ILEX ONCOLOGY INC, S-1/A, 1997-01-28

ILEX ONCOLOGY INC
S-1/A, 1997-01-28
MEDICAL LABORATORIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997

REGISTRATION NO. 333-17769

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

<TABLE>
<S> <C> <C>
DELAWARE 8071 74-2699185
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

<TABLE>
<C> <C>
RICHARD L. LOVE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
11550 IH-10 WEST, SUITE 300 ILEX ONCOLOGY, INC.
SAN ANTONIO, TEXAS 78230 11550 IH-10 WEST, SUITE 300
(210) 949-8200 SAN ANTONIO, TEXAS 78230
(Address, including zip code, and telephone number, (210) 949-8200
including area code, of registrant's principal (Name and address, including zip code, and telephone
executive offices) number, including area code, of agent for service)
</TABLE>

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Copies to:

<TABLE>
<C> <C>
PHILLIP M. RENFRO, ESQ. GEORGE W. BILICIC, JR., ESQ.
FULBRIGHT & JAWORSKI L.L.P. CRAVATH, SWAINE & MOORE
300 CONVENT STREET, SUITE 2200 825 EIGHTH AVENUE
SAN ANTONIO, TEXAS 78205 NEW YORK, NEW YORK 10019
(210) 224-5575 (212) 474-1000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE> 2

ILEX ONCOLOGY, INC.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Cover Page of Registration Statement;
Cross-Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors; Selected
Financial Data
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution......................................... Risk Factors; Dilution
7. Selling Security Holders......................... *
8. Plan of Distribution............................. Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered....... Outside Front Cover Page of Prospectus;
Dividend Policy; Description of Capital
Stock
10. Interest of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant....... Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Description of Capital Stock;
Certain Transactions; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Management
</TABLE>

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* Not applicable.

i
<PAGE> 3

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities
in any State in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any
such State.

SUBJECT TO COMPLETION

JANUARY 28, 1997

PROSPECTUS

2,500,000 SHARES

ILEX ONCOLOGY, INC.
LOGO
COMMON STOCK
($.01 PAR VALUE)

All of the 2,500,000 shares of Common Stock, $.01 par value (the "Common
Stock"), being offered hereby (the "Shares") are being issued and sold by ILEX
Oncology, Inc. ("ILEX" or the "Company"). It is anticipated that the initial
public offering price will be between $11.00 and $13.00 per share. Prior to this
offering, there has been no public market for the Common Stock of the Company.
See "Underwriting" for a discussion of the factors considered in determining the
initial public offering price.

The Company's Common Stock has been approved for listing on the Nasdaq National
Market under the trading symbol "ILXO."

SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
Per Share.................................... $ $ $
Total(2)..................................... $ $ $
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</TABLE>

(1) Before deducting expenses of the offering payable by the Company estimated
at $600,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 375,000 additional shares of Common Stock at the Price to
Public, less the Underwriting Discount, solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."

The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Shares will be made at the
office of Salomon Brothers
Inc, Seven World Trade Center, New York, New York, or through the facilities of
The Depository Trust
Company, on or about , 1997.

SALOMON BROTHERS INC
COWEN & COMPANY
SMITH BARNEY INC.

The date of this Prospectus is , 1997.
<PAGE> 4

ILEX Oncology, Inc. is a drug development company focused on the timely
development, manufacture and regulatory approval of oncology drugs.

<TABLE>
<S> <C>
[Picture of a physician and child] [Picture of two individuals]
The American Cancer Society estimates one in The best way to cure cancer is not to get it
three Americans will be diagnosed with in the first place. Two drugs in
cancer in their lifetime. Nine drugs in development.
development.
</TABLE>

Treatment

ILEX Prevention

Contract Research Services

ILEX's Full Range of Development Services
[Table showing services]

<TABLE>
<S> <C>
Preclinical Pharmacology Phase I Clinical Trials
Formulation Phase II Clinical Trials
Synthesis/Sale-up (GMP) NDA Preparation
Toxicology FDA Approval
IND Preparation
</TABLE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET
(INCLUDING THE NASDAQ NATIONAL MARKET) OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

ILEX(TM) IS A TRADEMARK OF THE COMPANY. TRADEMARKS OF OTHERS ARE ALSO REFERRED
TO IN THIS PROSPECTUS.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements including the notes thereto contained
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "Risk Factors." In this Prospectus, the
term "Company" or "ILEX" refers to ILEX Oncology, Inc. Except as otherwise
indicated, all information in this Prospectus (i) assumes the conversion of all
outstanding shares of convertible preferred stock of the Company ("Convertible
Preferred Stock") into Common Stock upon consummation of this offering, (ii)
reflects an approximate 1-for-1.752 reverse stock split (the "Reverse Stock
Split") of the outstanding Common Stock effective immediately prior to the
effective date of the Registration Statement of which this Prospectus is a part
and (iii) assumes no exercise of the Underwriters' over-allotment option. See
"Capitalization," "Description of Capital Stock" and "Underwriting."

THE COMPANY

ILEX is a drug development company focused exclusively on oncology. The
Company uses its expertise in the identification, development, manufacturing and
regulatory approval process of oncology drugs to (i) develop cancer treatment
products, (ii) develop products for the prevention of cancer ("chemoprevention")
and (iii) provide contract research services to pharmaceutical and biotechnology
companies. ILEX's objective is to be a leading worldwide oncology drug
development company. The Company has nine cancer treatment compounds under
development, including five in Phase II or Phase III clinical trials. In October
1996, ILEX submitted a New Drug Application ("NDA") to the Food and Drug
Administration ("FDA") seeking accelerated marketing approval for mitoguazone
("MGBG") as a treatment for patients with AIDS-related non-Hodgkin's lymphoma
who have failed an initial treatment regimen ("second-line treatment").
Additionally, ILEX has two chemoprevention compounds under development.
Consistent with its strategy, the Company has established worldwide development
and marketing collaborations ("collaborative arrangements") with Sanofi S.A.
("Sanofi"), Janssen Pharmaceutica N.V., a subsidiary of Johnson & Johnson
("Janssen"), and MGI Pharma, Inc. ("MGI Pharma") for certain of its compounds.
In addition to its proprietary product development programs, the Company offers
contract research organization ("CRO") services to both the pharmaceutical and
biotechnology industries. ILEX believes it is currently the only full-service
provider of contract research services focused exclusively on oncology.

Oncology represents a significant market opportunity. The American Cancer
Society estimates that over 1.3 million new cases of cancer will be diagnosed
and approximately 550,000 cancer deaths, representing approximately 25% of all
projected deaths, will occur in the United States in 1996. Cancer is the second
leading cause of death in the United States and over 10 million people alive
today have a history of cancer. The worldwide oncology drug market was estimated
at approximately $5.6 billion in 1995 and is projected to total approximately $9
billion by the year 2000. While recent data suggests that overall cancer death
rates have declined since 1990, primarily due to an overall reduction in lung
cancer deaths, the death rates resulting from several cancers are still rising,
including non-Hodgkin's lymphoma, pancreatic cancer, multiple myeloma and
chronic leukemia. Moreover, the incidence of cancer increases dramatically with
age, with approximately 80% of cancers diagnosed in the United States occurring
in people the age of 55 and over. Specifically, people over the age of 65 have,
on average, a ten times greater risk of dying from cancer than those in the
under-65 population. Therefore, since the over-65 population is one of the
fastest growing age groups in the United States, it is expected that there will
be an increased need for oncology products. Additionally, due to the
life-threatening nature of cancer, the FDA has announced procedures for
accelerating the approval of oncology agents, thereby reducing the amount of
time required to bring such agents to market. The Company believes that the
increasing demand for oncology products and the acceleration of the oncology
product approval process by the FDA creates a unique opportunity for the Company
to use its expertise in oncology drug development.

ILEX was formed by The Cancer Therapy and Research Foundation of South
Texas ("CTRC") in December 1993 for the purpose of conducting certain advanced
drug development programs and pursuing commercial opportunities which were not
within the scope of CTRC's tax-exempt purpose. CTRC is a non-profit
organization, which, in conjunction with the University of Texas Health Science
Center at San Antonio ("UTHSCSA"), is a National Cancer Institute ("NCI")
designated Comprehen-
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<PAGE> 6

sive Cancer Center and one of the leading organizations in the United States
conducting clinical testing of oncology drugs. CTRC and its research subsidiary,
CTRC Research Foundation ("CTRC Research") and certain related entities have had
some level of participation in the clinical development of a majority of the
oncology drugs approved for marketing over the past 10 years. The Company
contracts with CTRC Research for laboratory studies, clinical research and
advisory services. Because of the Company's established relationship with, and
geographical proximity to, CTRC Research, ILEX is able to obtain prompt feedback
regarding the safety and efficacy of its compounds. Pharmaceutical companies
seeking assistance from CTRC Research often find it cost-effective to engage
ILEX to monitor studies conducted at CTRC Research. In addition, ILEX has an
option to license certain drug discoveries arising from research programs
conducted at CTRC Research. Although CTRC Research currently owns approximately
30.3% of the outstanding shares of capital stock of the Company and will own
approximately 23.8% upon the closing of this offering, CTRC Research is an
independent entity that neither ILEX nor its management controls. See
"Business -- Relationship with CTRC."

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

ILEX has submitted an NDA to the FDA seeking accelerated marketing approval
for MGBG as a second-line treatment for patients with AIDS-related non-Hodgkin's
lymphoma. The Company, in collaboration with Sanofi, plans to expand the
potential uses of MGBG by conducting clinical trials in patients with other
non-Hodgkin's lymphomas, Hodgkin's disease and pancreatic cancer. There can be
no assurance, however, that MGBG will receive FDA approval on a timely basis, if
at all, be commercially viable or achieve market acceptance. ILEX has
established a worldwide development and marketing collaboration with Sanofi for
MGBG. In addition, the Company has established a worldwide development and
marketing collaboration with Janssen for crisnatol mesylate ("Crisnatol"), which
is in Phase III clinical trials for treatment of patients with glioblastoma, a
type of brain tumor. ILEX is also pursuing the development of difluoromethyl
ornithine ("DFMO") for brain tumors, carcinoid syndrome and breast cancer, and
expects to initiate a pivotal Phase II trial in 1997 for breast cancer. The
Company, through a joint venture with MPI Enterprises, L.L.C. ("MPI"), is
developing Piritrexim as a treatment for patients with Kaposi's sarcoma, an AIDS
related cancer, and advanced bladder cancer, and is currently conducting a Phase
III trial in patients with Kaposi's sarcoma.

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

In addition to its proprietary product development programs, ILEX offers
CRO services to the pharmaceutical and biotechnology industries. The Company
believes it is currently the only full-service provider of contract research
services focused exclusively on oncology. The Company offers its contract
research clients, among other things, expertise in the design of cancer clinical
studies ("protocols"), preparation of regulatory submissions, toxicology
services, organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such capabilities, ILEX believes that
it may be able to reduce the time normally required by pharmaceutical and
biotechnology companies and broad-based CROs to develop oncology products and
increase the probability of obtaining regulatory approval.

4
<PAGE> 7

THE OFFERING

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<S> <C>
Common Stock offered........................ 2,500,000 shares
Common Stock to be outstanding after the
offering.................................. 11,679,594 shares(1)
Use of proceeds............................. For research and development activities, working
capital and general corporate purposes, which may
include capital expenditures and acquisitions
Nasdaq National Market symbol............... ILXO
</TABLE>

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(1) Based on the number of shares outstanding at December 31, 1996 as if the
conversion of the outstanding Convertible Preferred Stock into shares of
Common Stock had occurred on that date. Excludes (i) 1,141,647 shares of
Common Stock issuable upon exercise of outstanding options and warrants as
of December 31, 1996, at a weighted average exercise price of approximately
$4.21 and $7.63, respectively, and (ii) 624,398 additional shares of Common
Stock reserved for issuance pursuant to the Company's 1995 Stock Option Plan
and 1996 Non-Employee Director Plan as of December 31, 1996. See
"Management -- Stock Option Plans" and "Description of Capital
Stock -- Warrants."

RISK FACTORS

See "Risk Factors" commencing on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Shares.
5
<PAGE> 8

SUMMARY FINANCIAL DATA

The summary financial information below has been taken or derived from the
audited financial statements and other records of the Company. The summary
financial information should be read in conjunction with the Company's financial
statements including the notes thereto, and the other financial data contained
elsewhere in this Prospectus. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1, 1994) NINE MONTHS
THROUGH YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------
1994 1995 1995 1996
----------------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATING STATEMENT DATA:
Revenue:
Product development............... $1,065 $3,551 $2,467 $ 2,899
Contract research services........ 188 658 536 842
-------- ------ ------ -------
Total revenue................ 1,253 4,209 3,003 3,741
-------- ------ ------ -------
Operating expenses:
Research and development costs.... 945 3,213 2,224 2,503
General and administrative........ 156 1,312 886 1,914
Costs of contract research
services........................ 78 330 207 1,040
Subcontractor costs............... 119 199 151 468
-------- ------ ------ -------
Total operating expenses..... 1,298 5,054 3,468 5,925
-------- ------ ------ -------
Operating loss....................... (45) (845) (465) (2,184)
Interest income (expense), net....... (1) 133 (13) 455
-------- ------ ------ -------
Net loss............................. $ (46) $ (712) $ (478) $(1,729)
======== ====== ====== =======
Net loss per share................... $ (.01) $ (.09) $ (.06) $ (.20)
======== ====== ====== =======
Weighted average shares used in
computing net loss per share(1)... 7,544 7,737 7,553 8,460
======== ====== ====== =======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments in
marketable securities........................... $17,412 $23,412 $50,712
Working capital.................................... 9,731 15,731 43,031
Total assets....................................... 19,715 25,715 53,015
Accumulated deficit................................ (2,487) (2,487) (2,487)
Total stockholders' equity......................... 17,749 23,749 51,049
</TABLE>

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

(2) Reflects the pro forma effect of the sale of the Series D and E convertible
preferred stock as if the sale of such shares had occurred on September 30,
1996.

(3) As adjusted to reflect the net proceeds to the Company from the sale of
2,500,000 shares of common stock at an initial public offering price of
$12.00 per share and the application of the net proceeds therefrom and the
assumed conversion of all convertible preferred stock to common stock. See
"Use of Proceeds" and "Capitalization".
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<PAGE> 9

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," including statements regarding the anticipated
development and expansion of the Company's business, the products which the
Company expects to offer, anticipated research and development expenditures and
regulatory reform, the intent, belief or current expectations of the Company,
its directors or its officers, primarily with respect to the future operating
performance of the Company and other statements contained herein regarding
matters that are not historical facts, are "forward-looking" statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995).
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the factors set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

RISK FACTORS

Prospective investors should consider carefully the following risk factors
in addition to the other information presented in this Prospectus before
purchasing any shares of Common Stock being offered hereby.

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

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

Although the Company has submitted an NDA to the FDA seeking marketing
approval for MGBG under the accelerated procedures promulgated by the FDA for
drugs to be used to treat life-threatening diseases, there can be no assurance
that MGBG will receive such approval on a timely basis, if at all, be
commercially viable or achieve market acceptance. The failure to obtain FDA
approval of the NDA for MGBG could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has filed only one NDA to date, and does not expect to file another in the near
future. There can be no assurance that the Company will file an NDA for any
other compound or that the Company will receive approvals for such compounds.
The failure to obtain FDA approval for the Company's other compounds could have
a material adverse effect on the Company's business, financial condition and
results of operations.

