

We have incurred losses since inception and had an accumulated deficit through
September 30, 2003 of $327.8 million. Our losses have resulted primarily
from research and product development activities, including licensing of
products and product and corporate acquisitions for which we incur in-process
research and development charges and administrative expenses. We plan to
continue to invest in key research and development activities. We expect to
continue to incur operating losses throughout 2003. Our revenue for the
foreseeable future will be limited to our product profit and royalty revenue,
product development revenue, interest income and other miscellaneous income.

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 contract research organization (CRO) business. We expect
this transition to be completed by the second quarter of 2004. We will
continue to recognize revenue from current client projects, but we do not
intend to take on any new fee-for-service contracts.

RECENT DEVELOPMENTS

On August 4, 2003, we completed an underwritten public offering of our common
stock, pursuant to which we sold 5.5 million shares. In addition, the Cancer
Therapy and Research Center Endowment, an ILEX shareholder, offered 500,000
shares of our common stock. Proceeds, net of costs to us, from this offering
were approximately $87.5 million. We anticipate that the net proceeds from
this offering will be used to fund clinical trials of our lead product
candidates; for clinical and preclinical studies for our other product
candidates; for potential licenses and acquisitions of other businesses or
complementary products and technologies; and for working capital, capital
expenditures and other general corporate purposes.

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




In May 2003, we signed an agreement with QuatRx Pharmaceuticals Co. (QuatRx),
granting QuatRx an exclusive, worldwide license to certain lipid-focused
research platforms. We received an upfront payment of $2.5 million, which was
recognized as income in the third quarter of 2003, when all technical
information relating to the research platforms was transferred to QuatRx. We
may also receive payments upon the completion of certain milestones and
royalties based on net sales of a product developed from these research
platforms.

In April 2003, our subsidiary, ILEX Oncology Services, Inc, (ILEX Services)
settled a dispute with a former contract research organization (CRO) customer.
As a result of this settlement, ILEX Services paid the former CRO customer
$20.0 million in June 2003. We recorded a settlement charge in the first
quarter of 2003 of $16.5 million, which is net of insurance reimbursement of
$3.5 million, related to the settlement of this dispute.

In March 2003, we finalized a non-exclusive patent license from Genentech
covering the production of CAMPATH. The license grant fee of $2.0 million was
paid in the second quarter of 2003 and is currently being amortized over 13
years. Additionally, as of September 30, 2003, we have accrued $2.4 million of
sales milestones related to this license.

CRITICAL ACCOUNTING POLICIES

We believe that our most critical accounting issues include our policy for the
recognition of revenue from outlicensing agreements, the valuation and
impairment review of the intangible assets acquired in connection with the
purchase of Millenniums interest in the Partnership and the process of
determining the amount of in-process research and development obtained in an
acquisition.

Outlicensing revenue is earned and recognized based on the performance
requirements of the respective outlicensing agreements. Non-refundable license fees for which no further performance
obligations exist, and no continuing involvement by us is required, are
recognized on the earlier of when the payments are received or when collection
is assured. Revenue from non-refundable license fees where we continue
involvement through development collaboration or have an obligation to supply
product is recognized ratably over the applicable development period or patent
life.

Revenue associated with performance milestones is recognized based upon the
achievement of the milestones, as defined in the respective agreements. Revenue
under research and development cost reimbursement contracts is recognized as
the related costs are incurred. Advance payments received in excess of amounts
earned are classified as deferred revenue until earned.

The amount recorded as completed technology and the amount recorded as
trademark within our other intangible assets were determined based on an
independent appraisal of the estimated timing and amount of revenue to be
generated from sales of CAMPATH. Amounts recorded as in-process research and
development are based upon assumptions and estimates regarding the amount and
timing of projected revenues and costs as well as the appropriate discount
rates and expected trends in technology. No assurance can be given, however,
that the underlying assumptions used to estimate revenue, development costs or
profitability or the events associated with such projects will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects involve the projected timing of completion and revenues attributable
to each project.

