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



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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, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . to. . . . . . |  | 

Commission file number 0-22147

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

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

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



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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__.

The number of shares outstanding of the Registrants common stock as of
October 24, 2002 is 32,527,888.





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TABLE OF CONTENTS



|                                          |                                                                                               |                                            |  |  |  |  |  | 
|----------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION            
|                                          | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                          |                                                                                               | 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. ITEM 4. CONTROLS AND PROCEDURES                                                      
|PART II. OTHER INFORMATION               
|                                          | ITEM&NBSP;6. EXHIBITS AND REPORTS ON FORM&NBSP;8-K                                           
|SIGNATURES                               
|CERTIFICATIONS                           
|INDEX TO EXHIBITS                        
|EX-11.1 Computation of Net Loss per Share



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##### Table of Contents



ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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INDEX

|                              |                                                                                               |                                                                                                        |    |    |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | -- | -- | - | 
|PART I. FINANCIAL INFORMATION |                                                                                               |                                                                                                        |    |   
|                              | Item 1. Financial Statements                                                                  |                                                                                                        |    |    |  
|                              |                                                                                               | Consolidated Balance Sheets  September 30, 2002 and December 31,
2001                                 |    |    | 3 | 
|                              |                                                                                               | Consolidated Statements of Operations  Three and Nine-Month Periods
Ended September 30, 2002 and 2001 |    |    | 5 | 
|                              |                                                                                               | Consolidated Statements of Cash Flows  Nine-Month Periods Ended
September 30, 2002
and 2001           |    |    | 6 | 
|                              |                                                                                               | Notes to Consolidated Financial Statements                                                             |    |    | 7 | 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                        |    | 11 |  
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                        |    | 17 |  
|                              | Item 4. Controls and Procedures                                                               |                                                                                                        |    | 17 |  
|PART II. OTHER INFORMATION    |                                                                                               |                                                                                                        |    |   
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                        |    | 18 |  
|SIGNATURES                    |                                                                                               |                                                                                                        | 19 |   
|CERTIFICATIONS                |                                                                                               |                                                                                                        | 20 |   

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##### Table of Contents



ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)

|                    |                                                                                                                      |          |        |                          |       |               |         |              |       |   |         | 
|------------------- | -------------------------------------------------------------------------------------------------------------------- | -------- | ------ | ------------------------ | ----- | ------------- | ------- | ------------ | ----- | - | ------- | 
|                    |                                                                                                                      |          |        |                          |       | September 30, |         | December 31,
|                    |                                                                                                                      |          |        |                          |       | 2002          |         | 2001        
|                    |                                                                                                                      |          |        |                          |       |               |         |             
|                    |                                                                                                                      |          |        |                          |       | (Unaudited)   |         |              |       |  
|                    |                                                                                                                      |          | ASSETS |                          |       |               |         |              |       |   |        
|CURRENT ASSETS:     |                                                                                                                      |          |        |                          |       |               |         |             
|                    | Cash and cash equivalents                                                                                            |          | $      | 70,581                   |       |               | $       | 84,518       |      
|                    | Investments in marketable securities                                                                                 |          |        | 77,742                   |       |               |         | 74,999       |      
|                    | Restricted investments                                                                                               |          |        | 1,037                    |       |               |         | 1,331        |      
|                    | Accounts receivable, net of allowance for doubtful accounts of
$107 and $164 in 2002 and 2001, respectively         
|                    |                                                                                                                      | Billed   |        |                          | 2,785 |               |         |              | 4,858 |  
|                    |                                                                                                                      | Unbilled |        |                          | 253   |               |         |              | 612   |  
|                    |                                                                                                                      | Employee |        |                          | 134   |               |         |              | 194   |  
|                    |                                                                                                                      | Other    |        |                          | 1,088 |               |         |              | 772   |  
|                    | Accounts receivable from Schering                                                                                    |          |        | 4,260                    |       |               |         | 3,760        |      
|                    | Interest receivable                                                                                                  |          |        | 3,365                    |       |               |         | 3,966        |      
|                    | Prepaid expenses and other                                                                                           |          |        | 2,251                    |       |               |         | 2,069        |      
|                    |                                                                                                                      |          |        |                          |       |               |         |             
|                    |                                                                                                                      |          |        | Total current assets     |       |               | 163,496 |              |       |   | 177,079 | 
|                    |                                                                                                                      |          |        |                          |       |               |         |             
|NON-CURRENT ASSETS: |                                                                                                                      |          |        |                          |       |               |         |             
|                    | Investments in marketable securities                                                                                 |          |        | 91,417                   |       |               |         | 114,619      |      
|                    | Restricted investments                                                                                               |          |        | 2,779                    |       |               |         | 2,779        |      
|                    | Completed technology asset, net of accumulated amortization
of $3,471 in 2002                                        |          |        | 61,329                   |       |               |         | 64,800       |      
|                    | Trademark, net of accumulated amortization of $150 in 2002                                                           |          |        | 2,650                    |       |               |         | 2,800        |      
|                    | Property and equipment, at cost, net of accumulated depreciation
of $7,327 and $5,669 in 2002 and 2001, respectively |          |        | 5,612                    |       |               |         | 6,108        |      
|                    | Goodwill, net of accumulated amortization of $87 in 2002 and
2001                                                    |          |        | 213                      |       |               |         | 213          |      
|                    | Other assets                                                                                                         |          |        | 282                      |       |               |         | 509          |      
|                    |                                                                                                                      |          |        |                          |       |               |         |             
|                    |                                                                                                                      |          |        | Total non-current assets |       |               | 164,282 |              |       |   | 191,828 | 
|                    |                                                                                                                      |          |        |                          |       |               |         |             
|                    |                                                                                                                      |          |        | Total assets             |       | $             | 327,778 |              |       | $ | 368,907 | 
|                    |                                                                                                                      |          |        |                          |       |               |         |             