The Company's area of focus, oncology, is not thoroughly understood and
there can be no assurance that the drugs the Company is seeking to develop will
prove to be safe and effective in treating or preventing cancer. The development
of such drugs will require the commitment of substantial

7
<PAGE> 10

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

DEPENDENCE ON COLLABORATIVE RELATIONSHIPS; DEPENDENCE ON LICENSEES

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

POSSIBLE LOSS OF KEY EMPLOYEES AND OTHER ADVERSE EFFECTS UPON ADVERSE IRS TAX
RULING

CTRC Research is attempting to obtain a private letter ruling from the
United States Internal Revenue Service ("IRS") to confirm certain tax
implications to CTRC Research associated with the formation of the Company by
CTRC. The IRS has not yet indicated whether it is prepared to issue such a
ruling, although a determination from the IRS is possible at any time. As part
of the formation of the Company, shares of Common Stock were purchased by Mr.
Love, Dr. Weis, Dr. Coltman and Dr. Von Hoff (the "Founders"). A provision in
the stock purchase agreements, employment agreements and consulting agreements
entered into between ILEX and each of the Founders requires the Company and the
Founders to attempt to reach an "equitable adjustment" of the terms of such
agreements in the event CTRC Research is unable to obtain a favorable private
letter ruling from the IRS. If the Company and the Founders are unable to reach
or agree upon an "equitable adjustment" within a specified period after an

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adverse IRS tax ruling, the Founders' stock purchases would be rescinded and the
Company would be required to repurchase the Common Stock purchased by the
Founders at the purchase price, approximately $210,000, paid upon formation and
the employment and consulting agreements would automatically terminate.
"Equitable adjustment" is not defined in any of the stock purchase agreements,
employment agreements or consulting agreements, and what constitutes an
"equitable adjustment" could, in addition to considerations in respect of the
Founders and the Company, be determined based on the actions necessary to be
taken to minimize any adverse tax consequences to CTRC Research associated with
an adverse IRS tax ruling.

Any renegotiated agreement with the Founders may include, without
limitation, the issuance of shares of Common Stock or options to purchase shares
of Common Stock to the Founders or cash payments to the Founders. The issuance
of shares of Common Stock or options to purchase shares of Common Stock or cash
payments made by the Company to retain the services of the Founders could be
material, and such issuances or payments could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, such issuances could have a substantial dilutive effect on the value
of outstanding shares of Common Stock. There can be no assurance that any
negotiations with the Founders would be successfully consummated, and the
services of one or more of the Founders may be lost. See
"Management -- Employment and Consulting Agreements." Furthermore, conflicts
between the Company's interest in maintaining the services of the Founders and
the interest of CTRC Research and related entities in maintaining its tax-exempt
status could materially and adversely affect the relationship, or result in
litigation, between the Company and CTRC Research which, in each case, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Dependence on CTRC Research and its Related
Entities, Certain Industries and Clients; Loss or Delay of CRO Contracts."

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

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

To date, the Company has incurred substantial net losses. Net loss for the
period from inception (October 1, 1994) to December 31, 1994, the year ended
December 31, 1995, and the nine-month period ending September 30, 1996 was
$46,000, $712,000 and $1,729,000, respectively. The Company has not generated
any revenues from product sales to date, and there can be no assurance that
revenues from product sales will be achieved. ILEX has not generated significant
contract research revenue or revenue sufficient to cover direct and overhead
costs associated with these activities and there can be no assurance that
contract research revenue will be significantly increased. Moreover, even if the
Company does achieve revenues from product sales or increased contract research
services, the Company expects to incur significant operating losses over the
next several years. The Company's ability to achieve a profitable level of
operations in the future will depend in large part on its completing development
of its

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

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The Company will require substantial additional funds to conduct research
and development, to develop further its potential pharmaceutical products, to
manufacture and market any pharmaceutical products that may be developed and to
expand its contract research services business. The Company expects its capital
and operating expenditures to increase substantially over the next several
years. The Company has no current sources of funding beyond the proceeds from
this offering, its collaborative agreements with its strategic partners, its
drug development service operations, existing cash and cash equivalents and
investments in marketable securities. The Company believes that the estimated
net proceeds of this offering, its collaborative agreements with strategic
partners, its contract research services, existing cash and cash equivalents and
investments in marketable securities will satisfy its currently budgeted cash
requirements through 1999 based upon the Company's current operating plan and
conditions, but there can be no assurance that the Company will not require, or
choose to raise, additional funds prior to such date. The Company may seek such
additional funding through public or private equity or debt financings,
collaborative or other arrangements with third parties or from other sources.
There can be no assurance, however, that additional funds will be available on
acceptable terms, if at all. If additional funds are raised by issuing equity
securities, further substantial dilution to existing stockholders, including
purchasers of the Common Stock offered hereby, may result. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate one
or more of its development programs, or to obtain funds by entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its products or technologies that the Company
would not otherwise relinquish and which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds."

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

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

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<PAGE> 13

with any product targets in the future. In addition, Dr. Von Hoff is prohibited
under the terms of his consulting agreement from making recommendations about,
or actively participating in decisions regarding the acquisitions of compounds
or technologies (i) owned or discovered by or licensed to certain entities
related to CTRC, or (ii) for which Dr. Von Hoff was the principal investigator,
supervised the principal investigator or provided the leadership for the
clinical or preclinical studies for such compounds or technologies, when such
actions would give the appearance of a conflict. Dr. Von Hoff is also prohibited
from acting as the principal investigator for or supervising the principal
investigator for studies conducted by the Company. There can be no assurance
that the Company, through Dr. Von Hoff or otherwise, will be successful in
selecting product candidates or developing commercial pharmaceutical products
that are safe and efficacious. Discontinuation of the Company's relationship
with Dr. Von Hoff could have a significant adverse effect on the Company's
business, financial condition and results of operation. See
"Management -- Employment and Consulting Agreements."

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

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

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

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

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<PAGE> 14

continue. If ILEX and CTRC Research and its related entities are unable to
maintain a mutually beneficial relationship, including access by the Company to
CTRC Research's and its related entities' patients and investigators and
potential contract research clients, the business, financial condition and
results of operations of the Company could be materially and adversely affected.
See "Business -- Contract Research and Development Services" and
"Business -- Relationship with CTRC."

INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE

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

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

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

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<PAGE> 15

The patents and patent applications in-licensed by the Company have not
been independently investigated by the Company, and there can be no assurance
that any such patents or patent applications will not be challenged or will
provide protection for the Company's compounds. The patent and license
applicable to DHAC recently expired and, as a result, the DHAC technology is
currently available for general public use. In addition, Oxypurinol and
Aminopterin do not have patent protection and United States patents on ILEX's
other current products which expire in the next 10 years include: MGBG (2002);
Crisnatol (2004, 2005); DFMO (2000); and Piritrexim (2007). See "Business --
Patents, Trademarks and Trade Secrets." The Company's rights to its proprietary
compounds are dependent upon compliance with certain licenses and agreements
which require, among other things, certain royalty and other payments, the
Company's reasonable use of the underlying technology of the applicable patents,
as well as the filing of certain regulatory submissions. In addition, the terms
of the Company's license and development agreements with Sanofi require the
parties to agree on a decrease in the royalties and payments to be received by
ILEX under certain limited circumstances. Failure to comply with such licenses
and agreements, which could result in loss of the Company's underlying rights to
one or more of these potential products or a decrease in the payments to ILEX
under the Sanofi agreements, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- In-Licensing Agreements."

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

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

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

LACK OF OPERATING EXPERIENCE; MANAGEMENT OF GROWTH

The Company has no experience in manufacturing or procuring products in
commercial quantities or selling pharmaceutical products and has only limited
experience in negotiating, establishing and maintaining strategic relationships,
conducting clinical trials and other later-stage phases of the regulatory
approval process. To date, the Company has engaged exclusively in acquiring and
developing pharmaceutical compounds and providing clinical research, development
and manufacturing services. The Company's ability to manage its growth, if any,
will require it to continue to improve and expand its management, operational
and financial systems and controls. If the Company's management is unable to

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<PAGE> 16

manage growth effectively, the Company's business, financial condition and
results of operations will be adversely affected. In addition, if rapid growth
occurs, it may strain the Company's operational, managerial and financial
resources. In the normal course of business, the Company evaluates potential
acquisitions of patents, compounds, technologies and businesses that could
complement or expand the Company's business. In the event the Company were to
identify an appropriate acquisition candidate, there is no assurance that the
Company would be able to successfully negotiate, finance or integrate such
acquired patents, compounds, technologies or businesses. Furthermore, such an
acquisition could cause a diversion of management time and resources. There can
be no assurance that a given acquisition would not materially adversely affect
the Company's business, financial condition and results of operations.

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

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

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

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

The levels of revenues and profitability of pharmaceutical companies may be
affected by the continuing efforts of governmental and third-party payors to
contain or reduce the costs of health care. The Company cannot predict the
effect that private sector or governmental health care reforms may have

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<PAGE> 17

on its business, and there can be no assurance that any such reforms will not
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, in both the United States and elsewhere,
sales of prescription drugs are dependent in part on the availability of
reimbursement to the consumer from third-party payors, such as government and
private insurance plans. Third-party payors and others are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost effective or that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis. In addition, because no
chemoprevention drug has been approved by the FDA to date, there can be no
assurance that any chemoprevention drug developed by the Company, if any, would
be eligible for reimbursement to the consumer. See "Business -- Government
Regulation."

CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS

Upon the closing of the offering, CTRC Research will beneficially own
approximately 23.8% of the Company's outstanding shares of Common Stock, and the
Company's executive officers and directors, as a group, will beneficially own
approximately 27.9% of the Company's outstanding shares of Common Stock.
Accordingly, together with CTRC Research, the present directors and executive
officers will have the ability to exercise substantial influence over the
outcome of most stockholders' actions. Moreover, the Company's certificate of
incorporation does not provide for cumulative voting with respect to the
election of directors. Consequently, the present directors and executive
officers, together with CTRC Research, will be able to exercise substantial
influence over the election of the members of the Board of Directors. Such
concentration of ownership could have an adverse effect on the price of the
Common Stock or have the effect of delaying or preventing a change in control of
the Company. In addition, certain provisions of Delaware law and the Company's
Certificate of Incorporation could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock. These provisions of Delaware law and the Company's
Certificate of Incorporation may also have the effect of discouraging or
preventing certain types of transactions involving an actual or threatened
change of control of the Company (including unsolicited takeover attempts), even
though such a transaction may offer the Company's stockholders the opportunity
to sell their stock at a price above the prevailing market price. Certain of
these provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders and prevent or eliminate cumulative voting in
the election of directors. These provisions may make it more difficult for
stockholders to take certain corporate actions and could have the effect of
delaying or preventing a change in control of the Company. In addition, certain
of the Company's corporate partners have the right to terminate their respective
agreements with the Company upon certain changes in control of the Company,
which may discourage acquisitions or other changes in control (including those
in which stockholders of the Company might otherwise receive a premium for their
shares over then-current market prices). See "Business -- Strategic Alliances
and Collaborations," "Management," "Principal Stockholders," "Description of
Capital Stock -- Preferred Stock" and "-- Certain Anti-Takeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."

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RIGHTS OF LICENSORS

Through licenses and other agreements, the Company has various rights to
certain products. The terms of these licenses and agreements generally survive
for a specified period of years; however, the licensor also has the ability to
terminate the license, or render it nonexclusive, if the Company fails to
perform its obligations pursuant to the agreements, or in the case of any
compound acquired from a public health service, including MGBG, if public health
and safety needs require such actions. In certain of these agreements the
licensor has reserved royalty-free licenses for research and other purposes. If
any of these licenses were terminated or rendered nonexclusive, the business,
financial condition and results of operations of the Company could be materially
and adversely affected. See "Business -- In-Licensing Agreements."

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

ILEX is currently responsible for manufacturing bulk drug product for
preclinical and clinical trials of MGBG, Crisnatol and oncology drugs on behalf
of third parties; however, other than MGBG, the compounds being developed by the
Company have never been manufactured on a commercial scale and the Company has
no experience in manufacturing these compounds in commercial quantities. There
can be no assurance that such compounds can be manufactured at a cost, or in
quantities, necessary to make them commercially viable. All facilities and
manufacturing techniques used in the manufacture of compounds for clinical use
or for sale in the United States must be operated in conformity with current
Good Manufacturing Practices ("cGMP") regulations, FDA regulations and
guidelines governing the development and production of pharmaceutical compounds.
The Company's facilities are subject to scheduled periodic regulatory
inspections to ensure compliance with cGMP requirements. Failure on the part of
the Company to comply with applicable requirements could result in the
termination of ongoing research or the disqualification of data for submission
to regulatory authorities. A finding that the Company had materially violated
cGMP requirements could result in additional regulatory sanctions and, in severe
cases, could result in a mandated closing of the Company's facilities, which
would materially and adversely affect the Company's business, financial
condition and results of operations. If the Company proves to be unsuccessful in
supplying compounds on acceptable terms, fails to satisfy regulatory
requirements or if it should encounter delays or difficulties in its third-party
relationships, the Company's clinical testing schedule would be delayed,
resulting in delay in the submission of compounds for regulatory approval or the
market introduction and subsequent sales of such products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

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

POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE

Clinical research involves the testing of new drugs on human volunteers
pursuant to a research plan, and such testing involves a risk of liability for
personal injury or death to patients due to, among other reasons, possible
unforeseen adverse side effects or improper administration of the new drug. Many
of these patients are already seriously ill and are at risk of further illness
or death. The Company could be materially and adversely affected if it were
required to pay damages or incur defense costs (i) in connection with a claim
outside the scope of indemnity or insurance coverage, (ii) if the indemnity,
although applicable, is not performed in accordance with the terms of the
relevant contract or (iii) if the

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Company's liability exceeds the amount of applicable insurance. In addition,
there can be no assurance that such insurance will continue to be available on
terms acceptable to the Company, if at all, or that, if obtained, the insurance
coverage will be sufficient to cover any potential claims or liabilities.
Similar risks would exist upon the commercialization or marketing of any
products by the Company or its partners. See "Business -- Product Liability and
Insurance."

NO PRIOR PUBLIC TRADING MARKET; VOLATILITY OF STOCK PRICE; VARIATION IN
QUARTERLY OPERATING RESULTS

The stock market has experienced significant price and volume fluctuations
that have particularly affected the market prices of equity securities of many
pharmaceutical, biotechnology and developmental stage companies and that are
often unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the market price of the Common
Stock. In addition, the market price of the Common Stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, announcements of new collaborations or changes in existing
collaborations by the Company or its competitors, the loss, or prospect of loss,
of a significant contract with one or more of the Company's contract research
clients, FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and internationally,
rumors relating to the Company or its competitors, changes in stock market
analyst recommendations regarding the Company, other pharmaceutical companies or
the pharmaceutical industry generally and general market conditions may have a
significant effect on the market price of the Common Stock. Prior to this
offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market will develop or, if one does develop,
that it will continue. The initial public offering price, which will be
established by negotiations between the Company and the Underwriters, may not be
indicative of prices that will prevail in the market after this offering. See
"Underwriting" for a discussion of the factors relevant to the determination of
the initial public offering price.

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

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

Sales of substantial amounts of Common Stock in the public market following
this offering, or the prospect of such sales, could have an adverse effect on
the price of the Company's Common Stock. Upon completion of this offering, the
Company will have outstanding 11,679,594 shares of Common Stock (which amount
does not include shares of Common Stock issuable upon the exercise of
outstanding options). The 2,500,000 shares being offered hereby (except for
shares that may be acquired by affiliates of the Company) will be freely
tradeable in the public market without restriction or limitation under the
Securities Act of 1933, as amended (the "Securities Act"). Beginning 180 days
after the effective date of the Registration Statement (the "Effective Date"),
upon the expiration of certain agreements not to sell such shares, an additional
approximately 4,179,012 shares of Common Stock will become eligible for sale
subject to compliance with Rule 144 of the Securities Act. In addition, the
holders of approximately 671,565 shares of Common Stock are entitled to certain
piggy-back registration rights with respect to such shares. If the Company is
required to include in a Company-initiated registration shares held by such
holders pursuant to the exercise of their piggy-back registration rights, sales
made by such holders may have an adverse effect on the Company's ability to
raise needed capital and on the price of the Common Stock. In addition, certain
stockholders hold demand registration rights which permit them to request the
Company to register the shares of Common Stock held by them. If such

17
<PAGE> 20

parties, by exercising their demand registration rights, cause a large number of
shares to be registered and sold in the public market, such sales may have an
adverse effect on the market price for the Common Stock. In addition, shares of
Common Stock that are issued by the Company to fund its operations or in
connection with an acquisition could also have an adverse effect on the market
price for the Common Stock. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."