RESULTS OF OPERATIONS  NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Operating Revenues

Total revenue increased to $27.5 million in the first nine months of 2003,
from $23.6 million in the first nine months of 2002, an overall increase of
$3.9 million, or 17%. The increase is attributable 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 and outlicensing revenue. Product
profit and royalty revenue increased to $17.6 million in the first nine months
of 2003 from $8.3 million in the first nine months of 2002 due to an increase
in global net sales of CAMPATH. Global net sales of CAMPATH, recorded by
Schering AG and Berlex, were $53.3 million for the first nine months of 2003 as
compared to $32.4 million in the same period of 2002. Outlicensing revenues
for the first nine months of 2003 consist primarily of a $2.5 million upfront
payment received from QuatRx. The payment was

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




recognized as revenue in September 2003 as the technology transfer related to
the lipid-focused research platform was completed during such period. Product
development revenue decreased to $5.2 million for the first nine months of 2003
from $6.4 million for the same period in 2002, a decrease of $1.2 million or
19%. Product development revenue represents Schering AGs contribution to
research and development expenses and decreased in the third quarter primarily
because the advance balance from Schering AG was depleted in the first quarter
of 2003. Revenue from our CRO services decreased $6.6 million, or 81%, to $1.5
million in the first nine months of 2003 from $8.1 million in the first nine
months of 2002. This decrease is the result of our continued transition out of
the fee-for-service CRO business.

Operating Expenses

Research and development costs. Research and development costs increased
to $34.7 million for the first nine months of 2003, from $34.4 million in 2002.
This increase resulted from increased development spending on our product
pipeline, specifically CAMPATH and ILX-651, which was partially offset by a
decrease in payroll and facility-related research and development costs.

Licensing costs. Licensing costs decreased to $4.1 million for the first
nine months of 2003 from $5.4 million in the first nine months of 2002.
Licensing costs for the first nine months of 2003 consisted primarily of
expense accruals for the achievement of milestones associated with the license
grant from Genentech. Licensing costs in 2002 consisted primarily of a $4.0
million license fee expense accrual related to an exclusive worldwide license
from BASF Pharma for ILX-651.

Selling, general and administrative costs. Selling, general and
administrative costs increased to $9.7 million for the first nine months of
2003, compared to $8.7 million for the same period in 2002. This increase of
$1.0 million, or 11%, is primarily due to legal fees associated with the
settlement charge related to CRO operations and non-cash compensation charges.

Direct cost of research services. Direct cost of research services
decreased to $1.1 million during the first nine months of 2003, from $5.4
million in 2002. This decrease is attributable to our continued transition out
of the fee-for-service CRO business.

Depreciation and amortization. Depreciation and amortization increased to
$5.7 million from $5.5 million in 2002, as a result of an increase in
intangible assets in 2003, as well as additional purchases of fixed assets.

Impairment charge. We recorded an impairment charge of $213.0 in the
third quarter of 2003 based upon a review of our goodwill as of September 30,
2003. We determined that the goodwill resulting from the purchase of Symphar
S.A. in 2001 had been impaired due to recent research focus and personnel
changes at our location in Geneva, Switzerland.

Settlement charge. We incurred a settlement charge of $16.5 million in the
first quarter of 2003. This charge is the result of the settlement of a
dispute with a former CRO client.

Interest Income and Other, Net

Interest and other income decreased to $3.4 million for the first nine
months of 2003 from $6.1 million for the first nine months of 2002. This
decrease of $2.7 million, or 44%, is attributable to lower cash balances
throughout the first nine months of 2003 compared to the same period last year
as well as a reduction in the interest rate returns earned on our
investments in
2003 compared to interest rate returns earned in 2002.

Interest Expense

Interest expense decreased to $3.3 million for the first nine months of
2003 from $5.0 million for the same period in 2002. Interest expense relates
to the imputed interest on the note to Millennium for our purchase of their
interest in the Partnership. The decrease of $1.7 million, or 34%, is a result
of the decrease in the outstanding balance of the note on which interest
expense is calculated.

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




Net Loss

Net loss increased $9.3 million in the first nine months of 2003 to $44.3
million, from $35.0 million in the same period of 2002. Net loss per share
increased $0.23 per share for the same period to $1.31 per share in 2003, from
$1.08 per share in 2002. Excluding the settlement charge related to our CRO
business of $16.5 million for the nine months ended September 30, 2003,
non-GAAP net loss was $27.8 million compared to $35.0 million for the nine
months ended September 30, 2002. Our management believes that the
aforementioned non-GAAP measure of net loss and net loss per share is useful
for investors as it excludes the significant, unusual settlement charge.
Management also believes that excluding the settlement charge from our GAAP net
loss provides users of our financial statements an important insight into our
net results and the related trends, which are affecting our core business.
Non-GAAP net loss and net loss per share should not be considered in isolation
and are not intended to represent an alternative measure of operating or net
results or any other measure of performance determined in accordance with GAAP.
The following table shows the reconciliation of our GAAP net loss and net loss
per share to our non-GAAP net loss and net loss per share for the nine months
ended September 30, 2003:

Net Loss
    
    Net Loss per shareGAAP net loss and loss per share
    
    $
    (44,337
    )
    
    $
    (1.31
    )Settlement charge
    
    
    16,500
    
    
    