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

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)

|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |              |        |   |         | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ------------------------------------ | ------------------------------------------ | ------ | ------------- | ------- | ------------ | ------ | - | ------- | 
|                                                    |                                                                                                                                               |                 |                                      |                                            |        | September 30, |         | December 31,
|                                                    |                                                                                                                                               |                 |                                      |                                            |        | 2002          |         | 2001        
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    |                                                                                                                                               |                 |                                      |                                            |        | (Unaudited)   |         |              |        |  
|                                                    |                                                                                                                                               |                 | LIABILITIES AND STOCKHOLDERS EQUITY |                                            |        |               |         |              |        |   |        
|CURRENT LIABILITIES:                                |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    | Accounts
payable                                                                                                                            
|                                                    |                                                                                                                                               | Related parties |                                      | $                                          | 116    |               |         | $            | 35     |  
|                                                    |                                                                                                                                               | Other           |                                      |                                            | 11,618 |               |         |              | 16,688 |  
|                                                    | Accrued subcontractor costs                                                                                                                 
|                                                    |                                                                                                                                               | Related parties |                                      |                                            | 257    |               |         |              | 337    |  
|                                                    |                                                                                                                                               | Other           |                                      |                                            | 1,964  |               |         |              | 2,302  |  
|                                                    | Accrued liabilities                                                                                                                           |                 |                                      | 4,924                                      |        |               |         | 4,951        |       
|                                                    | Deferred revenue                                                                                                                              |                 |                                      | 924                                        |        |               |         | 2,537        |       
|                                                    | Advances from Schering                                                                                                                        |                 |                                      | 5,335                                      |        |               |         | 7,704        |       
|                                                    | Note payable                                                                                                                                  |                 |                                      | 58,401                                     |        |               |         | 37,559       |       
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    |                                                                                                                                               |                 |                                      | Total current liabilities                  |        |               | 83,539  |              |        |   | 72,113  | 
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|NON-CURRENT LIABILITIES:                            |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    | Deferred revenue                                                                                                                              |                 |                                      | 792                                        |        |               |         | 1,103        |       
|                                                    | Note payable                                                                                                                                  |                 |                                      | 54,189                                     |        |               |         | 70,041       |       
|                                                    | Advances from Schering                                                                                                                        |                 |                                      |                                           |        |               |         | 2,726        |       
|                                                    | Other non-current liabilities                                                                                                                 |                 |                                      | 1,125                                      |        |               |         | 1,896        |       
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    |                                                                                                                                               |                 |                                      | Total non-current liabilities              |        |               | 56,106  |              |        |   | 75,766  | 
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    |                                                                                                                                               |                 |                                      | Total liabilities                          |        |               | 139,645 |              |        |   | 147,879 | 
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|COMMITMENTS
AND CONTINGENCIES
STOCKHOLDERS EQUITY: |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    | Preferred stock, $0.01 par value; 20,000,000 shares authorized; no
shares issued or outstanding                                               |                 |                                      |                                           |        |               |         |             |       
|                                                    | Common stock, $0.01 par value; 100,000,000 shares authorized;
32,527,888 and 32,303,284 issued and outstanding in 2002 and 2001,
respectively |                 |                                      | 326                                        |        |               |         | 323          |       
|                                                    | Additional paid-in capital                                                                                                                    |                 |                                      | 459,896                                    |        |               |         | 458,171      |       
|                                                    | Accumulated deficit                                                                                                                           |                 |                                      | (272,287                                   | )      |               |         | (237,274     | )     
|                                                    | Accumulated other comprehensive income (loss)                                                                                                 |                 |                                      | 198                                        |        |               |         | (192         | )     
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    |                                                                                                                                               |                 |                                      | Total stockholders equity                 |        |               | 188,133 |              |        |   | 221,028 | 
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             
|                                                    |                                                                                                                                               |                 |                                      | Total liabilities and
stockholders equity |        | $             | 327,778 |              |        | $ | 368,907 | 
|                                                    |                                                                                                                                               |                 |                                      |                                            |        |               |         |             

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

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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