The Company is engaged in the preliminary stages of negotiations relating
to a potential long-term contract with a provider of site administration
services, which would include a joint marketing or cooperative alliance between
such provider and the Company's CRO services business. The transaction, as
currently being discussed, could result in the issuance by the Company of up to
approximately 2.5 million shares of Common Stock, some of which would be subject
to performance criteria and achievement of various financial goals. Any such
issuance would result in substantial dilution, including in terms of earnings
per share, to stockholders of the Company and purchasers in this offering. No
assurance can be given that such negotiations will lead to a final transaction
or that any such transaction will achieve satisfactory results.

DILUTION

Purchasers of the Common Stock in this offering will experience an
immediate and substantial dilution in net tangible book value per share of $7.63
per share of Common Stock from the initial public offering price (assuming an
initial public offering price of $12.00 per share). See "Dilution."

18
<PAGE> 21

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $27,300,000
($31,485,000 if the Underwriters' over-allotment option is exercised in full),
based on an assumed initial public offering price of $12.00 per share and after
deducting underwriting discounts and the estimated expenses of this offering
payable by the Company.

The Company is undertaking this offering, and expects to use a majority of
the net proceeds therefrom, to fund its research and development activities,
which may include the formation of joint ventures and other collaborative
relationships. The amount and timing of the net proceeds allocated to specific
research and development activities will depend upon numerous factors, such as
the progress of the Company's drug development programs, the receipt of
necessary regulatory approvals, the cost of preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims and other intellectual
property rights, the status of competitive products and technologies and the
timing and availability of alternative methods of financing for the Company,
including existing or future strategic alliances and joint ventures with third
parties. The Company's research and development expenditures will vary as
product candidates, if any, are added or abandoned or as additional
collaborations are established. In addition, the Company intends to use some of
the proceeds of this offering to expand its CRO services through internal
growth, including acquisition of information technology and expansion of
existing facilities, the acquisitions of other businesses and the formation of
contract research service joint ventures and other strategic collaborations. The
Company intends to use the remainder of the proceeds of this offering for
working capital and general corporate purposes. The Company has not determined
the amount it plans to spend for each purpose or the timing of such
expenditures. Pending such uses, the Company intends to invest the net proceeds
from this offering in United States government securities and investment-grade,
interest-bearing instruments. The Company expects to continue to be able to
avoid the registration requirements of the Investment Company Act of 1940 (the
"1940 Act"). If the Company were required to register as an investment company
under the 1940 Act, it would become subject to substantial regulations with
respect to its capital structure, management, operations, transactions with
affiliates (as defined in the 1940 Act), and other matters. Application of the
provisions of the 1940 Act would have a material adverse effect on the Company.

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

The Company believes that the estimated net proceeds of this offering, its
collaborative agreements with strategic partners, its contract research services
and existing cash, cash equivalents and investments and marketable securities
will satisfy its cash requirements through 1999 based on the Company's current
operating plan and conditions, but there can be no assurance that the Company
will not require, or choose to raise, additional funds prior to such date.

DIVIDEND POLICY

The Company has never declared nor paid dividends on its capital stock. The
Company currently intends to retain any future earnings for funding growth and,
therefore, does not intend to pay any cash dividends in the foreseeable future.

19
<PAGE> 22

CAPITALIZATION

The following table sets forth (i) as of September 30, 1996, the actual
capitalization of the Company, (ii) the capitalization of the Company as of such
date on a pro forma basis to give effect to the issuance of the Series D and
Series E Convertible Preferred Stock and (iii) the pro forma capitalization as
of such date, as adjusted, after giving effect to the sale of the 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share, less offering expenses and underwriting discounts and
the application of the estimated net proceeds therefrom and the effect of the
assumed conversion of all the outstanding Convertible Preferred Stock, including
the Series D and E Convertible Preferred Stock, into shares of Common Stock. See
"Use of Proceeds" and Notes 13 and 14 to the Financial Statements. This table
should be read in conjunction with the Company's Financial Statements and the
Notes thereto, and the other financial data included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Convertible Preferred Stock, $0.01 par value;
20,000,000 shares authorized, 7,402,349 issued and
outstanding, actual; 7,992,055 shares issued and
outstanding, pro forma; none issued and outstanding,
pro forma as adjusted............................... $ 74 $ 80 --
Common Stock, $0.01 par value; 40,000,000 shares
authorized, 1,187,539 shares issued and outstanding,
actual and pro forma; 11,679,594 shares issued and
outstanding, pro forma as adjusted(1)............... 12 12 117
Additional paid-in capital............................. 20,263 26,257 53,532
Receivables on sale of common stock.................... (113) (113) (113)
Accumulated deficit.................................... (2,487) (2,487) (2,487)
------- ------- -------
Total stockholders' equity.......................... 17,749 23,749 51,049
------- ------- -------
Total capitalization........................... $17,749 $23,749 $51,049
======= ======= =======
</TABLE>

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

(1) Excludes, as of September 30, 1996, (i) 967,396 shares of Common Stock
issuable upon exercise of outstanding options and warrants at a weighted
average exercise price of approximately $5.01 and $7.63, respectively, and
(ii) 798,649 additional shares reserved for issuance pursuant to the
Company's 1995 Stock Option Plan and 1996 Non-Employee Director Plan. See
"Management -- Stock Option Plans" and "Description of Capital
Stock -- Warrants."

20
<PAGE> 23

DILUTION

At September 30, 1996, the Company had pro forma net tangible book value of
approximately $23,749,000 or $2.59 per share of outstanding Common Stock,
assuming the conversion of all outstanding shares of Convertible Preferred
Stock, including Series D and Series E Convertible Preferred Stock, into shares
of Common Stock. Pro forma net tangible book value per share is determined by
dividing the net tangible book value (tangible assets less liabilities) of the
Company by the pro forma number of shares of Common Stock outstanding. After
giving effect to the issuance and sale of the 2,500,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $12.00 per share)
and the application of the estimated net proceeds therefrom as set forth in "Use
of Proceeds," the pro forma, as adjusted, net tangible book value of the Company
at September 30, 1996, would have been $51.0 million or $4.37 per share. This
represents an immediate increase in net tangible book value of approximately
$1.78 per share to the existing stockholders and an immediate dilution of $7.63
per share to new investors purchasing shares at the initial offering price. The
following table illustrates this dilution per share:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of
September 30, 1996..................................... $2.59
Increase in net tangible book value per share attributable
to new investors....................................... $1.78
-----
Pro forma, as adjusted, net tangible book value per share
after this offering.................................... $ 4.37
------
Dilution per share to new investors......................... $ 7.63
======
</TABLE>

The following table sets forth, on a pro forma basis as of September 30,
1996, the differences between the existing stockholders and the new investors
with respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders........ 9,179,594 78.6% $26,959,000 47.3% $ 2.94
New investors......... 2,500,000 21.4% $30,000,000 52.7% $12.00
---------- ----- ----------- -----
Total....... 11,679,594 100.0% $56,959,000 100.0%
========== ===== =========== =====
</TABLE>

The foregoing computations assume no exercise of stock options or warrants
outstanding at September 30, 1996. At September 30, 1996, there were outstanding
stock options to purchase 514,429 shares of Common Stock at a weighted average
exercise price of approximately $3.26 per share and options to purchase an
additional 178,648 shares of Common Stock were granted after September 30, 1996
at a weighted average exercise price of approximately $7.01 per share. In
addition, at September 30, 1996, 452,967 shares of Common Stock were issuable
upon exercise of outstanding warrants at a weighted average exercise price of
approximately $7.63 per share. To the extent these stock options and warrants
are exercised, there will be further dilution to purchasers in this offering.
Assuming the exercise of all outstanding options and warrants, the total
dilution in net tangible book value per share to new investors would be $7.52.
See "Management -- Executive Compensation," "Certain Transactions" and
"Description of Capital Stock."

21
<PAGE> 24

SELECTED FINANCIAL DATA

The following selected financial information relating to the Company has
been taken or derived from the audited financial statements, and notes related
thereto, and other records of the Company. The statements of operations and
balance sheets for the period from inception (October 1, 1994) to December 31,
1994, the year ended December 31, 1995, and the nine-month periods ended
September 30, 1996 and 1995, have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their report on those
statements. The selected financial information should be read in conjunction
with the Company's financial statements, including the notes thereto, and the
other financial data contained elsewhere in this Prospectus. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1, 1994) NINE MONTHS
THROUGH YEAR ENDED ENDED SEPTEMBER 30
DECEMBER 31, DECEMBER 31, -------------------
1994 1995 1995 1996
----------------- ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATING STATEMENT DATA:
Revenue:
Product development.................... $1,065 $ 3,551 $ 2,467 $ 2,899
Contract research services............. 188 658 536 842
-------- ------- ------- -------
Total revenue..................... 1,253 4,209 3,003 3,741
-------- ------- ------- -------
Operating expenses:
Research and development costs......... 945 3,213 2,224 2,503
General and administrative............. 156 1,312 886 1,914
Costs of contract research services.... 78 330 207 1,040
Subcontractor costs.................... 119 199 151 468
-------- ------- ------- -------
Total operating expenses.......... 1,298 5,054 3,468 5,925
-------- ------- ------- -------
Operating loss............................ (45) (845) (465) (2,184)
Other income:
Interest income........................ -- 159 5 459
Interest expense....................... (1) (26) (18) (4)
-------- ------- ------- -------
Net loss.................................. $ (46) $ (712) $ (478) $(1,729)
======== ======= ======= =======
Net loss per share........................ $ (.01) $ (.09) $ (.06) $ (.20)
======== ======= ======= =======
Weighted average shares used in computing
net loss per share(1).................. 7,544 7,737 7,553 8,460
======== ======= ======= =======
BALANCE SHEET DATA:
Cash, cash equivalents and investments in
marketable securities.................. $ 79 $ 9,636 $10,761 $17,412
Working capital........................... (122) 9,004 9,542 9,731
Total assets.............................. 1,166 11,257 11,871 19,715
Accumulated deficit....................... (46) (758) (524) (2,487)
Total stockholders' equity................ (57) 9,511 9,742 17,749
</TABLE>

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

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

22
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors," "Business" and under this heading.

OVERVIEW

ILEX is drug development company engaged in the business of (i) acquiring
rights to (generally in exchange for the payment of licensing fees and future
royalty payments), and developing for commercialization, drugs for the treatment
of patients with cancer and for the prevention of cancer and (ii) providing
clinical research, development and manufacturing services on a contract basis to
pharmaceutical and biotechnology companies engaged in the development of
oncology products. By using its expertise in the identification, development,
manufacturing and regulatory approval process of oncology drugs, the Company
believes it can develop products for cancer treatment, develop chemoprevention
products and provide contract research services to pharmaceutical and
biotechnology companies. ILEX was formed in December 1993 for the purpose of
conducting certain advanced drug development programs and pursuing commercial
opportunities of CTRC Research, but did not commence operations until October
1994.

The Company has financed its operations primarily through the sale of
Convertible Preferred Stock, through development funding provided by its
collaborative partners under its collaborative agreements and, to a lesser
extent, through fee-for-service or participatory revenues pursuant to contracts
with its CRO clients. See "Business -- Strategic Alliances and Collaborations."
The development funding received by the Company pursuant to collaborative
agreements often includes licensing fees, payments for research to support the
development of specific compounds and payments upon the achievement of specified
research and drug development milestones. ILEX's collaborative agreements are
generally conducted on a best efforts basis and payments for research are
recognized based on the time incurred on the related studies. The Company is
reimbursed for investigator costs based on actual costs incurred or at
predetermined rates plus out-of-pocket costs incurred during the performance of
the study. Revenues related to milestone payments are recognized upon the
achievement of the related milestone and when collection is probable.

ILEX also derives revenue from performing CRO services for companies within
the pharmaceutical and biotechnology industries. In general, the Company
provides CRO services to a client based on a pre-specified contract cost that
may be adjusted during the term of the project. The terms of the Company's
engagements vary, ranging from less than one month to several years, and
generally may be terminated upon notice of 30 days or less by the client. The
Company recognizes revenue with respect to its CRO services on a percentage of
completion basis as work is performed.

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

ILEX has no products available for sale and, with the exception of MGBG,
does not expect to have any products resulting from its drug development
efforts, including its collaborations with others, commercially available for
several years, if at all. The Company has incurred losses and expects to incur
increasing losses for the foreseeable future as the Company's research and
development expenditures increase. The Company's revenue for the foreseeable
future will be limited to development funding under its collaborative
relationships, fee-for-service income or participatory revenues pursuant to
contracts with its CRO clients, interest income and other miscellaneous income.

During the period from inception through December 31, 1994, the year ended
December 31, 1995, and during the nine-month periods ending September 30, 1995
and 1996, the Company had one

23
<PAGE> 26

collaborative research agreement that accounted for 85%, 84%, 82% and 68% of
total revenue, respectively.

RESULTS OF OPERATIONS

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

To date, the majority of the Company's expenditures have been for research
and development activities. With the exception of MGBG, ILEX's most clinically
advanced compound, the Company does not expect to receive royalties or other
revenues based upon net sales of drugs that may be developed for a significant
number of years, if at all. ILEX expects research and development expenses to
increase significantly over the next several years as its development programs
progress. In addition, general and administrative expenses necessary to support
such expanded programs are also expected to increase over the next several
years.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996

Total revenue increased from approximately $3.0 million in the first nine
months of 1995 to $3.7 million in the first nine months of 1996. The increase of
$740,000, or 24.6%, was due to an additional $430,000 of product development
revenue, and $310,000 of contract research services revenue. The incremental
product development revenues were attributable to increased revenues received by
the Company under its product development agreements with Sanofi and Janssen.
The increase in contract research services revenues was a result of an increased
number of contracts.

Total operating expenses increased from approximately $3.5 million in the
first nine months of 1995 to $6.0 million in the first nine months of 1996. This
increase of $2.5 million, or 70.8%, was primarily a result of increases in costs
of contract research services of $830,000 associated with the start-up of the
Company's manufacturing facilities, which commenced operations in early 1996,
subcontractor costs of $320,000 relating to increases in expenditures required
to support the Company's contract research services operations and research and
development costs of approximately $280,000, primarily due to costs associated
with MGBG. In addition, operating expenses increased by approximately $1.0
million due to increases in general and administrative expenses associated with
increased compensation primarily as a result of the increased number of
personnel and, to a lesser extent, business development costs. ILEX anticipates
that general and administrative expenses will substantially increase as the
Company increases the number of products in development, product in-licenses and
collaborations. ILEX believes that research and development costs will increase
substantially in future periods as the Company expands its preclinical and
clinical trials associated with developing additional compounds.

Net interest income increased from a loss of approximately $10,000 in the
first nine months of 1995 to income of $460,000 in the comparable period in
1996. This increase of $470,000 is attributable to an increase in interest
income resulting from higher average balances of cash, cash equivalents and
investments in marketable securities from proceeds received from sales of
Convertible Preferred Stock completed in 1995 and 1996.