    0.49Non-GAAP net loss and loss per share
    
    $
    (27,837
    )
    
    $
    (0.82
    )


RESULTS OF OPERATIONS  THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Operating Revenues

Total revenue increased to $8.7 million in the third quarter of 2003, from
$7.9 million in the third quarter of 2002. The overall increase of $0.8
million, or 10%, was due to the increase in our product profit and royalty
revenue and outlicensing revenue. Product profit and royalty revenue, which is
our share of CAMPATH net profits on U.S. sales and a royalty on the rest of the
world sales, totaled $4.5 million in the third quarter of 2003 compared to $3.2
million in the third quarter of 2002. The increase in product profit and
royalty revenue is due to an increase in global net sales of CAMPATH. Global
net sales, recorded by Schering AG and Berlex, increased to $16.1 million in
the third quarter of 2003 as compared to $10.2 million in the same period of
2002. Additionally, we estimate that approximately $2.0 million in wholesaler
inventory was consumed during the third quarter of 2003. Product development
revenue decreased to $1.0 million in third quarter of 2003 from $2.4 million in
the third quarter of 2002. Product development revenue represents Schering
AGs contribution of research and development expenses and decreased primarily
as a result of the advance balance from Schering AG being depleted in the first
quarter of 2003. Revenue from our CRO services decreased $1.8 million, or 82%,
to $0.4 million in the third quarter of 2003 from $2.2 million in the third
quarter of 2002. This decrease is the result of our continued transition out
of the fee-for-service CRO business.

Operating Expenses

Research and Development Costs. Research and development costs increased
to $12.1 million in the third quarter of 2003, from $11.3 million in 2002. This
increase of $0.8 million, or 7%, was due to development spending on our product
pipeline, specifically CAMPATH and ILX-651, which was partially offset by a
decrease in payroll and facility-related research and development costs.

Licensing Costs. Licensing costs increased to $2.1 million in the third
quarter of 2003, from $0.2 million in 2002. This increase was due primarily to
expense accruals for the achievement of milestones associated with the license
grant from Genentech.

Selling, General and Administrative Costs. Selling, general and
administrative costs decreased approximately $0.1 million to $2.8 million for
the third quarter of 2003, compared to $2.9 million in the same quarter in
2002. This slight decrease is primarily the result of lower
personnel-related and business management costs, partially offset by increases
in professional fees and insurance costs.

Direct Costs of Research Services. Direct costs of research services
decreased to $0.4 million during the third quarter of 2003, from $1.6 million
in 2002. This decrease is attributable to our continued transition out of the
CRO business.

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




Depreciation and Amortization. Depreciation and amortization increased to
$1.9 million in the third quarter of 2003 from $1.8 million in 2002. This
increase is primarily the result of an additional intangible asset of $2.0
million and the corresponding increase in amortization.

Impairment charge. We recorded an impairment charge of $213.0 in the
third quarter of 2003 based upon a review of our goodwill as of September 30,
2003. We determined that the goodwill resulting from the purchase of Symphar
S.A. in 2001 had been impaired due to recent research focus and personnel
changes at our location in Geneva, Switzerland.

Interest Income and Other, Net

Interest and other income decreased to $1.1 million for the third quarter
of 2003, from $1.4 million for the same period in 2002. This decrease of $0.3
million, or 21%, is attributable to a reduction in the interest rate returns
earned on our investments.

Interest Expense

Interest expense decreased to $1.0 million for the third quarter of 2003
from $1.4 million for the same period in 2002. Interest expense relates to the
imputed interest on the note to Millennium for our purchase of their interest
in the Partnership. The decrease of $0.4 million, or 29%, is a result of the
decrease in the outstanding balance on which interest expense is calculated.

Net Loss

Net loss increased $0.2 million in the third quarter of 2003, or 2%, to
$10.6 million, from $10.4 million in 2002. Net loss per share decreased $0.03
per share to $0.29 per share in 2003, from $0.32 per share in 2002.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations primarily through the sale of
our common stock, through development and licensing fee revenues provided by
our partners under our collaborative agreements and through fee-for-service or
participatory revenues pursuant to contracts with our CRO clients. At
September 30, 2003, we had cash, cash equivalents, restricted investments and
investments in marketable securities of $228.6 million and working capital of
$165.3 million.

On August 4, 2003, we completed an underwritten public offering of our
common stock, pursuant to which we sold 5.5 million shares. Additionally, the
Cancer Therapy Research Center Endowment, an ILEX shareholder, offered 500,000
shares of our common stock. Proceeds, net of costs to us, from this offering
were approximately $87.5 million. We anticipate that the net proceeds from
this offering will be used to fund clinical trials of our lead product
candidates; for clinical and preclinical studies for our other product
candidates; for potential licenses and acquisitions of other businesses or
complementary products and technologies; and for working capital, capital
expenditures and other general corporate purposes.