|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |     |        |        | 
|------------------------------------------------------------- | ---------------------------------- | ----------------------------------- | ------------------------ | ---- | ------------------ | ------ | ----------------- | -- | ----- | ------ | ------- | ---- | ------ | ------ | ------- | --- | ------ | ------ | 
|                                                              |                                    |                                     |                          |      | Three Months Ended |        | Nine Months Ended
|                                                              |                                    |                                     |                          |      | September 30,      |        | September 30,    
|                                                              |                                    |                                     |                          |      |                    |        |                  
|                                                              |                                    |                                     |                          |      | 2002               |        | 2001              |    | 2002  |        | 2001   
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |        
|REVENUE:                                                      |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|                                                              |                                    | Product profit and royalty          |                          | $    | 3,157              |        |                   | $  |      |        |         | $    | 8,277  |        |         | $   |       |       
|                                                              |                                    | Product development                 |                          |      | 2,378              |        |                   |    | 1,325 |        |         |      | 6,362  |        |         |     | 2,851  |       
|                                                              |                                    | Contract research services          |                          |      | 2,216              |        |                   |    | 5,515 |        |         |      | 8,142  |        |         |     | 19,931 |       
|                                                              |                                    | Other                               |                          |      | 168                |        |                   |    |      |        |         |      | 837    |        |         |     |       |       
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|                                                              |                                    |                                     | Total revenue            |      |                    | 7,919  |                   |    |       | 6,840  |         |      |        | 23,618 |         |     |        | 22,782 | 
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|OPERATING EXPENSES:                                           |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|                                                              |                                    | Research and development costs      |                          |      | 11,339             |        |                   |    | 8,389 |        |         |      | 34,361 |        |         |     | 24,771 |       
|                                                              |                                    | Licensing costs                     |                          |      | 240                |        |                   |    | 1,281 |        |         |      | 5,374  |        |         |     | 9,464  |       
|                                                              |                                    | Selling, general and administrative |                          |      | 2,905              |        |                   |    | 3,458 |        |         |      | 8,742  |        |         |     | 7,984  |       
|                                                              |                                    | Direct cost of research services    |                          |      | 1,639              |        |                   |    | 4,923 |        |         |      | 5,355  |        |         |     | 16,026 |       
|                                                              |                                    | Depreciation and amortization       |                          |      | 1,834              |        |                   |    | 588   |        |         |      | 5,513  |        |         |     | 1,805  |       
|                                                              |                                    | In-process research and development |                          |      |                   |        |                   |    |      |        |         |      |       |        |         |     | 21,112 |       
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|                                                              |                                    |                                     | Total operating expenses |      |                    | 17,957 |                   |    |       | 18,639 |         |      |        | 59,345 |         |     |        | 81,162 | 
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|OPERATING LOSS                                                |                                    |                                     | (10,038                  | )    |                    |        | (11,799           | )  |       |        | (35,727 | )    |        |        | (58,380 | )  
|OTHER INCOME (EXPENSE):                                       |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|                                                              |                                    | Interest income and other, net      |                          |      | 1,403              |        |                   |    | 2,415 |        |         |      | 6,082  |        |         |     | 7,796  |       
|                                                              |                                    | Interest expense                    |                          |      | (1,411             | )      |                   |    |      |        |         |      | (4,990 | )      |         |     |       |       
|                                                              |                                    | Equity in income of joint venture   |                          |      |                   |        |                   |    | 1,940 |        |         |      |       |        |         |     | 1,439  |       
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|NET LOSS BEFORE INCOME TAXES                                  |                                    |                                     | (10,046                  | )    |                    |        | (7,444            | )  |       |        | (34,635 | )    |        |        | (49,145 | )  
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|                                                              | Provision for foreign income taxes |                                     |                          | (359 | )                  |        |                   | (4 | )     |        |         | (378 | )      |        |         | (34 | )     
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|NET LOSS                                                      |                                    | $                                   | (10,405                  | )    |                    | $      | (7,448            | )  |       | $      | (35,013 | )    |        | $      | (49,179 | )  
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|BASIC AND DILUTED NET LOSS PER SHARE                          |                                    | $                                   | (.32                     | )    |                    | $      | (.28              | )  |       | $      | (1.08   | )    |        | $      | (1.87   | )  
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    
|WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING |                                    |                                     | 32,528                   |      |                    |        | 26,477            |    |       |        | 32,458  |      |        |        | 26,313  |    
|                                                              |                                    |                                     |                          |      |                    |        |                   |    |       |        |         |      |        |        |         |    

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

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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

|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |         |        |        |         |  
|------------------------------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------------------- | --------------------------------------------------------------- | ------ | ----------------- | ------- | ------- | ------ | ------ | ------- | -
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        | Nine Months Ended
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        | September 30,    
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                  
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        | 2002              |         | 2001   
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|                                                             | Net loss                                                                    |                                                     | $                                                  | (35,013                                                         | )      |                   | $       | (49,179 | )     
|                                                             | Adjustments to reconcile net loss to net cash used in operating
activities: |                                                     |                                                    |                                                                 |        |                   |         |         |       
|                                                             |                                                                             |                                                     | Depreciation and amortization                      |                                                                 |        | 5,513             |         |         |        | 1,805  |        
|                                                             |                                                                             |                                                     | (Gain) loss on investment in marketable securities |                                                                 |        | (435              | )       |         |        | 435    |        
|                                                             |                                                                             |                                                     | In-process research and development                |                                                                 |        |                  |         |         |        | 21,112 |        
|                                                             |                                                                             |                                                     | Net activity of joint venture                      |                                                                 |        |                  |         |         |        | (2,277 | )      
|                                                             |                                                                             |                                                     | Bad debt expense                                   |                                                                 |        | (57               | )       |         |        |       |        
|                                                             |                                                                             |                                                     | Non-cash compensation expense                      |                                                                 |        |                  |         |         |        | 266    |        
|                                                             |                                                                             |                                                     | Loss on disposal of equipment                      |                                                                 |        | 26                |         |         |        | 150    |        
|                                                             |                                                                             |                                                     | Changes in operating assets and liabilities:       |                                                                 |        |                   |         |         |        |        |        
|                                                             |                                                                             |                                                     |                                                    | Decrease in receivables, net                                    |        |                   | 2,334   |         |        |        | 4,316   |  
|                                                             |                                                                             |                                                     |                                                    | Increase in prepaid expenses and other                          |        |                   | (182    | )       |        |        | (434    | )
|                                                             |                                                                             |                                                     |                                                    | Decrease (increase) in other non-current assets                 |        |                   | 227     |         |        |        | (359    | )
|                                                             |                                                                             |                                                     |                                                    | (Decrease) increase in accounts payable and accrued liabilities |        |                   | (7,200  | )       |        |        | 6,336   |  
|                                                             |                                                                             |                                                     |                                                    | Decrease in accrued subcontractor costs                         |        |                   | (418    | )       |        |        | (354    | )
|                                                             |                                                                             |                                                     |                                                    | Decrease in deferred revenue                                    |        |                   | (1,924  | )       |        |        | (1,384  | )
|                                                             |                                                                             |                                                     |                                                    | Increase in note payable                                        |        |                   | 4,990   |         |        |        |        |  
|                                                             |                                                                             |                                                     |                                                    | (Decrease) increase in other non-current liabilities            |        |                   | (3,462  | )       |        |        | 529     |  
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|                                                             |                                                                             |                                                     |                                                    | Net cash used in operating activities                           |        |                   | (35,601 | )       |        |        | (19,038 | )
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|                                                             |                                                                             | Net activity of marketable securities transactions |                                                    |                                                                 | 20,894 |                   |         |         | 45,634 |       
|                                                             |                                                                             | Net activity in restricted investments              |                                                    |                                                                 | 294    |                   |         |         | (4,310 | )     
|                                                             |                                                                             | Purchase of property and equipment                  |                                                    |                                                                 | (1,448 | )                 |         |         | (1,756 | )     
|                                                             |                                                                             | Proceeds from sale of property and equipment        |                                                    |                                                                 | 27     |                   |         |         | 57     |       
|                                                             |                                                                             | Advances to joint venture                           |                                                    |                                                                 |       |                   |         |         | (3,369 | )     
|                                                             |                                                                             | Acquisitions, net of cash acquired                  |                                                    |                                                                 |       |                   |         |         | (7,529 | )     
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|                                                             |                                                                             |                                                     |                                                    | Net cash provided by investing activities                       |        |                   | 19,767  |         |        |        | 28,727  |  
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|                                                             |                                                                             | Exercise of stock options and warrants              |                                                    |                                                                 | 1,566  |                   |         |         | 1,842  |       
|                                                             |                                                                             | Principal payments for capital lease obligations    |                                                    |                                                                 | (59    | )                 |         |         | (29    | )     
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|                                                             |                                                                             |                                                     |                                                    | Net cash provided by financing activities                       |        |                   | 1,507   |         |        |        | 1,813   |  
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|Effect of Exchange Rate Changes on Cash and Cash Equivalents |                                                                             |                                                     | 390                                                |                                                                 |        |                   | (40     | )      
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         |                                                                             |                                                     | (13,937                                            | )                                                               |        |                   | 11,462  |        
|CASH AND CASH EQUIVALENTS, beginning of period               |                                                                             |                                                     | 84,518                                             |                                                                 |        |                   | 18,099  |        
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        
|CASH AND CASH EQUIVALENTS, end of period                     |                                                                             | $                                                   | 70,581                                             |                                                                 |        | $                 | 29,561  |        
|                                                             |                                                                             |                                                     |                                                    |                                                                 |        |                   |         |        