24
<PAGE> 27

COMPARISON OF PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1994 AND YEAR ENDED
DECEMBER 31, 1995

Total revenue increased from approximately $1.3 million in the period from
inception through December 31, 1994 to $4.2 million in the year ended December
31, 1995. This increase of $3.0 million, or 235.9%, was primarily a result of an
increase in product development revenues of $2.5 million, from $1.1 million to
$3.6 million, or 233.4%, over the same period, which increase was attributable
to a full year of MGBG activity. Contract research services revenues increased
by $470,000, or 250%, from $190,000 to $660,000, over the same period due to an
increased volume of services rendered.

Total operating expenses increased from approximately $1.3 million in the
period from inception through December 31, 1994 to $5.1 million in the year
ended December 31, 1995. This increase of $3.8 million, or 289.4%, was primarily
a result of a $2.3 million increase, or 240%, in research and development costs,
which increased from $950,000 to $3.2 million. Research and development costs
increased primarily because there was a full year of associated expenses.
General and administrative expenses increased by $1.2 million, from $160,000 to
$1.3 million, for the same reason. Costs of contract research services and
subcontractor costs increased by $250,000 and $80,000, respectively, due to an
increased volume of contracts.

Net interest income increased from a loss of approximately $1,000 for the
period from inception through December 31, 1994 to income of $133,000 in the
year ended December 31, 1995. This increase of $134,000 is attributable to the
investment of the proceeds from sales of Convertible Preferred Stock completed
in 1995.

INCOME TAXES

As of September 30, 1996, the Company estimates that it had approximately
$2.3 million and $767,000 of net operating loss and tax credit carryforwards,
respectively, which expire at various dates between fiscal 2009 and 2011. The
Tax Reform Act of 1986 (the "Tax Act") contains certain provisions that may
limit the Company's ability to utilize net operating loss and tax credit
carryforwards in any given year if certain events occur, including cumulative
changes in ownership interests in excess of 50% over a three-year period. ILEX
experienced a change in ownership interest in excess of 50% as defined under the
Tax Act upon the consummation of its offering of Series B Convertible Preferred
Stock. The Company does not believe that this change in ownership significantly
impacts the Company's ability to utilize its net operating loss and tax credit
carryforwards as of September 30, 1996 because the amount of the annual
limitation under the Internal Revenue Code of such carryforwards is in excess of
the total amount of net operating loss and tax credit carryforwards. There can
be no assurance that ownership changes in future periods will not significantly
limit the Company's use of its existing net operating loss and tax credit
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

ILEX has financed its operations primarily through the sale of Convertible
Preferred Stock, through development revenues provided by its collaborative
partners under its collaborative agreements and, to a lesser extent, through
fee-for-service or participatory revenues pursuant to contracts with its CRO
clients along with a $500,000 line of credit received in 1994 (which was repaid
in full in February 1996). Since its inception, the Company has received
approximately $20.2 million in net proceeds from the sale of Convertible
Preferred Stock to investors and collaborative partners, $6.8 million in
development funding from its collaborative partners and $1.7 million through
fee-for-service or participatory revenues pursuant to contracts with its CRO
clients. Approximately 96% of the aggregate amount of the Company's development
funding to date has been provided pursuant to its relationship with Sanofi, with
Sanofi providing $220,000, $3.8 million and $2.5 million in development funding
during the years ended December 31, 1994 and 1995, and for the nine-month period
ending September 30, 1996, respectively. The Company is entitled to receive
additional payments under collaborative agreements in the form of

25
<PAGE> 28

development funding, milestone payments, if milestones are achieved, and
royalties, if products are commercialized.

In the period from the time the Company commenced operations to September
30, 1996, the Company used a total of $2.0 million to fund its operations.
During the nine months ended September 30, 1995 and 1996, and the years ended
December 31, 1994 and 1995, the Company had cash provided by (used in)
operations of $400,000, $(1.5 million), $40,000 and $(410,000), respectively.
The changes in cash used in operations were the result of costs associated with
increased research and development activities and increased general and
administrative expenses necessary to support increased operations. The Company's
expenditures for equipment and leasehold improvements for the period from the
time the Company commenced operations to September 30, 1996 were approximately
$880,000. As of September 30, 1996, the Company had cash, cash equivalents and
investments in marketable securities of approximately $17.4 million and working
capital of approximately $9.7 million.

As of September 30, 1996, the Company did not have any material commitments
for capital expenditures. On December 11, 1996, the Company entered into an
agreement with MPI for an equally owned joint venture. Under the agreement, the
Company has provided the joint venture with $2.0 million in initial funding. The
funding was provided by the Company's current capital resources. See
"Business -- Strategic Alliances and Collaborations."

ILEX's future expenditures and capital requirements will depend on numerous
factors, including without limitation, the progress of its research and
development programs, the progress of its preclinical and clinical testing, the
magnitude and scope of these activities, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, competing
technological and market developments, changes in or terminations of existing
collaborative arrangements, the ability of the Company to establish, maintain
and avoid termination of collaborative arrangements, the development of
commercialization activities, the growth of the CRO business and the purchase of
capital equipment and acquisitions of compounds, technologies or businesses. The
Company's cash requirements are expected to continue to increase significantly
each year as it expands its activities and operations. There can be no assurance
that the Company will ever be able to generate product revenue or achieve or
sustain profitability.

The Company has no current sources of funding beyond the proceeds from this
offering, its collaborative agreements with its strategic partners, its drug
development service operations, existing cash and cash equivalents and
investments in marketable securities. The Company believes that the estimated
net proceeds of this offering, its collaborative agreements with strategic
partners, its contract research services, existing cash and cash equivalents and
investments in marketable securities will satisfy its currently budgeted cash
requirements through 1999 based upon the Company's current operating plan and
conditions, but there can be no assurance that the Company will not require
additional funds prior to such date. However, if the Company experiences
unanticipated cash requirements resulting from, among other things, delays in
its research and development programs, changes in or terminations of existing
collaborative arrangements or contract research agreements and additional
compound development opportunities, the Company could require additional capital
to fund operations, continue research and development programs, continue
pre-clinical and clinical testing of its proprietary products and commercialize
any products that may be developed. The Company may seek such additional funding
through future public or private equity or debt financings, collaborative or
other arrangements with third parties or from other sources. There can be no
assurance, however, that additional funds will be available on acceptable terms,
if at all.

INFLATION

The Company does not believe that inflation has had a significant effect on
the Company's operations to date.

26
<PAGE> 29

ACCOUNTING MATTERS

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. This
statement provides accounting and reporting standards for, among other things,
the transfer and servicing of financial assets, such as factoring receivables
with recourse. This statement is effective for transfers and servicing of
financial assets occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The Company
believes the adoption of this statement will not have an impact on the financial
condition or results of operations of the Company.

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BUSINESS

SUMMARY

ILEX is a drug development company focused exclusively on oncology. The
Company uses its expertise in the identification, development, manufacturing and
regulatory approval process of oncology drugs to (i) develop cancer treatment
products, (ii) develop products for the prevention of cancer and (iii) provide
contract research services to pharmaceutical and biotechnology companies. ILEX's
objective is to be a leading worldwide oncology drug development company. The
Company has nine cancer treatment compounds under development, including five in
Phase II or Phase III clinical trials. In October 1996, ILEX submitted a NDA to
the FDA seeking accelerated marketing approval for MGBG as a second-line
treatment for patients with AIDS-related non-Hodgkin's lymphoma. Additionally,
ILEX has two chemoprevention compounds under development. Consistent with its
strategy, the Company has established worldwide development and marketing
collaborations with Sanofi, Janssen and MGI for certain of its compounds. In
addition to its proprietary product development programs, the Company offers CRO
services to both the pharmaceutical and biotechnology industries. ILEX believes
it is currently the only full-service provider of contract research services
focused exclusively on oncology. ILEX was formed by CTRC in December 1993 for
the purpose of conducting certain advanced drug development programs and
pursuing commercial opportunities which were not within the scope of CTRC's
tax-exempt purpose. See "-- Relationship with CTRC."

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

ILEX has submitted an NDA to the FDA seeking accelerated marketing approval
for MGBG as a second-line treatment for patients with AIDS-related non-Hodgkin's
lymphoma. The Company, in collaboration with Sanofi, plans to expand the
potential uses of MGBG by conducting clinical trials in patients with other
non-Hodgkin's lymphomas, Hodgkin's disease and pancreatic cancer. There can be
no assurance, however, that MGBG will receive FDA approval on a timely basis, if
at all, be commercially viable or achieve market acceptance. ILEX has
established a worldwide development and marketing collaboration with Sanofi for
MGBG. In addition, the Company has established a worldwide development and
marketing collaboration with Janssen for Crisnatol, which is in Phase III
clinical trials for treatment of patients with glioblastoma, a type of brain
tumor. ILEX is also pursuing the development of DFMO for brain tumors, carcinoid
syndrome and breast cancer, and expects to initiate a pivotal Phase II trial in
1997 for breast cancer. The Company, through a joint venture with MPI, is
developing Piritrexim as a treatment for patients with Kaposi's sarcoma and
advanced bladder cancer, and is currently conducting a Phase III trial in
patients with Kaposi's sarcoma.

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

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In addition to its proprietary product development programs, ILEX offers
CRO services to the pharmaceutical and biotechnology industries. The Company
believes it is currently the only full-service provider of contract research
services focused exclusively on oncology. The Company offers its contract
research clients, among other things, expertise in the design of cancer clinical
protocols, preparation of regulatory submissions, toxicology services,
organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such capabilities, ILEX believes that
it may be able to reduce the time normally required by pharmaceutical and
biotechnology companies and broad-based CROs to develop oncology products and
increase the probability of obtaining regulatory approval.

The Company was incorporated in Delaware in 1993. The Company's executive
offices are located at 11550 IH-10 West, Suite 300, San Antonio, Texas 78230.
The Company's phone number is (210) 949-8200.

STRATEGY

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

Focus on the Expanding Cancer Market. The American Cancer Society estimates
that over 1.3 million new cases of cancer will be diagnosed and approximately
550,000 cancer deaths, representing approximately 25% of all projected deaths,
will occur in the United States in 1996. Cancer is currently the second leading
cause of death in the United States, and over 10 million people alive today have
a history of cancer. The worldwide oncology drug market was approximately $5.6
billion in 1995 and is projected to total approximately $9.0 billion by the year
2000. It is expected that there will be an increased need for oncology products
because incidence of cancer increases dramatically with age and the over-65
population is one of the fastest growing age groups in the United States.
Moreover, due to the life threatening nature of cancer, the FDA has announced
procedures for accelerating the approval of oncology agents, thereby reducing
the amount of time required to bring such agents to market. ILEX believes that
the increasing demand for oncology products and the acceleration of the oncology
product approval process by the FDA creates a unique opportunity for the Company
to leverage its expertise in oncology drug development.

Use its Expertise to Identify and In-License Compounds in Later Stages of
Development. The Company will continue to use the expertise of its management
team and Scientific Advisory Board, as well as its established relationship with
CTRC Research and its related entities, to identify and in-license oncology
compounds for development. ILEX focuses its development activities on cancer
treatment compounds in the later stages of development in order to reduce the
risk associated with drug discovery and early stage development. The Company
concentrates on those compounds that have demonstrated preliminary safety and
efficacy in human and/or animal studies, and that are protected by, among other
things, patents or orphan drug status. There are over 200 oncology drugs
currently in development in the United States. The Company believes that many of
these oncology drugs will become available for in-licensing or equity
participation by ILEX or other market participants because (i) industry
consolidation has caused pharmaceutical and biotechnology companies to
prioritize research and development programs, resulting in numerous licensing
opportunities, (ii) evaluation of a compound's market potential based on its
initial use may lead to an underestimation of the market potential of certain
oncology

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products and (iii) the market potential of certain of these compounds may be
considered too small to be attractive to large drug companies.

Develop Chemoprevention Products. Physicians are increasingly able to
identify people at risk of developing cancer. The Company is attempting to
develop non-toxic, oral drugs which when taken chronically, may prevent the
onset of cancer. The Company believes that chemoprevention drugs may have
utility for individuals diagnosed with precancerous conditions, such as
precancerous lesions of the cervix or recurrent colon polyps and, in the longer
term, may have utility for individuals diagnosed as predisposed to cancer, based
on emerging genetic based tests. Based on the potential market opportunity, the
Company plans to devote a significant portion of its resources to develop
chemoprevention products.

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

Offer Full-Range of Oncology Product Development and Manufacturing
Services. The Company believes it is currently the only full-service provider of
CRO services focused exclusively on oncology. The Company offers its contract
research clients, among other things, expertise in the design of cancer clinical
protocols, preparation of regulatory submissions, toxicology services,
organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such expertise, the Company believes
that it may be able to reduce the time normally required by other pharmaceutical
and biotechnology companies and broad-based CROs to develop oncology products
and increase the probability of obtaining regulatory approval.

OVERVIEW OF CANCER

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

There are currently more than 200 investigational agents being developed in
the United States for treating patients with cancer, more than at any time in
United States history. Most of these agents are being developed for treatment of
advanced disease. Due to the life-threatening nature of cancer, the FDA has
announced procedures for accelerating the approval of oncology agents, thereby
reducing the amount of time required to bring such agents to market. Under these
procedures, an oncology drug can be approved if it is shown to shrink tumors in
Phase II studies and if the developing company commits to performing and
completing Phase III trials after marketing approval.

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

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

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

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

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PRODUCTS UNDER DEVELOPMENT

ILEX is developing compounds for treating patients with cancer as well as
chemoprevention compounds. The following table summarizes the drugs under
development by the Company and is qualified in its entirety by the more detailed
information following the table and elsewhere in this Prospectus:

PRODUCTS UNDER DEVELOPMENT

<TABLE>
<CAPTION>
WORLDWIDE
MARKETING
COMPOUNDS INDICATION DEVELOPMENT STATUS(1) RIGHTS
--------- ---------- --------------------- ---------
<S> <C> <C> <C>
CANCER TREATMENT
MGBG - AIDS-related, non- NDA submitted October 1996 Sanofi
Hodgkin's lymphoma
- CNS lymphoma Phase II ongoing
- Other non-Hodgkin's Phase I/II ongoing
lymphoma
- Hodgkin's disease Initiate Phase II in 1997
- Pancreatic cancer Initiate Phase I in 1997

DFMO - Brain tumors Phase III ongoing(2) ILEX
- Carcinoid syndrome Initiate Phase II in
1997(2)
- Breast cancer Initiate Pivotal Phase II
in 1997

Piritrexim - Kaposi's sarcoma Phase III ongoing ILEX/MPI(3)
- Advanced bladder cancer Initiate Pivotal Phase II
in 1997

Crisnatol - Glioblastoma Phase III ongoing Janssen (J&J)
- Brain metastasis Phase I ongoing

DHAC - Mesothelioma Phase II completed(2) MGI Pharma
- Myelodysplastic syndrome Initiate Phase II in 1997
(MDS)

Intoplicine - Various solid tumors Initiate Phase I in 1997 ILEX(4)

Aminopterin - Acute lymphocytic Phase I/II ongoing(5) ILEX
leukemia

Oxypurinol - Hyperuricemia(6) Compassionate distribution MGI Pharma

Farnesyl - Various solid tumors Preclinical ILEX
Transferase
Inhibitors
CHEMOPREVENTION
DFMO - High-grade cervical Initiate Phase III in 1997 ILEX
intraepithelial neoplasia
- Prevention of certain Multiple Phase I and II
cancers in high-risk studies ongoing(2)
patients

IL23-7553 - Prevention of certain Preclinical ILEX
(Vitamin D3 cancers in high-risk
Analogue) patients
</TABLE>

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

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

(2) Trials conducted or planned to be initiated by NCI.

(3) The Company has formed a joint venture with MPI Enterprises, L.L.C. to
jointly develop Piritrexim.