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
specific level. The first $20.0 million maturity payment, triggered as a
result of achieving the specified net U.S. CAMPATH sales level, was made in the
third quarter of 2003. We chose to pay $10.0 million of such maturity payment
in cash and $10.0 million in stock through the issuance of 586,252 shares to
Millennium. The remaining $20.0 million of the $40.0 million annual debt
maturity for 2003 will be paid at the end of 2003. In addition, Millennium
will be entitled to royalties based upon net U.S. CAMPATH sales above specified
levels beginning in 2005.

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q




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 eighteen months. We do not invest in derivative financial
instruments, as defined by Statement of Financial Accounting Standards No. 133
and 138.

Our future expenditures and capital requirements will depend on numerous
factors, including but not limited to: the progress of our research and
development programs; the progress of our 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. At September 30,
2003, we did not have any material commitments for capital expenditures.







ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our 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 cash, cash equivalents, restricted investments and investments in
marketable securities of $228.6 million at September 30, 2003. These funds are
generally invested in interest-bearing securities, primarily with maturities of
one year or less. 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-term high quality investments. If market interest
rates were to increase or decrease immediately and uniformly by 50 basis
points, 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 our investment portfolio.

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







Item 4. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of September 30, 2003 to provide reasonable
assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.

There has been no change in our internal controls over financial reporting that
occurred during the three months ended September 30, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.







PART II. OTHER INFORMATION







Item 1. Legal Proceedings

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

In September 2003, certain former shareholders of Convergence Pharmaceuticals,
Inc. (Convergence) delivered to us a demand for arbitration under the Plan of
Merger and Acquisition Agreement executed in connection with our

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acquisition of Convergence in July 1999. The demand for arbitration alleges
that ILEX breached its obligation of good faith and fair dealing by
intentionally delaying Phase II trials of NM-3 in order to avoid making a
milestone payment of 500,000 shares of our Common Stock that would
have become due
pursuant to the Plan of Merger and Acquisition Agreement if Phase II trials
were initiated by December 31, 2002. The demand for arbitration was filed by
former shareholders of Convergence whose pro rata share of the 500,000 share
milestone payment is 210,000 shares. The parties are in the discovery phase of
the arbitration proceedings. We believe that the claims made against
us are
without merit and intends to defend the action vigorously. However, the
arbitration process is inherently uncertain and unpredictable, and accordingly
there can be no assurance as to the ultimate outcome of the arbitration. If
ILEX is required to deliver the 210,000 shares subject to the current demand,
then we may be required to deliver the remaining 290,000 shares to the other
former Convergence shareholders in order to avoid additional disputes with
other former Convergence shareholders.







Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------

ExhibitNumber3.1
    
    Amended and Restated Certificate of Incorporation of
ILEX filed May 31, 2000 (Incorporated herein by reference
to Exhibit 3.1 of ILEXs Quarterly Report on Form 10-Q
filed August 8, 2000)3.2
    
    Bylaws of ILEX, as amended (Incorporated herein
by reference to Exhibit 3.2 of ILEXs Registration
Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
amended)11.1*
    
    Computation of Net Loss per Share31.1*
    
    Certification of President and Chief Executive Officer
pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2*
    
    Certification of Senior Vice President and Chief
Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2*
    
    Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002




| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------

ILEX has recently filed the following Reports on Form 8-K
during the quarter ended September 30, 2003:

Dated July 21, 2003, to disclose issuance of a press release
announcing second quarter 2003 results.

Dated July 29, 2003, to disclose and underwriting agreement
with UBS Securities LLC, Lehman Brothers Inc., CIBC
Worldmarkets Corp. and U.S. Bancorp Piper Jaffray Inc.

Dated August 14, 2003, to supplement information in the
prospectus contained in the registration statement on Form
S-3 filed on June 12, 2003 (Registration No. 333-106068).



|* |  | Filed herewith.
|- |  | ---------------

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SEPTEMBER 30, 2003  QUARTERLY REPORT ON FORM 10-Q










Signatures

Pursuant to the requirements 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.

Date: November 13, 2003

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


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Exhibit Index

ExhibitNumber
    
    Description3.1
    
    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)11.1*
    
    Computation of Net Loss per Share31.1*
    
    Certification of President and Chief Executive Officer
pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2*
    
    Certification of Senior Vice President and Chief
Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2*
    
    Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002


* Filed herewith.