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

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 subsidiaries (the Company
or ILEX). 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 that 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, 2001. 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.     ACCOUNTING PRONOUNCEMENTS

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

The Company acquired Symphar S.A. on February 13, 2001. The adoption of SFAS
No. 141 requires that the Company recognize its assembled workforce as goodwill
rather than an intangible asset as it does not meet the specified criteria for
recognition apart from goodwill.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. According to this statement, goodwill and intangible assets with
indefinite lives are no longer subject to amortization, but rather the Company
must make an assessment of impairment by applying a fair-value-based test, at
least annually. This statement was effective for fiscal years beginning after
December 15, 2001. The Company adopted SFAS No. 142 beginning January 1, 2002.
Under the provisions of SFAS No. 142, the value of the Companys goodwill,
previously referred to as the Companys assembled workforce, will no longer be
subject to amortization but will be reviewed at least annually for impairment.
The following table shows the pro forma effect of the adoption of SFAS No. 142
on the Companys net loss for the three and nine months ended September 30,
2001 as if the adoption had occurred on January 1, 2001:

|                                               |  |                    |        |                    |  |   |         |  
|---------------------------------------------- |  | ------------------ | ------ | ------------------ |  | - | ------- | -
|                                               |  | Three Months Ended |        | Nine Months Ended 
|                                               |  | September 30, 2001 |        | September 30, 2001
|                                               |  |                    |        |                   
|Net loss, as reported                          |  | $                  | (7,448 | )                  |  | $ | (49,179 | )
|Amortization                                   |  |                    | 25     |                    |  |   | 63      |  
|                                               |  |                    |        |                    |  |   |         |  
|Pro forma net loss                             |  | $                  | (7,423 | )                  |  | $ | (49,116 | )
|                                               |  |                    |        |                    |  |   |         |  
|Basic and diluted pro forma
net loss per share |  | $                  | ( .28  | )                  |  | $ | (1.87   | )
|                                               |  |                    |        |                    |  |   |         |  

In connection with the Companys December 31, 2001 acquisition of Millennium
Pharmaceuticals, Inc.s

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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(Millenniums) interest in Millennium &
ILEX, L.P. (the Partnership) now known as ILEX Pharmaceuticals, L.P., the
Company has recorded intangible assets classified as completed technology and a
trademark in the amounts of $64.8 million and $2.8 million, respectively.
These intangible assets are being amortized over 14 years. As of September
30, 2002, the Company had accumulated amortization of $3.6 million related to
these assets. The following table shows the estimated amortization expense, in
total for both the completed technology and trademark, to be incurred for each
of the next five years:

|             |                        |         |       | 
|------------ | ---------------------- | ------- | ----- | 
|Year ended   | Estimated amortization
|December 31, |                        | expense
|             |                        |        
|2002         |                        | $       | 4,829 | 
|2003         |                        |         | 4,829 | 
|2004         |                        |         | 4,829 | 
|2005         |                        |         | 4,829 | 
|2006         |                        |         | 4,829 | 

In 2001, the FASB issued SFAS No. 144,  Impairment of Long-Lived Assets
which was required to be adopted for fiscal years beginning after December 15,
2001. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of and applies to all
recognized long-lived assets, such as property, plant and equipment and
intangibles subject to amortization. This statement requires that a long-lived
asset, or group of assets, be tested for recoverability whenever events or
circumstances indicate that its carrying amount may not be recoverable and
requires the recognition of an impairment loss if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows. Such an
impairment loss should be measured as the difference between the carrying
amount and the fair value of the asset. The Company has adopted SFAS No. 144
and believes that all long-lived assets recorded on the Companys Consolidated
Balance Sheets are recoverable.

3.     MERGERS AND ACQUISITIONS

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

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

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

Subsequent to the purchase the Company has consolidated the Partnership for
financial reporting purposes. As a result, the Companys profit share from net
U.S. sales and royalties from sales from the rest of the world are presented as
product profit and royalty revenue. Product development revenues represent fees
billed to our distribution and development partner for services performed in
connection with the development of CAMPATH for
all indications.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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4.     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.