(4) Rhone-Poulenc Rorer Inc. has retained an option to market Intoplicine in
North America.

(5) Investigator IND.

(6) A condition which results from chemotherapy treatment in some cancer
patients or in patients with gouty arthritis.

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CANCER TREATMENT COMPOUNDS

MGBG (mitoguazone)

Overview. MGBG is the first of a new class of cancer treatment drugs which
inhibit polyamines (substances which are used by dividing cells to stabilize
DNA). MGBG is being developed for the treatment of patients with non-Hodgkin's
lymphoma ("NHL"), Hodgkin's disease and pancreatic cancer. The Company submitted
an NDA to the FDA in October 1996 pursuant to the accelerated procedures
promulgated by the FDA for drugs which may be used to treat life-threatening
diseases, seeking marketing approval for MGBG as a second-line treatment for
patients with AIDS-related NHL. The Company has licensed worldwide marketing
rights to MGBG to Sanofi. MGBG is expected to be marketed under the trade name
Zyrkamine. The use of MGBG is protected by an issued patent in the United States
and MGBG is designated as an Orphan Drug for treatment of patients with diffuse
lymphomas, including AIDS-related NHL. There can be no assurance that MGBG will
receive FDA approval on a timely basis, if at all, become commercially viable or
achieve market acceptance.

Development History. Early clinical trials sponsored by the NCI in the
1970's showed that MGBG had antitumor activity, particularly in leukemias and
lymphomas; however, when administered on a daily dosing schedule, the drug
caused intolerable inflammation of mucus membranes ("mucositis") which led to a
discontinuation of clinical trials. Interest in the drug was renewed in the
1980's when it was discovered that the drug remained in the bloodstream for an
extended period of time and that daily dosing caused an excessive accumulation
of the drug. Subsequent clinical trials using a weekly or bi-weekly schedule
demonstrated that MGBG had significant anti-tumor activity, particularly in
patients with lymphomas, and such a dosing schedule did not cause severe
mucositis or severe toxicity to bone marrow cells (i.e. non-myelosuppressive).
In addition, MGBG has been shown to cross the blood brain barrier, making it an
attractive agent for testing in patients with cancers of the central nervous
system ("CNS"), particularly CNS lymphoma, a disease for which there is
currently no effective therapy. ILEX acquired rights to MGBG based upon MGBG's
demonstrated antitumor activity in human clinical trials. In addition, the
Company believes MGBG may ultimately be used in combination regimens for
treating various types of cancer because it works by a novel mechanism of
action, is not myelosuppressive and has relatively few harmful side effects (is
relatively "well tolerated"). Rights to MGBG were acquired by CTRC Research in
1992 from the Public Health Service ("PHS"), a division of the Department of
Health and Human Services, and were subsequently transferred to ILEX.

ILEX has chosen AIDS-related lymphoma as the first indication for MGBG
because of the drug's demonstrated activity against lymphomas, its lack of
myelosuppression, which is important in patients with AIDS, and its ability to
be transported to the CNS, which is a frequent metastatic site. The choice of
initial ("first-line") therapy for patients with this disease depends on many
factors, but the therapy most commonly used, known as CHOP, is a combination of
cytotoxic agents, cyclophosphamide + doxorubicin + vincristine + prednisone.

Development Status. In October 1996, the Company submitted an NDA to the
FDA seeking marketing approval for MGBG as a treatment for patients with
AIDS-related NHL who have failed a potentially curative regimen such as CHOP.
The Company is seeking marketing approval under the accelerated approval
procedures promulgated by the FDA for anticancer drugs.

The Company has completed two open-labeled Phase II clinical trials in a
total of 90 patients with AIDS-related NHL who had failed at least one
potentially curative treatment regimen. In both studies, 600 mg/M(2) was given
via an intravenous infusion on Days 1 and 8 and once every two weeks thereafter
until disease progression or the patient completed an additional 16 weeks of
treatment after response was first observed. The primary endpoint of the studies
was tumor response rate. Other endpoints included duration of response, survival
and clinical benefit parameters.

The percentage of patients that had a complete remission plus the
percentage of patients that had more than a 50% reduction in the size of their
tumors ("objective response rate") in the 90 patients enrolled in the two
studies was 14.5%. Six patients (6.7%) had a complete remission, seven (7.8%)
had

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<PAGE> 36

a partial response (greater than 50% decrease in tumor size) and 16 (17.8%) had
their disease stabilized. In both studies the drug was well tolerated and there
was evidence that patients who had tumor shrinkage or stabilization also
experienced relief from tumor-associated symptoms. The Company believes these
results are meaningful because there are no approved treatments for patients who
have failed first-line therapy. Additionally, patients who participated in the
studies had very advanced disease and yet some clearly benefitted from tumor
shrinkage and improvement in their tumor-associated symptoms. The Company
believes that MGBG demonstrated a favorable benefit-to-risk ratio in these
studies. The Company is planning to initiate a post-marketing approval Phase III
trial in accordance with the FDA's accelerated approval guidelines. There can be
no assurance, however, that such trial will be successful or that approval will
be obtained under the FDA's accelerated approval guidelines, if at all.

The Company plans to engage in efforts to expand MGBG's indications by
conducting additional trials to demonstrate its efficacy in non-AIDS related
NHL, CNS lymphoma, pancreatic cancer and Hodgkin's disease. The Company
anticipates that MGBG, if approved, will be used in combination with other
agents for these indications. ILEX is conducting a Phase I/II trial in patients
with NHL, using MGBG combined with CHOP and plans to initiate a Phase II trial
in 1997 in patients with lymphoma who have failed bone marrow transplantation. A
Phase II trial has been initiated in patients with CNS lymphoma. The Company
plans to initiate a Phase I trial in 1997 combining MGBG with gemcitabine and a
Phase II trial in patients with either NHL or Hodgkin's disease who have failed
bone marrow transplant treatment.

Marketing. Worldwide marketing rights have been licensed to Sanofi pursuant
to the terms of a license and development agreement between Sanofi and ILEX.
Under the terms of the agreement, ILEX is responsible for providing clinical
trial materials, managing the clinical development of MGBG and preparing and
submitting an NDA. If approved, the NDA and Orphan Drug Designation are to be
assigned to Sanofi, which will be responsible for the marketing and manufacture
of MGBG for commercial distribution. ILEX has received from Sanofi an initial
license fee and development funding for MGBG and is entitled to receive
additional development funding, milestone payments and royalties on sales.

The Company is seeking approval of MGBG initially for second-line treatment
of patients who have AIDS-related NHL, a disease which currently afflicts
approximately 10,000-20,000 persons in the United States. Because of its unique
mechanism of action and lack of myelosuppression, the Company believes MGBG
could be used in combination treatment regimens for non-AIDS-related NHL and
other lymphomas, Hodgkin's disease and pancreatic cancer. These diseases are
newly diagnosed in more than 66,500 people annually in the United States.

Proprietary Position. In November 1994, the exclusive license to the United
States patent for MGBG held by PHS was transferred to ILEX from CTRC Research.
The PHS United States patent, which expires in May 2002, claims the intended
regimen for using MGBG to treat patients with cancer. No international patents
have been issued or are pending. Pursuant to the terms of the agreement with
PHS, ILEX is obligated to pay PHS an annual royalty based on net sales of MGBG.
MGBG is currently designated as an Orphan Drug for the treatment of patients
with diffuse lymphomas, a classification of most lymphomas that are treated by
chemotherapy, including AIDS-related NHL. See "-- Patents, Trademarks and Trade
Secrets" and "-- In-Licensing Agreements."

DFMO

Overview. DFMO is a selective irreversible inhibitor of an enzyme which
controls formation of certain polyamines which are required by dividing cells
such as cancer cells. DFMO was discovered and developed through Phase II trials
by Marion Merrell Dow Inc. ("MMD"), now Hoechst Marion Roussel, Inc. ILEX
obtained a worldwide, exclusive license to DFMO from MMD for use in the fields
of cancer and infectious diseases. ILEX plans to develop DFMO as a treatment for
breast cancer, carcinoid syndrome and possibly brain tumors. The Company plans
to initiate in 1997 pilot studies in patients with breast cancer. In addition,
ILEX plans to develop DFMO as a chemoprevention drug. See "-- Cancer Treatment
Compounds -- DFMO."

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<PAGE> 37

Development History. DFMO's demonstrated activity in many preclinical
cancer and parasitic disease models led MMD to pursue its development as an
agent to treat certain infectious diseases, parasitic diseases and advanced
cancer. MMD obtained marketing approval of DFMO as a treatment for Trypanosoma
brucei gambiense and rhodensiense infections ("African Sleeping Sickness"), a
rare disease found in certain developing countries. MMD supplies an intravenous
dosage form of DFMO to the World Health Organization for distribution for this
indication under the trade name ORNIDYL.

MMD also conducted clinical studies with DFMO in patients with advanced
cancer. DFMO inhibits the growth of tumors rather than killing cancer cells and,
therefore, tumor reductions were rarely seen in most tumor types. However,
promising results were observed when DFMO was used to treat patients with brain
tumors. As a result, the NCI is sponsoring two ongoing, randomized, controlled
Phase III trials in patients with brain tumors with survival as the primary
endpoint. In one study by the Northern California Cancer Center ("NCCC"),
radiation treatment with and without DFMO is being compared in 200 patients
newly diagnosed with glioblastoma multiforme. This study, initiated in 1991,
completed patient accrual in 1996 with an additional one or two years planned
for follow-up. In a second study, initiated in 1992 by the NCI, DFMO is combined
with Procarbazine + cyclohexylnitrosourea ("CCNU") + Vincristine ("PCV") and
compared to PCV alone in patients with primary brain tumors. Either one or both
of these studies could yield results supportive of an NDA filing by ILEX for
DFMO for the treatment of patients with brain tumors. ILEX's Scientific Advisory
Board advised the Company to acquire the rights to DFMO from MMD because (i)
DFMO had demonstrated antitumor activity alone and in combination with other
oncology drugs in numerous laboratory studies, (ii) DFMO's mechanism of action
is novel, (iii) recent clinical studies had indicated that DFMO at low doses
might be effective without the side effects seen at higher doses, (iv) Phase III
studies had been initiated in patients with brain tumors and (v) the NCI was
sponsoring a number of chemoprevention studies using DFMO.

In laboratory studies sponsored by ILEX, DFMO has been shown to be more
active than Tamoxifen in mice implanted with estrogen receptor positive breast
tumors, to be active in tumor cell lines that are resistant to the effects of
Tamoxifen, and to be active in estrogen receptor negative cell lines and to
enhance the effectiveness of paclitaxel. Because many women fail therapy for
advanced disease, there is a significant need for new therapies for breast
cancer. Published studies have also shown that DFMO was more active than the
current therapy, somatostatin, in an animal model used to study carcinoid
tumors. A Phase II trial is expected to be initiated by the NCI in 1997.

Development Status. ILEX plans to evaluate the results of the NCCC study of
DFMO in combination with radiation for the treatment of glioblastoma multiforme
when they are available in 1997 or 1998 and to determine if the clinical results
are sufficient to support an NDA submission. The Company plans to initiate in
1997 two pilot studies in patients with breast cancer, one in patients who have
failed hormonal therapy and a second combining DFMO with Taxol (paclitaxel).
Each study is expected to enroll between 14 and 35 patients depending on the
objective response rate observed. If positive results are seen in either
setting, the Company plans to initiate pivotal Phase II trials. In addition, the
Company plans to support an NCI-sponsored clinical study in patients with
carcinoid syndrome who are failing conventional treatment.

Marketing. The Company will seek one or more partners for development of
this compound outside of the United States and may retain marketing rights in
the United States. The annual incidence of breast cancer, brain tumors and
carcinoid syndrome is estimated to be approximately 186,000, 17,900 and 5,000
persons per year in the United States, respectively. Approximately 45,000 women
die from breast cancer each year and more than 13,000 patients with brain tumors
die from their disease.

Proprietary Position. In August 1995, ILEX obtained a worldwide, exclusive
license to patents held by MMD covering the composition and use of DFMO for the
treatment of cancer and various parasitic infections (excluding African Sleeping
Sickness). Four MMD patents have issued in the United States which expire from
August 16, 2000 through March 26, 2008. Applications for five additional MMD
patents are pending. Fifty foreign patents have issued to MMD; four foreign
applications have been filed by MMD. In November 1996, the Company learned that
notice of allowance of claims had been received for a

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<PAGE> 38

patent claiming the use of DFMO with a number of chemotherapeutic agents. The
Company has filed two United States patent applications for the use of DFMO in
combination with certain drugs used to treat breast cancer and in certain novel
formulations. Pursuant to the terms of a license agreement, ILEX has paid MMD a
licensing fee and is required to pay it certain milestone payments. In addition,
ILEX is obligated to pay MMD a royalty based on net sales of DFMO related to
applications of the product patented by MMD, and a lower royalty for
applications not covered by MMD patents, subject to adjustment under certain
circumstances. See "-- Patents, Trademarks and Trade Secrets" and "-- In-
Licensing Agreements."

PIRITREXIM

Overview. Piritrexim is a novel dihydrofolate reductase inhibitor
originally discovered and developed by Burroughs Wellcome Co., now Glaxo
Wellcome, and The Wellcome Foundation Limited (collectively, "Wellcome") with
demonstrated antitumor activity in patients with advanced bladder cancer,
Kaposi's sarcoma ("KS") and other diseases. ILEX has obtained an exclusive
license to patents held by Wellcome for use of Piritrexim as a treatment of
patients with cancer and related diseases. The Company has initiated a Phase III
trial in patients with KS and is collaborating with the Eastern Cooperative
Oncology Group ("ECOG"), an NCI cooperative group, which is organizing a pivotal
Phase II trial in patients with advanced bladder cancer.

Development History. Piritrexim was discovered and developed by Wellcome as
an agent with potentially superior properties to that of methotrexate. Because
Piritrexim enters the cell by a different mechanism of action than that of
methotrexate, Piritrexim was expected to be active in certain
methotrexate-resistant tumors. Wellcome conducted Phase I and II studies in more
than 700 patients. Tumor responses were noted in patients with advanced bladder
cancer, KS, colon cancer, melanoma, head-and-neck cancer and other cancers. In
published Phase II studies, Piritrexim demonstrated objective response rates
ranging from 23% to 75% in patients with advanced bladder cancer who failed the
standard first-line chemotherapy regimen of methotrexate + vinblastine +
adriamycin + cisplatin ("MVAC"). Because MVAC is a very toxic regimen, there is
a significant need for new effective treatments for advanced bladder cancer.
Wellcome developed an oral and an intravenous formulation of Piritrexim. The
Company has determined that the oral formulation is superior based upon its
safety and efficacy profile. The dose limiting toxicity with this agent is
myelosuppression, and other toxicities observed thus far are considered mild.
ILEX acquired rights from Wellcome to Piritrexim in 1995 upon the recommendation
of its Scientific Advisory Board. The Company sought to acquire rights to
Piritrexim because (i) objective tumor responses were observed in patients with
a number of different types of cancer, (ii) the drug appears to be well
tolerated at the recommended dose and schedules and (iii) the oral formulation
is convenient for patients. The Company believes that Piritrexim has the
potential to be used for treating a number of different diseases in a number of
different regimens.

Development Status. The Company plans to initially pursue a parallel
development path for Piritrexim, developing this agent both for patients with KS
and for those with advanced bladder cancer. The Company has initiated a Phase
III double-blind, placebo-controlled trial for patients with very early stage
KS. These patients typically receive local therapy only. The objective of this
study is to demonstrate that Piritrexim can prevent or reduce the number of new
lesions formed (primary endpoint). The trial, designed for 120 evaluable
patients, is expected to take approximately 18 months to complete. The Company
plans to conduct a Phase II trial with approximately 50 patients to demonstrate
responses in existing KS lesions as its second pivotal study.