5.     STATEMENTS OF CASH FLOWS:

Non-cash financing and investing activities for the nine months ended September
30, 2002 and 2001, include the following:

|                                         |  |      |   |      |  |   |        | 
|---------------------------------------- |  | ---- | - | ---- |  | - | ------ | 
|                                         |  | 2002 |   | 2001
|                                         |  |      |   |     
|Issuance of common stock for acquisition |  | $    |  |      |  | $ | 13,907 | 
|Assets acquired in acquisition           |  |      |  |      |  |   | 788    | 
|Liabilities acquired in acquisition      |  |      |  |      |  |   | 464    | 

Supplemental disclosures of cash flow information for the nine months ended
September 30, 2002 and 2001 include the following:

|                     |  |      |    |      |  |   |    | 
|-------------------- |  | ---- | -- | ---- |  | - | -- | 
|                     |  | 2002 |    | 2001
|                     |  |      |    |     
|Cash paid for:       |  |      |    |      |  |   |    | 
|Interest             |  | $    | 36 |      |  | $ | 11 | 
|Foreign income taxes |  | $    | 70 |      |  | $ | 93 | 

6.     COMPREHENSIVE LOSS

Comprehensive income (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 the Companys comprehensive
loss:

|                                 |                              |   |                    |    |                   |   |        |     |      |   |         |     |  |   |         |     |  
|-------------------------------- | ---------------------------- | - | ------------------ | -- | ----------------- | - | ------ | --- | ---- | - | ------- | --- |  | - | ------- | --- | -
|                                 |                              |   | Three Months Ended |    | Nine Months Ended
|                                 |                              |   | September 30,      |    | September 30,    
|                                 |                              |   |                    |    |                  
|                                 |                              |   | 2002               |    | 2001              |   | 2002   |     | 2001
|                                 |                              |   |                    |    |                   |   |        |     |     
|Net loss                         |                              | $ | (10,405            | )  |                   | $ | (7,448 | )   |      | $ | (35,013 | )   |  | $ | (49,179 | )  
|Other comprehensive gain (loss): |                              |   |                    |    |                   |   |        |     |      |   |         |     |  |   |         |    
|                                 | Foreign currency
translation |   |                    |    |                   |   |        |     |      |   |         |     |  |   |         |     |  
|                                 | adjustments                  |   |                    | 72 |                   |   |        | 160 |      |   |         | 390 |  |   |         | (40 | )
|                                 |                              |   |                    |    |                   |   |        |     |      |   |         |     |  |   |         |    
|Comprehensive loss               |                              | $ | (10,333            | )  |                   | $ | (7,288 | )   |      | $ | (34,623 | )   |  | $ | (49,219 | )  
|                                 |                              |   |                    |    |                   |   |        |     |      |   |         |     |  |   |         |    

7.     LICENSING AGREEMENTS

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

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

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---

will receive a royalty from sales of oxypurinol. Additionally, Cardiome is
committed to purchasing supplies from ILEX between 2002 and 2004.

8.     COMMITMENTS AND CONTINGENCIES

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

In April 2002, the Company settled a dispute with a collaborator regarding the
interpretation of certain contractual provisions included in a research and
development agreement. The majority of the settlement was paid during the
second quarter of 2002.

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

The Companys sole supplier of CAMPATH is Boehringer Ingelheim (BI) in Germany.
The agreement with BI contains a minimum purchase quantity of $3.1 million in
2002 to avoid a contractual surcharge. Management believes that the minimum
purchase quantity will be satisfied.

9.     INCOME TAXES

In the third quarter of 2002, the Company recorded a tax provision of $359.0.
The majority of this provision results from the sale of intellectual property
associated with ILEX Oncology Research S.A.s (Research S.A.s) cardiovascular
indication for Apomine to another subsidiary of the parent company. Research S.A. is the Companys
research firm located in Geneva, Switzerland. The purchase price of $7.0
million, which was determined by an independent appraisal, will result in net
income for the year 2002 for Research S.A.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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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 the Company and its subsidiaries that are based on
the beliefs of the Companys management as well as assumptions made by and
information currently available to the Companys management. When used in this
report, the words anticipate, believe, estimate, expect and intend and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, risks associated with
preclinical and clinical developments in the biopharmaceutical industry in
general and in ILEXs compounds under development in particular; the potential
failure of the Companys compounds under development to prove safe and
effective for treatment of disease; uncertainties inherent in the early stage
of the Companys compounds under development; failure to successfully implement
or complete clinical trials; failure to receive market clearance from
regulatory agencies for our compounds under development; managements ability
to implement strategic initiatives; the ability of the Company to predict its
future expenses and capital needs; the development of competing products; the
ability of the Company to combine its disparate research capabilities and
translate them into clinical drug development programs; uncertainties related
to the Companys dependence on and relationships with third parties and
partners; general economic and market conditions; risks inherent in the
biopharmaceutical industry; stock price volatility; variability of license,
royalty and other revenue; risks related to the outcome of litigation and
claims made against us; risks related to the market acceptance of CAMPATH;
uncertainties related to protection of our intellectual property; rapid
technological change could render our technologies obsolete; one-time events
and those risks described herein, in the Companys Report on Form 10-K filed
March 14, 2002 and in other filings made by the Company with the SEC. Based
upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.

The following discussion describes the Companys financial position and results
of operations for the three and nine-month periods ended September 30, 2002.
The consolidated financial statements and notes thereto contain detailed
information that should be referred to in conjunction with this discussion.

OUR BUSINESS

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

We have incurred losses since inception and had an accumulated deficit through
September 30, 2002 of $272.3 million. Our losses have resulted primarily from
product development activities, including licensing of products for which we
incur in-process research and development fees, and related administrative
expenses. We expect to continue to incur operating losses for the foreseeable
future. With the exception of CAMPATH, none of our other drug candidates have
been approved for sale. Our revenue and income for the foreseeable future will
be limited to our profit participation and royalty revenue, product development
revenue, contract research services (CRO)

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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revenue, interest income and other miscellaneous income. Our Consolidated
Statements of Operations include profit from the net sales of CAMPATH in the
U.S. and royalties on sales in the rest of the world as product profit and
royalty revenue. Fees billed to our distribution and development partner for
services performed in connection with the development of CAMPATH for all
indications are recorded as product development revenues. Prior to the
purchase of Millenniums interest in the Partnership on December 31, 2001, our
portion of the profits generated from CAMPATH sales, as well as the other
revenues and expenses of the Partnership, was recorded in equity in income of
joint venture. Prior to January 1, 2002, we accounted for CAMPATH development
activities as follows:



| |  |  | ILEX operating revenue included product development revenue we
received from the Partnership, and                                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | ILEX research and development expenses included all of our
development costs for CAMPATH, which were largely offset by the revenues
earned from the Partnership.

Our CRO business generates revenue by performing services for pharmaceutical
and biotechnology companies. The terms of our contracts vary, with all but two
contracts projected to end within the next twelve months. We recognize revenue with
respect to our services either on a percentage-of-completion or fee-for-service
basis as work is performed. In February 2001, we announced our intent to focus
our in-house drug development capabilities on our own proprietary products,
including those being jointly developed with partners. At that time, we began
a transition out of the fee-for-service CRO business, which was expected to
take from two to three years. We will continue to recognize revenue from
current client projects, but we do not intend to take on any new
fee-for-service contracts, except where we have or can obtain an ownership
interest. We anticipate transitioning certain CRO employees to develop the
Companys own products. We believe that our oncology expertise enables us to
effectively manage the drug development process.

RECENT DEVELOPMENTS

In April 2002, we settled a dispute with a collaborator regarding the
interpretation of certain contractual provisions included in a research and
development agreement. The majority of the settlement was paid during the
second quarter of 2002.

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

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

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

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

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CRITICAL ACCOUNTING POLICIES

We believe that our most critical accounting issues include the process we
use to evaluate an impairment on the intangible assets acquired in the purchase
of Millenniums interest in the Partnership and the process of determining the
amount of in-process research and development obtained in an acquisition. The
amounts recorded as completed technology and trademark were determined based on
an independent appraisal of the estimated timing and amount of revenue to be
generated from sales of CAMPATH.

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

RESULTS OF OPERATIONS  NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

Operating Revenues

Total revenue increased to $23.6 million in the first nine months of 2002,
from $22.8 million in the first nine months of 2001. The increase of $0.8
million, or 4%, was largely due to product profit and royalty revenue, which is
the Companys share of CAMPATH net profits on U.S. sales and a royalty on the
rest of the world sales. Product profit and royalty revenue totaled $8.3
million through the third quarter of 2002. Prior to January 1, 2002, our share
of CAMPATH net profits on U.S. sales and royalties on the rest of the world
sales was included in equity in income of joint venture. Also, product
development revenue increased to $6.4 million through the third quarter of 2002
from $2.9 million for the same period in 2001, an increase of $3.5 million or
121%. This increase reflects the recognition of our revenues from our
development and distribution partner, which prior to January 1, 2002, were
included in equity in income of joint venture. These increases were partially
offset by the decrease in revenue from our fee-for-service CRO business. The
decrease of 59% in CRO revenues is consistent with our plan to transition out
of the fee-for-service CRO business.

Operating Expenses

Total Operating Expenses. Total operating expenses decreased to $59.3
million for the first nine months of 2002 from $60.1 million in the first nine
months of 2001, excluding in-process research and development expenses totaling
$21.1 million. Included in operating expenses for the nine months ended
September 30, 2002, is increased research and development spending due to the
focus on our own product pipeline partially offset by a significant decrease in
the amount of direct costs of research services, consistent with our plan to
transition out of the fee-for-service CRO business.

Research and Development Costs. Research and development costs increased
to $34.4 million in the first nine months of 2002, from $24.8 million in 2001.
This increase of $9.6 million, or 39%, was due to increased development
spending on the Companys product pipeline, particularly for
clofarabine and
ILX-651 as well as increased spending on CAMPATH. Additionally, research and
development costs increased due to the acquisition of Symphar, our
drug discovery research laboratory in Geneva, Switzerland, in the
first quarter of 2001.

Licensing Costs. Licensing costs decreased to $5.4 million in the first
nine months of 2002, from $9.5 million in 2001, a decrease of $4.1 million or
43%. In the first nine months of 2002, licensing costs consisted primarily of
a license fee expense accrual of $4.0 million related to an exclusive,
worldwide license from Knoll AG, (Abbott Laboratories), for ILX-651, a synthetic
pentapeptide analog of dolastatin. In the first nine months of 2001, licensing
costs consisted of a license fee expense accrual of $6.0 million, also related
to the exclusive, worldwide license of ILX-651. Additionally in 2001, a
payment of $1.1 million was made to Bioenvision upon execution of an agreement
to U.S. rights to clofarabine, a nucleoside analog.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---

Selling,General and Administrative Costs. Selling, general and
administrative costs increased to $8.7 million for the first nine months of
2002, compared to $8.0 million for the same period in 2001. This increase of
$0.7 million, or 9% is due in part to the transition out of the CRO business,
and the corresponding transition of existing internal resources to focus on new
business opportunities, build strategic relationships and develop our
proprietary products. The costs associated with these management and business
development activities were previously included in direct costs of research
services and are now reflected in selling, general and administrative expense.

Direct Costs of Research Services. Direct costs of research services
decreased to $5.4 million during the first nine months of 2002, from $16.0
million in 2001. This decrease of $10.6 million, or 66%, is attributable to
the Companys transition out of the fee-for service CRO business.

Depreciation and Amortization. Depreciation and amortization increased to
$5.5 million for the first nine months of 2002 from $1.8 million for the first
nine months of 2001, an increase of $3.7 million or 206%. This increase was
the result of the amortization of the completed technology asset and trademark,
which the Company obtained through the acquisition of Millenniums interest in
the Partnership on December 31, 2001. Total amortization expense related to
these acquired intangible assets was $3.6 million during the first nine months
of 2002.