The Company also expects two Phase II pivotal studies to be conducted with
approximately 100 patients with advanced bladder cancer who have failed MVAC or
another first-line regimen. ECOG plans to initiate such a study with Piritrexim
in early 1997. The Company plans to initiate a second study in 1997 with United
States, European and Canadian institutions. These two studies are expected to
constitute the two well-controlled pivotal studies required for an NDA under the
accelerated approval mechanism. The Company also plans to conduct a Phase I
trial combining Piritrexim with two other

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chemotherapy drugs with the objective of defining a new first-line regimen for
patients with advanced bladder cancer.

Marketing. The Company estimates that there are at least 10,000
AIDS-related new cases of KS diagnosed each year. The incidence of bladder
cancer in the United States is estimated to be approximately 52,900 patients in
1996, and approximately 11,700 deaths are expected to result from advanced
bladder cancer each year. ILEX and MPI, a drug development company, have formed
an equally owned joint venture to develop Piritrexim. The Company has licensed
Piritrexim to the joint venture in exchange for licensing fees, milestone
payments and royalties. Coincident with the transaction, MPI made an equity
investment of $5 million in ILEX. See "-- Strategic Alliances and
Collaborations -- MPI."

Proprietary Position. In March 1995, the Company obtained an exclusive,
worldwide license to patents held by Wellcome covering the composition and use
of Piritrexim for all cancer indications. Five Wellcome patents have issued in
the United States, the two most relevant of which expire in 2007; these patents
claim the composition of Piritrexim and its use as a treatment of patients with
cancer. The Wellcome Foundation Limited has 36 foreign patents for Piritrexim
with expiration dates ranging from 1999 to 2008. Pursuant to the terms of the
license agreement, ILEX has paid a portion of a licensing fee to Wellcome, with
a final payment due in March 1997. ILEX is also obligated to pay Wellcome
royalties based on net sales of Piritrexim, subject to adjustment under certain
circumstances. See "-- Patents, Trademarks and Trade Secrets" and
"-- In-Licensing Agreements."

CRISNATOL

Overview. Crisnatol is a compound that inhibits DNA and RNA synthesis and
has demonstrated activity in patients with brain tumors. The Company is
currently conducting a 200-patient, multi-center Phase III trial in patients
with glioblastoma multiforme, comparing Crisnatol with Carmustine ("BCNU"), the
only drug currently approved for treatment of this disease. The Company has
licensed worldwide marketing rights to Janssen, a subsidiary of Johnson &
Johnson.

Development History. Crisnatol was discovered and initially selected for
development by Wellcome on the basis of its in vitro and in vivo antitumor
activity. Based on a number of limited Phase I and Phase II trials conducted
under the prior sponsorship of Wellcome, the most promising antitumor activity
for Crisnatol was seen in a Phase II trial for patients with malignant gliomas
and no prior chemotherapy. In a Phase II study conducted by CTRC in 14 patients
with recurrent high-grade brain tumors who had undergone surgery and radiation
treatment, two patients obtained a complete remission and three had their
disease stabilized. The complete remissions have been durable, and both patients
are alive without evidence of disease, six and seven years since initiation of
treatment, respectively. Another patient had disease stabilization that lasted
42 months after receiving ten months of therapy with Crisnatol. The Company
sought to acquire rights to Crisnatol because (i) durable, complete remissions
are rare in patients with recurrent high-grade brain tumors, (ii) the market
potential for this indication alone was sufficiently attractive and (iii)
Crisnatol might be an effective treatment for patients with brain metastasis.
Rights to Crisnatol were acquired by CTRC Research from Wellcome in 1992 and
were subsequently transferred to ILEX.

Development Status. ILEX has initiated a randomized, controlled Phase III
trial in adult patients with glioblastoma multiforme. It is the most serious of
all brain tumors, with median survival of those treated by surgery alone being
approximately three to six months. Studies indicate that the addition of
radiation treatment improves this median survival to 12 months. Nonetheless,
survival remains poor with only 21% of patients surviving two years after being
diagnosed with glioblastoma multiforme and less than 5% surviving five years
after diagnosis.

In an ongoing Phase III adult trial, approximately 200 patients will
receive either Crisnatol or BCNU after both surgery and radiation treatment. As
of October 1, 1996, 52 patients have been enrolled at 12 clinical sites.
Crisnatol is administered by continuous intravenous infusion for a period of
three days on an outpatient basis. The primary endpoint is survival, with
time-to-tumor progression and quality of life as

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the other endpoints. Because tumors in patients with glioblastoma multiforme
usually recur within six months, this trial design is expected to produce
results in a relatively short period of time. An interim analysis of the
clinical data is scheduled to occur in the second quarter of 1997. The adult
clinical trial is expected to be completed in late 1998.

ILEX is also evaluating the use of Crisnatol in combination with radiation
treatment and is exploring prolonged administration in preparation for clinical
trials in patients with brain metastases. The Company is conducting a Phase I
study exploring a longer continuous infusion schedule. The objective is to be
able to administer Crisnatol continuously to patients who are undergoing
radiation therapy for brain metastases in order to completely eradicate cancer
cells that have metastasized to the brain.

ILEX sponsored a Phase I clinical trial in 18 pediatric patients with brain
stem gliomas. The results of this study are currently being analyzed.
Crisnatol's antitumor activity has not been well studied in patients with
diseases other than brain tumors. Crisnatol may have applications in other
neoplastic diseases. Accordingly, ILEX plans to evaluate Crisnatol's potential
in other diseases after the brain tumor studies are completed.

Marketing. In October 1996, ILEX entered into an agreement with Janssen
under which Janssen obtained worldwide rights to manufacture and market
Crisnatol. Under such agreement, ILEX is responsible for process development,
clinical development, and for preparing an NDA in the United States and
registration dossiers outside the United States. ILEX retained an option to
manufacture Crisnatol if Janssen elects to outsource manufacturing. ILEX
received an initial license fee and will receive project funding, milestone
payments and a royalty based upon the gross margin achieved by Janssen.
Coincident with executing the licensing agreement, Johnson & Johnson Development
Corp. made an equity investment of $1 million in ILEX. See "-- Strategic
Alliances and Collaborations -- Janssen."

The annual incidence of glioblastoma multiforme in the United States in
1996 was estimated by the American Brain Tumor Association to be more than
28,500. BCNU is the only drug approved for treatment of patients with high-grade
brain tumors and effectiveness is marginal. Therefore, there is a significant
need for new therapies for this disease. In addition, approximately 80,000
patients annually develop brain metastasis.

Proprietary Position. In November 1994, the exclusive, worldwide license to
Crisnatol for the treatment and/or prophylaxis of cancer was transferred to ILEX
from CTRC Research. This license agreement also provides ILEX with certain
non-exclusive rights for diseases other than cancer. Two Wellcome patents have
issued in the United States, with expiration dates of 2005 and 2006. Wellcome
has 36 patents in 35 foreign countries with expiration dates ranging from 1999
to 2007. Pursuant to the terms of the license agreement, ILEX is obligated to
pay Wellcome a royalty based on net sales of Crisnatol products. See
"-- Patents, Trademarks and Trade Secrets" and "-- In-Licensing Agreements."

DHAC

Overview. Dihydro-5-azacytidine ("DHAC") is an agent that interacts with
DNA and was initially developed as an antitumor agent by the NCI. In Phase II
trials conducted by the NCI, DHAC was shown to induce responses in patients with
mesothelioma, a cancer of the lung pleural cavity which is often attributed to
exposure to asbestos. DHAC was also shown to increase expression of certain
genes needed for inhibition of cancer cell growth. ILEX has licensed DHAC to MGI
Pharma. MGI Pharma plans to develop this agent as a treatment for patients with
myelodysplastic syndrome ("MDS"), a serious pre-leukemic condition, and possibly
as a treatment for patients with prostate cancer. MGI Pharma is expected to
begin Phase II clinical trials for patients with MDS in 1997.

Development History. DHAC was designed as an analogue of 5-azacytidine
("AC"), a drug which had shown potential as a treatment for leukemia, with the
objective of overcoming the severe gastrointestinal toxicities associated with
AC. However, clinical studies conducted by the NCI demonstrated that DHAC was a
drug completely different from AC with significantly less bone marrow toxicity.
The dose limiting toxicity of DHAC was shown to be pleurisy, pain in the pleural
cavity surrounding the

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lungs. As a result of this observation, the NCI organized a clinical study of
DHAC as a treatment for patients with mesothelioma. Antitumor responses were
observed in a multi-center clinical trial conducted by the NCI. Trials also
demonstrated that DHAC caused demethylation of DNA, which corrected certain DNA
defects and caused re-expression of certain cell surface receptors. In follow-up
preclinical studies, ILEX investigators demonstrated that DHAC could increase
expression of androgen receptors and, therefore, potentially could be used to
prolong the usefulness of androgen-related therapy in patients with prostate
cancer. In other clinical studies, AC, which has a similar mechanism of action
to that of DHAC, has been shown to reduce the number of transfusions required to
maintain patients with MDS. Since AC is highly toxic to bone marrow, DHAC might
be a better candidate for treatment of patients with MDS.

Development Status. ILEX proposes initially to explore the development of
DHAC in combination with growth factors as a treatment for MDS due to both a
significant need for new treatments for patients with MDS as well as because
DHAC could be as effective as AC without being toxic to bone marrow cells. In
addition, the Company may also propose that its development partner, MGI Pharma,
conduct Phase II clinical trials in patients with mesothelioma and prostate
cancer. The Company expects that Phase II clinical trials will be initiated in
1997 for MDS.

Marketing. The incidence of new cases of MDS in the United States in 1996
is approximately 7,500 and the incidence of prostate cancer is approximately
317,000. ILEX has entered into an agreement with MGI Pharma pursuant to which
MGI Pharma obtained worldwide rights to manufacture and market DHAC. MGI Pharma
agreed to contract with ILEX for 50% or more of the clinical development related
to DHAC or equivalent services related to another project. ILEX will receive a
licensing fee and a royalty based upon sales, if any, achieved by MGI Pharma or
its sublicensee(s). See "-- Strategic Alliances and Collaborations -- MGI
Pharma."

Proprietary Position. The composition of matter patent for DHAC expired in
1994. The Company has applied for a United States patent for the use of DHAC to
enhance androgen therapy in patients with prostate cancer. In addition, the
Company has obtained Orphan Drug Designation for DHAC as a treatment for
patients with mesothelioma. See "-- Patents, Trademarks and Trade Secrets."

OTHER PRODUCTS

Intoplicine. ILEX has licensed intoplicine ("Intoplicine"), a compound that
inhibits two enzymes involved in cancer cell replication, from Rhone-Poulenc
Rorer Inc. ("RPR"). In preclinical studies, Intoplicine demonstrated significant
antitumor activity against human tumor stem cells and in tumor-bearing animal
model systems. RPR terminated development of Intoplicine, because, in Phase I
clinical trials by RPR, patients developed serious liver toxicity at dose levels
below that which RPR believed to be necessary for antitumor activity. ILEX
believes that it is possible to change the dosing schedule to decrease or
eliminate the toxicity. RPR granted ILEX an exclusive, worldwide license to its
United States patent, five foreign patents and five foreign patent applications
on Intoplicine, and agreed to transfer know-how and regulatory documents to the
Company. ILEX plans to test new dosing regimens in Phase I clinical trials of
patients with various tumors beginning in 1997.

Aminopterin. ILEX is collaborating with the University of
Texas -- Southwestern Medical Center at Dallas on the development of aminopterin
("Aminopterin"), a compound in the same family as methotrexate. ILEX assisted
the investigator with the preparation of an Investigational New Drug ("IND")
application and supplied the initial clinical quantities. Early clinical results
from an ongoing Phase I/II trial indicate that the drug may stabilize or shrink
certain tumors (has "activity"). ILEX plans to collaborate in the development of
this agent as a treatment for patients with acute lymphocytic leukemia and
intends to apply for orphan drug status at the appropriate time. Aminopterin is
not covered by any existing patents.

Oxypurinol. In March 1995, ILEX obtained rights to an exclusive, worldwide
license to technology held by Wellcome related to the synthesis and use of
oxypurinol ("Oxypurinol"). Oxypurinol is an analogue of Wellcome's Allopurinol
for the treatment of gout or cancer patients who have high uric acid levels, a
condition resulting from chemotherapy treatment in some cancer patients. ILEX is
currently

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distributing Oxypurinol on a compassionate basis to patients who are allergic to
Allopurinol or who cannot take Allopurinol for other reasons. ILEX intends to
pursue marketing approval of this agent for treatment of patients who have
allergic reactions to Allopurinol utilizing the data that has been collected on
the compassionate use program. ILEX has entered into an agreement with MGI
Pharma pursuant to which MGI Pharma obtained worldwide rights to manufacture and
market Oxypurinol. ILEX is currently responsible for preparing a development
plan. ILEX will receive a licensing fee and funding for data retrieval, analysis
and project planning. Future funding and a milestone payment will depend on the
feasibility of the development plan. See "-- Strategic Alliances and
Collaborations -- MGI Pharma."

Farnesyl Transferase Inhibitors. In July 1996, ILEX obtained rights to an
exclusive, worldwide license from Sother, Inc. to a family of compounds that are
currently in preclinical evaluation and have been shown to inhibit farnesyl
transferase inhibitors. Farnesyl transferase inhibitors is an enzyme that is
involved in the intracellular pathway which is activated in dividing cells. This
enzyme is activated in a large number of tumors and therefore may be a promising
target for new oncolytic agents. These compounds are currently being evaluated
in preclinical studies.

CHEMOPREVENTION COMPOUNDS

The Company believes that drugs can be developed which can be used to treat
premalignant conditions and halt the progression of cells to invasive cancer.
There are a number of conditions which currently can be diagnosed and which
predispose an individual to developing cancer. Examples include (i) high-grade
cervical dysplasia, which if left unattended, often progresses to invasive
cervical cancer; (ii) recurrent colon polyps, which can lead to colon cancer;
(iii) actinic keratosis, which can progress to skin cancers; and (iv) instances
when an individual has had a local tumor removed and is at a high risk for
developing a second tumor. The Company believes that in the near future,
physicians will increasingly be able to use relatively simple genetic-based
tests to identify individuals at risk for developing cancer. There is a
significant need for non-toxic, oral drugs which may be prescribed to prevent
the onset of cancer in these situations.

ILEX believes that clinical development strategies will be fundamental to
the development of chemoprevention drugs. However, because there are currently
no chemoprevention drugs which have obtained marketing approval, the clinical
development path is uncertain. The Company believes that the design of clinical
trials with appropriate intermediate endpoints in terms of demonstrating safety
and efficacy in treating conditions that are known to progress to cancer will be
important to the successful development of these products. Because of the
potential market opportunity and ILEX's expertise in formulating clinical
development strategies, the Company plans to devote significant resources to
develop chemoprevention products. ILEX has two products which are currently
being developed for chemoprevention.

DFMO

Overview. In addition to its cancer treatment potential, DFMO has shown
potential to prevent the onset of cancer. Preclinical models have demonstrated
that DFMO can block one of the steps involved in carcinogenesis in a number of
tumor models. Studies sponsored by the NCI's Division of Cancer Prevention and
Control ("DCPC") have shown that DFMO can reverse certain premalignant
conditions. The Company plans to conduct pivotal trials in patients with
cervical intraepithelial neoplasia ("CIN"), which can lead to cervical cancer,
and other diseases and to collaborate with DCPC in the development of DFMO as a
treatment for recurrent colon polyps, which can lead to colon cancer. The
Company plans to initiate a Phase III clinical trial in 1997 for the treatment
of high-grade CIN. ILEX obtained a worldwide, exclusive license to DFMO for use
in the field of cancer and infectious diseases. ILEX also plans to develop DFMO
as a cancer treatment compound. See "-- Cancer Treatment Compounds -- DFMO."

Development History. Clinical studies conducted by investigators at the
University of Wisconsin demonstrated that low, non-toxic doses of DFMO taken
orally could inhibit the target enzyme, ornithine decarboxylase. Doses equal to
1/20th of those used to treat advanced disease were shown to be

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effective. As a result, DCPC initiated a number of Phase I and II(a)
chemoprevention studies in patients at risk for developing colorectal cancer,
bladder cancer, prostate cancer, skin cancer, cervical cancer or head-and-neck
cancer. In one study, DFMO was shown to regress high-grade CIN lesions in 50% of
women with only 30 days of treatment. High-grade lesions, if not treated, can
progress to cervical cancer. In another randomized, controlled study, DFMO was
shown to reduce actinic keratosis lesions, a condition which can progress to
squamous cell carcinoma of the skin.

Development Status. The Company has entered into a clinical trials
agreement to collaborate with DCPC in the development of DFMO as a
chemoprevention agent. The Company has also completed the design of a Phase III
clinical trial in 120 patients with high-grade CIN who have compromised immune
systems. Such patients are known to have a high risk of recurrence of CIN
lesions and are ultimately at risk for cervical cancer. In this study,
HIV-infected women who have had their CIN lesions surgically removed will be
randomized to receive daily doses of placebo or DFMO and followed to determine
the time-to-disease recurrence in the two groups. The Company expects to start a
Phase III trial in early 1997. The Company also plans to pursue the development
of DFMO to treat actinic keratosis lesions through a partnership with a company
which markets dermatologic products.

DCPC is planning a randomized, placebo-controlled study designed to
demonstrate that DFMO can reduce the recurrence of colon polyps. Individuals who
have recurrent colon polyps are known to be at high risk for developing colon
cancer. NCI and ILEX are reviewing future indications that may include treatment
of patients with recurrent colon polyps, oral leukoplakia and others at risk for
developing prostate cancer.

Marketing. The Company plans to retain marketing rights to DFMO in the
United States and Europe for the oral dose form and to seek marketing partners
in Europe and Japan and for topical uses worldwide.

Proprietary Position. The Company has filed a patent application for the
use of DFMO to treat CIN lesions on behalf of M.D. Anderson Cancer Center and
has obtained an exclusive license to the drug. See "-- Patents, Trademarks and
Trade Secrets" and "-- In-Licensing Agreements."

IL23-7553 (VITAMIN D3 ANALOGUE)

ILEX has obtained an exclusive, worldwide license from Hoffmann-La Roche to
IL23-7553, an analogue of vitamin D3, for uses in the field of cancer. IL23-7553
has been shown in preclinical studies to cause cancer cells to stop dividing
(i.e. differentiation) and to shrink established tumors. At therapeutic
concentrations, IL23-7553 does not appear to cause hypercalcemia, a toxic side
effect caused by vitamin D3. ILEX plans to develop IL23-7553 for the prevention
of several cancers, including prostate cancer. ILEX plans to synthesize the
compound and to conduct all preclinical studies such that it can submit an IND
for IL23-7553 as early as 1998. ILEX is in discussions with DCPC for the
development of this agent.

CONTRACT RESEARCH AND DEVELOPMENT SERVICES

In order to fund its drug development efforts and monitor oncology trends,
the Company provides contract clinical research, development and manufacturing
services to pharmaceutical and biotechnology companies engaged in the
development of oncology drugs. ILEX believes that by using its expertise in the
identification, development, manufacturing and regulatory approval process of
oncology drugs, the Company can provide contract research services to
pharmaceutical and biotechnology companies. The Company believes it is currently
the only full-service provider of contract research services focused exclusively
on oncology.

Companies developing oncology drugs face particular issues related to
conducting clinical studies. Patients are increasingly being seen by physicians
in managed care organizations rather than at teaching institutions. Therefore,
the traditional clinical trial sites often cannot provide sufficient numbers of
patients for studies. In addition, with the FDA's approving new oncology drugs
more rapidly and the large number

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of oncology drugs currently in development, it is critical that clinical trial
designs take into account competing clinical trials and changing treatment
practices.

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

The Company estimates that pharmaceutical and biotechnology companies spent
approximately $2.6 billion in 1995 for research and development of anticancer
and endocrine system drugs. During the nine-month period ended September 30,
1996, ILEX provided services to 15 clients, including four pharmaceutical
companies and 11 biotechnology companies, involving over 25 projects. As of
December 31, 1996, the Company has active contracts with 12 pharmaceutical and
biotechnology companies and is in ongoing discussions with these and additional
companies to manage development programs for their oncology drugs.

ILEX, CTRC and a provider of site administrative services have jointly made
a proposal to a major pharmaceutical company to organize and manage certain
clinical trials for the pharmaceutical company. The parties have executed an
initial agreement to begin work on several clinical studies and are negotiating
a potential five year comprehensive agreement. Under the proposal, ILEX would be
responsible for certain CRO-related activities such as organizing and managing
clinical trials, providing data management services and preparing final reports.
CTRC and the provider of site administrative services would be responsible for
enrolling patients to the clinical studies and obtaining the required data. No
assurance can be given that such negotiations will lead to a comprehensive
agreement or that any such transaction will achieve satisfactory results.

ILEX has in the past derived, and may in the future derive, a significant
portion of its contract research services revenue from a relatively limited
number of major projects or clients. Concentrations of business in the contract
service industry are not uncommon and the Company is likely to experience such
concentration in future years. The Company intends to continue to expand its
contract research business by focusing its marketing efforts on longer term,
multi-phase drug development programs. In the nine months ended September 30,
1996, ILEX's top five CRO customers accounted for 81.4% of the Company's
contract research services revenue. The loss of business from a significant
client could materially and adversely affect the Company's business, financial
condition and results of operations.

CLINICAL RESEARCH SERVICES

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

Study Protocol Design. The protocol defines the medical issues the
study seeks to examine and the statistical tests that will be conducted.
Accordingly, the protocol defines the frequency and type of laboratory and
clinical measures that are to be tracked and analyzed, the number of
patients

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required to produce a statistically valid result, the period of time over
which the patients must be tracked and the frequency and dosage of drug
administration. The Company believes its experience with NDA-directed
studies, knowledge of rapidly changing clinical practices and knowledge of
the FDA's position on acceptable endpoints are very beneficial to the
design of oncology clinical trials.

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

Patient Enrollment. The speed with which trials can be completed is
significantly affected by the rate at which patients are enrolled by
investigators. ILEX has access to a large patient population through its
relationship with CTRC Research and Southwest Oncology Group ("SWOG"),
which enrolls numerous oncology patients into Phase II and III trials. The
Company also has access to a network of investigators who collaborate with
ILEX, CTRC Research and members of ILEX's Scientific Advisory Board.

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

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

Manufacturing Expertise. ILEX believes that it is one of only a few
custom chemical synthesis manufacturers focused on bulk oncology drugs in
the United States. The Company conducts its manufacturing operations at a
7,200-square-foot state-of-the-art manufacturing facility, at which it
manufactures bulk drug products for preclinical and clinical trials for CRO
clients and in-licensed compounds. Oncology drugs are complex, toxic
molecules that are difficult to synthesize and require special handling
procedures. ILEX's management team has extensive oncology drug
manufacturing expertise. Most of the compounds being developed by the
Company have never been manufactured on a commercial basis, and the Company
has no experience in manufacturing compounds in

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commercial quantities. There can be no assurance that such compounds can be
manufactured at a cost, or in quantities, necessary to make them
commercially viable.

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

RELATIONSHIP WITH CTRC

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

As the majority holder of Series A Preferred Stock, CTRC Research has the
right to elect three members of the Company's Board of Directors. Upon
consummation of the offering, this right will terminate and CTRC Research will
beneficially own approximately 23.8% of the Company's outstanding shares of
Common Stock. Consequently, CTRC Research will have the ability to exercise
substantial influence over the outcome of most stockholders' actions, and such a
concentration of ownership could have an adverse effect on the price of the
Common Stock or have the effect of delaying or preventing a change in control of
the Company. The Company and CTRC Research have an agreement not to commence any
legal action against, in the case of CTRC Research, the Board of Directors of
the Company, other than Directors of the Company who are also employees or
officers of or consultants to ILEX, or, in the case of ILEX, the Board of
Trustees of CTRC Research, for any claim that would have been covered by any
directors' and officers' liability insurance policies maintained by CTRC or
ILEX, as applicable, subject to certain exceptions. This agreement will
terminate upon consummation of this offering, but such agreement will remain in
effect with respect to any activity occurring prior to the termination of the
agreement.

During the period from 1991 through 1994, CTRC Research obtained certain
rights to patents covering MGBG, Crisnatol and DHAC (certain of which have
terminated), and entered into negotiations to license DFMO, Piritrexim,
Intoplicine and Oxypurinol. In addition, CTRC Research entered into a contract
to develop a synthesis process to make a compound for a third party and retained
an option to produce future commercial supplies. In 1993, CTRC incorporated ILEX
as a for-profit subsidiary and, in 1994, transferred certain advanced drug
development programs, intellectual property rights and commercial opportunities
to the Company, and, through CTRC Research, retains an equity position in ILEX.
See "Principal Stockholders."

CTRC Research has agreed to provide certain administrative and technical
assistance to the Company on a fee-for-service basis. In addition, CTRC Research
has a 38,000-square-foot laboratory devoted to preclinical development of
oncology agents. Testing capabilities include growth inhibition tests using
tumor cell lines, various biochemical tests, testing in animals and the human
tumor cloning test. The Company believes that access to these resources will
better enable it to focus its efforts on building highly effective clinical
development, manufacturing and toxicology capabilities. The Company

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expects to continue to engage CTRC Research to conduct clinical studies of
ILEX's products, which enables ILEX to receive timely feedback regarding the
efficacy and safety of new drugs.

CTRC Research and Sanofi have entered into agreements (collectively, the
"Sanofi Agreements"), pursuant to which Sanofi agreed to fund various CTRC
Research programs (the "Research Programs") through December 31, 1997 and
obtained an exclusive option through December 2000 to evaluate and license all
of CTRC Research's commercial drugs, compounds, products and rights arising from
the Research Programs. If Sanofi exercises its options to acquire any such
rights from CTRC Research, the parties must enter into a license and development
agreement for those rights, pursuant to which Sanofi will agree to pay various
licensing fees, royalties and milestone payments to CTRC Research.

If Sanofi declines or fails to exercise its options to license a CTRC
Research product or right, ILEX will have certain rights to negotiate to license
and develop those products pursuant to the terms of a subordinated option
agreement between ILEX and CTRC Research (the "Subordinated Option Agreement").
The terms of the Subordinated Option Agreement provide ILEX with a first right
to negotiate a license for the technology declined by Sanofi and, upon the
expiration of the Sanofi Agreements, a first right to negotiate a funding and
licensing agreement with CTRC Research for programs unencumbered by Sanofi.
However, the terms of that agreement only provide ILEX with an option to
negotiate to license certain of CTRC Research's rights and fund certain of its
programs, to the extent that Sanofi has not licensed or funded such rights or
programs. Moreover, the parties have agreed to negotiate an extension of
Sanofi's exclusive option prior to or upon its expiration. There can be no
assurance that ILEX and CTRC Research will be able to agree on the terms of any
licenses or agreements or that any products acquired or licensed by ILEX will be
successful. The Subordinated Option Agreement expires March 2000, and the
parties have agreed to negotiate the possible renewal of the agreement upon its
expiration.

Prior to the formation of ILEX, Sanofi exercised its option to sublicense
MGBG from CTRC Research. CTRC Research assigned all of its rights and
obligations regarding MGBG to ILEX in November 1994 and, accordingly, Sanofi and
ILEX became parties to license and development arrangements with respect to
MGBG.

The Company believes that its established relationship with CTRC Research
and its related entities and the Company's experienced Scientific Advisory Board
put it in a position to identify and to license novel cancer drugs for
development. In addition, a substantial percentage of all experimental oncology
drugs currently undergoing clinical trials in the United States have been
tested, at one time or another, by CTRC and/or SWOG. ILEX believes its
established relationship with CTRC Research and SWOG allows it to obtain prompt
feedback on the safety and efficacy of its compounds, and access to potential
contract services clients. However, CTRC Research is an independent entity that
neither ILEX nor its management controls. There can be no assurance that ILEX
and CTRC will be able to maintain their mutually beneficial relationship and any
deterioration of such relationship could have a material adverse effect on the
Company's business, financial condition and results of operations.

CTRC Research is attempting to obtain a private letter ruling from the IRS
to confirm certain tax implications to CTRC Research associated with the
formation of the Company by CTRC. The IRS has not yet indicated whether it is
prepared to issue such a ruling, although a determination from the IRS is
possible at any time. As part of the formation of the Company, shares of Common
Stock were purchased by the Founders. A provision in the stock purchase
agreements entered into between ILEX and each of the Founders requires the
Company and the Founders to attempt to reach an "equitable adjustment" of their
stock purchases in the event CTRC Research is unable to obtain a favorable
private letter ruling from the IRS. If the Company and the Founders are unable
to reach or agree upon an "equitable adjustment" within a specified period after
an adverse IRS tax ruling, the Founders' stock purchases would be rescinded and
the Company would be required to repurchase the Common Stock purchased by the
Founders at the purchase price paid upon formation. A provision in the
employment and consulting agreements entered into between the Company and each
of the Founders also requires the Company and the Founders to renegotiate in
good faith an "equitable adjustment" to the terms of such agreements in the
event that CTRC Research is unable to obtain a favorable private letter ruling
from the

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IRS. If the Company is unable to successfully renegotiate the terms of such
agreements after a specified period of time, they automatically terminate.
"Equitable adjustment" is not defined in any of the stock purchase agreements,
employment agreements or consulting agreements, and no basis for determining
what constitutes an "equitable adjustment" is specified in such agreements.
Consequently, what constitutes an "equitable adjustment" could, in addition to
considerations in respect of the Founders and the Company, be determined based
on the actions necessary to be taken to minimize any adverse tax consequences to
CTRC Research associated with an adverse IRS tax ruling.

It is the current intention of ILEX to take such actions as are necessary
to maintain the services of the Founders. However, the successful conclusion of
renegotiated agreements satisfactory to the Founders may not be possible both if
it is determined that any transfer to the Founders to replace lost value would
result in adverse tax consequences to CTRC Research and if CTRC Research has a
contract right under the stock purchase agreements, employment agreements or
consulting agreements to preserve its tax-exempt status. Under those
circumstances, the only renegotiated agreement possible between the Company and
the Founders would be one in which the Founders forego a portion of the value
represented by their original stock purchases sufficient to prevent the adverse
consequences to CTRC Research's tax-exempt status. There can be no assurance
that the Founders would agree to such an arrangement. Conflicts between the
Company's interest in maintaining the services of the Founders and the interest
of CTRC Research and related entities in maintaining its tax-exempt status could
materially and adversely affect the relationship, or result in litigation,
between the Company and CTRC Research and related entities which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

STRATEGIC ALLIANCES AND COLLABORATIONS

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

Sanofi

Worldwide marketing rights to MGBG have been licensed to Sanofi pursuant to
the terms of a license and development agreement between Sanofi and ILEX. Under
the terms of the agreement, ILEX is responsible for securing clinical trials
materials, managing the clinical development of MGBG and preparing and
submitting an NDA. The NDA, if approved, and Orphan Drug Designation are to be
assigned to Sanofi, which will be responsible for the marketing and
manufacturing of MGBG for commercial distribution. ILEX has received from Sanofi
an initial licensing fee and development funding for MGBG and is entitled to
receive additional development funding, milestone payments and royalties on

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sales. There can be no assurance that MGBG will receive regulatory approval on a
timely basis, if at all, be commercially viable or achieve market acceptance.