In-Process Research and Development.In connection with the purchase
price allocation for the February 2001 acquisition of Symphar, the Company
expensed $21.1 million for the purchase of in-process research and development.

Operating Loss

Loss from operations decreased to $35.7 million for the first nine months of
2002 from $37.3 million for the first nine months of 2001, excluding in-process
research and development expense of $21.1 million incurred in the first quarter
of 2001.

Interest Income and Other, Net

Interest and other income decreased to $6.1 million for the nine months ended
September 30, 2002, from $7.8 million for the same period a year ago. This
decrease of $1.7 million, or 22%, is attributable to a decrease in average
interest rates during the first nine months of 2002, compared to the same
period a year ago.

Interest Expense

Interest expense of $5.0 million relates to the imputed on the note to
Millennium for our purchase of their interest in the Partnership. This
transaction closed on December 31, 2001, and as such, a comparable amount does
not exist as of September 30, 2001.

Equity in Income of Joint Venture

Equity in income of joint venture was $1.4 million for the first nine months of
2001. This amount includes the Companys profit share of CAMPATH sales, which
are now shown as product profit and royalty revenue. The Company purchased
Millenniums interest in the Partnership on December 31, 2001 and, as a result,
activity related to the Partnership was included in the consolidated statement
of operations of ILEX Oncology, Inc. as of January 1, 2002.

Net Loss

Net loss decreased $14.2 million in the first nine months of 2002, or 29%, to
$35.0 million, from $49.2 million in 2001. Net loss per share decreased $0.79
per share to $1.08 per share in 2002, from $1.87 per share in 2001. Excluding
in-process research and development expense, net loss increased $6.9 million,
or 25%, to $35.0 million in the first nine months of 2002, from $28.1 million
for the same period in 2001, and net loss per share increased $0.01 per share
to $1.08 per share, from $1.07 per share in 2001.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---

RESULTS OF OPERATIONS  THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

Operating Revenues

Total revenue increased to $7.9 million in the third quarter of 2002, from
$6.8 million in the third quarter of 2001. The overall increase of $1.1
million, or 16%, was largely due to the increase in product profit and royalty
revenue and product development revenue. Product profit and royalty revenue,
which is the Companys share of CAMPATH net profits on U.S. sales and a royalty
on the rest of the world sales, totaled $3.2 million in the third quarter of
2002. Prior to January 1, 2002, our share of CAMPATH net profits on U.S. sales
and royalties on the rest of the world sales was included in equity in income
(losses) of joint venture. Product development revenue increased to $2.4
million in the third quarter of 2002 from $1.3 million in the third quarter of
2001, an increase of $1.1 million or 85%. This increase reflects the
recognition of our revenues from our development and distribution partner
which, prior to January 1, 2002, were included in equity in income of joint
venture. The increases in product profit and royalty and product development
revenue were offset by a decrease in revenue from the Companys contract
research services of $3.3 million or 60% to $2.2 million in the third quarter
of 2002 from $5.5 million in the third quarter of 2001.

Operating Expenses

Total Operating Expenses. Total operating expenses decreased to $18.0
million in the third quarter of 2002 from $18.6 in the third quarter of 2001, a
decrease of $0.6 million or 3%. This decrease was primarily the result of
decreased licensing costs and direct costs of research services partially
offset by an increase in research and development spending.

Research and Development Costs. Research and development costs increased
to $11.3 million in the third quarter of 2002, from $8.4 million in 2001. This
increase of $2.9 million, or 35%, was primarily due to increased development spending on
clofarabine and CAMPATH.

Licensing Costs. Licensing costs decreased to $0.2 million in the third
quarter of 2002, from $1.3 million in 2001, a decrease of $1.1 million or 85%.
Licensing costs for the third quarter of 2002 consist of patent annuity fees
associated with maintaining intellectual property rights. Licensing costs for
the same period in 2001 consisted primarily of an accrual for the settlement of
a dispute with a collaborator as well as various patent renewal fees.

Selling, General and Administrative Costs. Selling, general and
administrative costs decreased to $2.9 million for the third quarter of 2002,
compared to $3.5 million for the same quarter in 2001, a decrease of $0.6
million, or 17%. This decrease is the result of an expense accrual of
$750.0 in the third quarter of 2001 for office space which was no longer being
utilized as well as an increased effort to selectively manage
headcount in 2002, somewhat offset by greater business management
spending in 2002.

Direct Costs of Research Services. Direct costs of research services
decreased to $1.6 million during the third quarter of 2002, from $4.9 million
in 2001. This decrease of $3.3 million, or 67%, is attributable to our
continued transition out of CRO business. We are no longer incurring business
development expenses related to the CRO business, with those internal resources
allocated to the development of our own product candidates.

Depreciation and Amortization. Depreciation and amortization increased to
$1.8 million in the third quarter of 2002 from $0.6 million in 2001, an
increase of $1.2 million or 200%. This increase was the result of the
amortization of the completed technology asset and trademark, which the Company
obtained through the acquisition of Millenniums interest in the Partnership on
December 31, 2001.

Operating Loss

Loss from operations decreased to $10.0 million in the third quarter of
2002, from $11.8 million in 2001.

Interest Income and Other, Net

Interest and other income decreased to $1.4 million for the quarter ended
September 30, 2002, from $2.4 million for the quarter ended September 30, 2001.
This decrease of $1.0 million, or 42%, is attributable to a decrease in the
average interest rates available during the same period last year.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---

Interest Expense

Interest expense of $1.4 million relates to the imputed interest on the
note to Millennium for our purchase of its interest in the Partnership. This
transaction closed on December 31, 2001, and as such, a comparable amount does
not exist as of September 30, 2001.

Equity in Income of Joint Venture

Equity in income of joint venture was $1.9 million for the third quarter
of 2001. This amount includes the Companys profit share of CAMPATH sales,
which are now shown as product profit and royalty revenue. The Company
purchased Millenniums interest in the Partnership on December 31, 2001 and, as
a result, activity related to the Partnership was included in the consolidated
statement of operations of ILEX Oncology, Inc. as of January 1, 2002.

Net Loss

Net loss increased $3.0 million in the third quarter of 2002, or 41%, to
$10.4 million, from $7.4 million in 2001. Net loss per share increased $0.04
per share to $0.32 per share in 2002, from $0.28 per share in 2001.

LIQUIDITY AND CAPITAL RESOURCES

ILEX has historically financed its operations primarily through the sale
of its capital stock, through development and licensing fee revenues provided
by its collaborative partners and through fee-for-service or participatory
revenues pursuant to contracts with its CRO clients. Additionally, we now
have profit contribution from net sales of CAMPATH in the U.S. and royalties on
sales in the rest of the world.

At September 30,
2002, we had a cash and marketable securities balance of
$243.6 million. Net of the future maturities of $120.0 million related to the
acquisition of Millenniums partnership interest, net cash and marketable
securities totaled $123.6 million. According to the terms of the agreement,
we will pay Millennium $120.0 million in scheduled payments.
The first payment of $40.0 million is due December 31,
2002. Additionally, $40.0 million is due in 2003 and 2004, of
which $10.0 million, in each of those years, may be paid with
the Company's common stock at our option and subject to certain
conditions.
 In 2003 and 2004, $20.0 million of the $40.0 million annual payment is
due 45 days after the calendar quarter in which net U.S. sales
exceed a certain level. In addition, Millennium will be entitled to royalty payments
based on U.S. CAMPATH sales above certain levels in 2005, and
continuing through 2008. Cash, cash
equivalents, restricted investments and investments in marketable securities
decreased $34.7 million compared to December 31, 2001, primarily as a result of
the losses incurred in the first nine months of 2002.

In February 2001, we acquired Symphar for approximately $29.0 million,
including $15.0 million in cash and 521,121 shares of our common stock. The
acquisition agreement specifies that, subject to the viability of performance,
we agree to fund a minimum operating and capital budget between $4.0 to $5.0
million annually for each of the following three years. Of the $15.0 million paid in
cash, the Company placed $4.5 million in escrow to provide indemnification
by the Symphar selling shareholders against future claims. This amount was released in equal installments of $1.5
million every six months following closing for a period of 18 months provided
no claims had arisen. As of September 30, 2002, $4.5 million has been
released from escrow.

We expect our current funds will be adequate to cover all of our
obligations for at least the next year. Our cash requirements may increase each
year as we expand our activities and operations. We may never generate
sufficient product revenue to achieve or sustain profitability. Until our
business can generate sufficient levels of cash from product sales, we expect
to continue to finance our operations through existing cash, revenue from
collaborative relationships, licensing or sale of product rights and proceeds
from the sale of equity securities.

In connection with research and development efforts, we have entered into
agreements with certain development partners, which generally expire over
several years. The terms of these agreements require that we make payments in
either cash or stock if certain drug development or time-based milestones are
met. As of September 30, 2002, we had commitments of approximately $4.2
million through December 31, 2002.

We plan to continue our policy of investing available funds in government
securities and investment-grade, interest-bearing securities, primarily with
maturities of two years or less. We do not invest in derivative financial
instruments, as defined by Statement of Financial Accounting Standards No.
119.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---

ILEXs future expenditures and capital requirements will depend on
numerous factors, including but not limited to, 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. As of
September 30, 2002, the Company did not have any material commitments for
capital expenditures. The Company may never be able to generate significant
product revenue or achieve or sustain profitability. The Company expects its
cash, cash equivalents, and marketable securities will be adequate to cover all
of its obligations for the next year.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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 $243.6 million at September 30, 2002. These funds are
generally invested in interest-bearing securities, primarily with maturities of
two years 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

Evaluation of Disclosure Controls and Procedures.

As of September 30, 2002, an evaluation was performed under the supervision and
with the participation of management, including the Chief Executive
Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as such term is defined in rule 13a-14(c) and 15d-14(c)
under the Securities and Exchange Act of 1934, as amended). Based on that evaluation, management, including the Chief
Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective as of
September 30, 2002.

Changes in Internal Controls.

There have been no significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to September 30,
2002.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---




PART II. OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



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

| | 3.1   |  | Amended and Restated Certificate of Incorporation of
the Company filed May 31, 2000 (Incorporated herein by reference
to Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q
filed August 8, 2000)
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3.2   |  | Bylaws of the Company, as amended (Incorporated herein
by reference to Exhibit 3.2 of the Companys Registration
Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
amended                 
|
| | 11.1* |  | Computation of Net Loss per Share                                                                                                                                                                        



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------
|
| |     |  | none                

*     Filed herewith.

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of San Antonio, Texas,
on November 11, 2002.

|    |  |                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------
|    |  | 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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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---




CERTIFICATIONS

I, Jeffrey H. Buchalter, certify that:

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

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

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

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

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

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

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

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

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

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

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

/s/ Jeffrey H. Buchalter

Jeffrey H. Buchalter
President and Chief Executive Officer
(Principal Executive Officer)

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ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2002  QUARTERLY REPORT ON FORM 10-Q

---

CERTIFICATIONS

I, Mark P. Mellin, certify that:

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

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

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

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

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

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

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

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

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

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

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

/s/ Mark P. Mellin

Mark P. Mellin
Senior Vice President and Chief Financial Officer
(Chief Financial and Accounting Officer)

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INDEX TO EXHIBITS



| | ExhibitNumber |  | Description
| | ------------- |  | -----------

| | 3.1   |  | Amended and Restated Certificate of Incorporation of
the Company filed May 31, 2000 (Incorporated herein by reference
to Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q
filed August 8, 2000)
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3.2   |  | Bylaws of the Company, as amended (Incorporated herein
by reference to Exhibit 3.2 of the Companys Registration
Statement No. 333-17769 on Form S-1 filed December 12, 1996, as
amended                 
|
| | 11.1* |  | Computation of Net Loss per Share                                                                                                                                                                        
|

* Filed herewith.