Janssen

In October 1996, ILEX entered into an agreement with Janssen, a subsidiary
of Johnson & Johnson, under which Janssen obtained worldwide rights to
manufacture and market Crisnatol. Janssen agreed to contract with ILEX for both
process development and clinical development, and ILEX is responsible for
preparing an NDA for the United States and registration dossiers outside the
United States. ILEX retained an option to manufacture Crisnatol if Janssen
elects to outsource manufacturing. ILEX received an initial license fee, and
will receive milestone payments and a royalty based upon the gross margin
achieved by Janssen. Janssen has the right to terminate its support of the
project at any time with 90 days' notice, in which case all rights revert to
ILEX. The agreement also provides that, upon the acquisition of more than 33% of
the outstanding voting securities of ILEX by a pharmaceutical or biotechnology
company with annual worldwide sales of $500 million or more, Janssen may (i)
terminate the agreement in its entirety or (ii) terminate the provisions of the
agreement relating to the development plan and the funding thereof by Janssen
while continuing the license. An interim analysis of the clinical data is
scheduled to occur in April 1997. Coincident with executing the licensing
agreement, Johnson & Johnson Development Corp. made an equity investment of $1
million in ILEX.

MGI Pharma

In November 1996, ILEX entered into agreements with MGI Pharma pursuant to
which MGI Pharma obtained worldwide marketing rights to DHAC and Oxypurinol and
was assigned DHAC's orphan drug designation. With respect to DHAC, MGI Pharma
will either contract with ILEX for a portion of work related to the clinical
development of DHAC or for an equivalent amount of work related to another MGI
Pharma project or projects. With respect to Oxypurinol, ILEX is responsible for
preparing a development plan. With respect to both compounds, ILEX will receive
a licensing fee and periodic payments for development work at ILEX's standard
contract rates. In addition, in the case of Oxypurinol, ILEX may receive a
milestone payment, and in the case of DHAC, ILEX is entitled to receive
royalties based on sales by MGI Pharma or its licensee(s). MGI Pharma has
certain rights to terminate either agreement upon 60 days' notice or (i) the
agreement with respect to Oxypurinol if Wellcome does not consent to amend its
license agreement with ILEX to include non-cancer indications and (ii) the
agreement with respect to DHAC if the NCI fails to transfer the IND or fails to
deliver bulk drug substance from the NCI's inventory for clinical trials.

MPI

In December 1996, ILEX formed a joint venture with MPI to develop
Piritrexim pursuant to which ILEX licensed worldwide rights to manufacture and
market Piritrexim to the joint venture in exchange for licensing fees, milestone
payments and royalties. The joint venture subcontracted with MPI and ILEX to
execute the development plan. ILEX and MPI own the joint venture equally.
Coincident with this transaction, MPI made an equity investment of $5.0 million
in ILEX.

Potential Future Alliances and Collaborations

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

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IN-LICENSING AGREEMENTS

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

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

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

ORPHAN DRUG STATUS

Pursuant to the Orphan Drug Act of 1983 (the "Orphan Drug Act"), the FDA
may designate a drug intended to treat a "rare disease or condition" as an
"orphan drug." A "rare disease or condition" is one which affects less than
200,000 people in the United States, or which affects more than 200,000 people
but for which the cost of development and distribution of the drug will not be
recovered from sales of the drug in the United States. Upon approval of an NDA
for an orphan drug, such drug may be eligible for exclusive marketing rights in
the United States for designated and approved indications for seven years.
Orphan drugs may also be eligible for federal income tax credits for certain
clinical trial expenses. The Company holds orphan drug designations for MGBG for
treatment of patients with diffuse lymphomas and for DHAC for treatment of
patients with mesothelioma. See "-- Products Under Development," and
"-- Government Regulation."

The Company may receive marketing exclusivity for an orphan drug only if it
is the sponsor of the first NDA approved for the drug for an indication for
which the drug was designated as an orphan drug prior to the approval of such
NDA. Therefore, unlike patent protection, orphan drug status does not prevent
other manufacturers from attempting to develop the drug for the designated
indication or from obtaining NDA approval prior to approval of the Company's
NDA. If another sponsor's NDA for the same drug and the same indication is
approved first, that sponsor is entitled to exclusive marketing rights if that
sponsor has received orphan drug designation for the drug. In that case, the FDA
would be prohibited from approving the Company's application to market the
product for the relevant indication for a period of seven years. If another
sponsor's NDA for the same drug and the same indication is approved first, but
that drug has not

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been designated as an orphan drug, the FDA would still be permitted to approve
the Company's NDA without the exclusivity provided by orphan drug status.

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

PATENTS, TRADEMARKS AND TRADE SECRETS

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

The Company's compounds acquired pursuant to in-licensing arrangements are
protected by 14 patents obtained by the Company's licensors in the United
States; six patents of the Company's licensors are pending in the United States.
The Company's licensors also obtained 126 foreign patents (counterparts to the
United States issued patents and patent applications) and nine foreign patents
are pending. The patents and patent applications in-licensed by the Company have
not been independently investigated by the Company, and there can be no
assurance that any such patents or patent applications will not be challenged or
will provide protection for the Company's compounds. The Company has filed two
of its own United States patent applications for the use of DFMO in combination
with certain drugs used to treat breast cancer and in certain novel
formulations. There can be no assurance that a patent will issue as a result of
either such application or what scope of protection that these issued patents
will provide or whether such patents will ultimately be upheld as valid by a
court of competent jurisdiction in the event of a legal challenge. The patent
and license applicable to DHAC recently expired and, as a result, the DHAC
technology is currently available for general public use. Notwithstanding the
patent and license expiration, ILEX holds an Orphan Drug Designation for DHAC
for the treatment of patients with mesothelioma and has applied for a patent for
using DHAC as a treatment for patients with prostate cancer. Currently, Orphan
Drug Designation provides market exclusivity to ILEX for this indication for
seven years following marketing approval. Following this period of exclusivity
for this indication, however, this product will be deemed a generic drug for all
indications and, therefore, will be subject to competitive pricing pressures. In
addition, Oxypurinol and Aminopterin do not have patent protection. United
States patents on ILEX's other current products which expire in the next 10
years include: MGBG (2002); Crisnatol (2004, 2005); DFMO (2000); and Piritrexim
(2007).

A number of significant changes in the United States patent laws were
mandated by the North American Free Trade Agreement ("NAFTA") and the General
Agreement on Tariffs and Trade ("GATT"). Legislation enacting these treaties has
been passed into law. The term of exclusive rights

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afforded by a United States patent has historically been a period of 17 years
measured from the date of grant. Under the new legislation, the new term of
United States patents will commence on the date of grant, and terminate 20 years
from the date on which the patent application was filed in the United States.
Existing patents and future patents granted on an application filed before June
8, 1995, will have a term that is the longer of 20 years from the filing date or
17 years from the date of grant. If a patent issues from a continuation-in-part,
divisional or continuing application, the 20-year patent expiration date is
measured from the filing date of the earliest United States priority application
relied on by the applicant. This change will affect the term of any patent
granted on applications filed subsequent to June 8, 1995, including patents
which ultimately mature from existing applications, if they are refiled as
continuations or continuations-in-part after June 8, 1995.

Under the Drug Price Competition and Patent Term Restoration Act of 1984,
United States product patents or use patents may be extended for up to five
years under certain circumstances to compensate the patent holder for the time
required for FDA regulatory review of the product. The benefits of the Act are
available only to the first approved use of the active ingredient in the drug
product and may be applied only to one patent per drug product. This law also
establishes a period of time following FDA approval of certain new drug
applications during which other sponsors may not submit an NDA for the drug.
There can be no assurance that the Company will be able to take advantage of
either the patent term extension or market exclusivity provisions of this law.

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

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

ILEX is a registered United States trademark of the Company.

COMPETITION

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seeking to develop. Most of these companies have substantially greater
financial, research and development, manufacturing and marketing experience and
resources than the Company and represent substantial long-term competition for
the Company. Such companies may succeed in discovering and developing
pharmaceutical products more rapidly than the Company and its collaborative
partners or pharmaceutical products that are safer or more effective or less
costly than any that may be developed by the Company and its collaborative
partners and may also prove to be more successful than the Company and its
collaborative partners in production and marketing. Smaller companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and established biotechnology companies.
Academic institutions, governmental agencies and other public and private
research organizations also conduct clinical development, seek patent protection
and establish collaborative arrangements for the development of oncology
products. ILEX will face competition based on product efficacy and safety, the
timing and scope of regulatory approvals, availability of supply, marketing and
sales capability, reimbursement coverage, price and patent position. There can
be no assurance that the Company's competitors will not (i) develop more safe
and effective products; (ii) obtain patent protection or intellectual property
rights that limit the Company's or its collaborative partners' ability to
commercialize products that may be developed; or (iii) commercialize products
earlier than the Company. The industry in which the Company competes is
characterized by extensive research and development efforts and rapid
technological progress. New developments occur and are expected to continue to
occur at a rapid pace, and there can be no assurance that discoveries or
commercial developments by the Company's competitors will not render some or all
of the Company's potential products obsolete or non-competitive, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's competitive position also depends on
its ability to attract and retain qualified scientific and other personnel,
develop effective proprietary products, implement development and marketing
plans, obtain patent protection and secure adequate capital resources.

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

GOVERNMENT REGULATION

The design, development, research, testing, manufacture, labeling,
distribution, marketing and advertising of products such as the Company's
proposed products are subject to extensive regulation by governmental regulatory
authorities in the United States and other countries. The drug approval process
is generally lengthy, expensive and subject to unanticipated delays. The FDA,
and comparable agencies in foreign countries, impose substantial requirements on
the introduction of new pharmaceutical products through lengthy and detailed
preclinical and clinical testing procedures, sampling activities and other
costly and time-consuming compliance procedures. A new drug may not be marketed
in the United States until it has undergone rigorous testing and has been
approved by the FDA. The drug may then be marketed only for the specific
indications, uses, formulation, dosage forms and strengths, approved by the FDA.
Similar requirements are imposed by foreign regulators upon the marketing of a
new drug in their respective countries. Satisfaction of such regulatory
requirements, which includes demonstrating to the satisfaction of the FDA that
the relevant product is both safe and effective, typically takes several years
or more depending upon the type, complexity and novelty of the product and
requires the expenditure of substantial resources. Preclinical studies must be
conducted in conformance with the FDA's good laboratory practice regulations.
The Company's compounds require extensive clinical trials

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and FDA review as new drugs. Clinical trials will be vigorously regulated and
must meet requirements for FDA review and oversight and requirements under good
clinical practice regulations. There can be no assurance that the Company will
not encounter problems in clinical trials which would cause the Company or the
FDA to delay or suspend clinical trials. Any such delay or suspension could have
a material adverse effect on the Company's business, financial condition and
results of operations.

The steps required before a drug may be marketed in the United States
include (i) preclinical laboratory and animal tests, (ii) submission to the FDA
of an application for an Investigational New Drug exemption, or IND, which must
become effective before human clinical trials may commence, (iii) human clinical
trials to establish the safety and efficacy of the drug, (iv) the submission of
a detailed NDA to the FDA and (v) FDA approval of the NDA. In addition to
obtaining FDA approval for each product, each domestic establishment where the
drug is to be manufactured must be registered with the FDA. Domestic
manufacturing establishments must comply with cGMP and are subject to periodic
inspections by the FDA. Foreign manufacturing establishments also must comply
with cGMP and are subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA.

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

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

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

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resources to conduct the preclinical development and clinical trials necessary
to bring such compounds to market. Drug research and development by its nature
is uncertain. There is a risk of delay or failure at any stage, and the time
required and cost involved in successfully accomplishing the Company's
objectives cannot be predicted. Actual drug research and development costs could
exceed budgeted amounts, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

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

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

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

The Company intends to seek orphan drug status for some of its product
candidates pursuant to the Orphan Drug Act and has been granted orphan drug
status for MGBG for treatment of patients with diffuse lymphomas and for DHAC
for treatment of patients with mesothelioma. There can be no assurance orphan
drug status will be granted for other product candidates or that any such grant
of orphan drug status will provide the Company with any benefits. Although
orphan drug status may provide an applicant exclusive marketing rights in the
United States for a designated indication for seven years following marketing
approval, in order to obtain such benefits, the applicant must be the sponsor of
the first NDA approved for that drug and indication. Moreover, amendment of the
Orphan Drug Act by the

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<PAGE> 56

United States Congress and reinterpretation by the FDA are frequently discussed.
Legislation to limit exclusivity in some respects was passed by Congress, but
vetoed by the President in 1990. FDA regulations reflecting certain other
limitations and procedures went into effect in January 1993. Therefore, there
can be no assurance as to the precise scope of protection that may be afforded
by orphan drug status in the future, or that the current level of exclusivity
will remain in effect. See "-- Orphan Drug Status."

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

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

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

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

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

PRODUCT LIABILITY AND INSURANCE

The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. Although the
Company maintains clinical trials liability insurance with coverage limits of $2
million per occurrence and an annual aggregate maximum of $2 million, and
general commercial liability insurance with an additional $5 million umbrella
coverage per occurrence and an annual aggregate maximum of $5 million, there can
be no assurance that product liability claims will not exceed such insurance
coverage limits, which could have a material adverse effect

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on the Company's business, financial condition or results of operations, or that
such insurance will continue to be available on commercially reasonable terms,
if it all.

EMPLOYEES

As of December 31, 1996, the Company had 64 full-time employees, 48 of whom
are engaged in research and development activities. No employees are covered by
collective bargaining agreements, and the Company believes it maintains good
relations with its employees.

MANUFACTURING AND OTHER FACILITIES

The Company's administrative offices comprise approximately 24,000 square
feet of leased office space in San Antonio, Texas, of which approximately 3,000
square feet are located in CTRC Research's research facility. The Company is in
the process of moving from its current facility into such office space. The
lease governing the Company's existing office space expires at the end of
February, 1997.

The Company leases and operates a 7,200-square-foot manufacturing facility
that has been designed to produce multi-kilogram lot sizes of anticancer
compounds under cGMP. The design of this facility, prepared by ILEX staff, has
been reviewed by the Regional Compliance Office of the FDA and found to be
suitable for production of bulk drugs. The manufacturing facility is owned by a
non-profit corporation that is controlled by CTRC Research and the Texas
Research and Technology Foundation, and provides for the payment by the Company
of fixed monthly rent plus a percentage of gross sales generated from the
facility. These two organizations obtained a grant to build the facility from
the Economic Development Administration. ILEX has a 15-year lease to the
facility with three five-year-extension options.

The Company's facility, which is approximately 50% utilized, has sufficient
capacity to manufacture the materials necessary to satisfy the requirements for
conducting clinical trials of ILEX's current clients and collaborative partners.
The Company will be required to expand its manufacturing facilities or to
contract with other manufacturers in the event the Company's CRO manufacturing
business is expanded or there is a need for commercial quantities of the
Company's compounds.

LEGAL PROCEEDINGS

The Company is not currently involved in any legal proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard L. Love(1)................... 53 President, Chief Executive Officer and Director
Alexander L. Weis, Ph.D.............. 47 Executive Vice President, Chief Scientific
Officer and Director
Timothy J. Williamson................ 53 Senior Vice President, Marketing & Business
Development
James R. Koch........................ 42 Vice President and Chief Financial Officer
Deirdre K. Tessman, Ph.D............. 52 Vice President, Drug Development
Pedro Santabarbara, M.D., Ph.D....... 44 Vice President, Medical Affairs
Gary V. Woods(1)..................... 53 Chairman of the Board
A. Dana Callow, Jr.(1)............... 45 Director
John L. Cassis(1)(2)................. 48 Director
Jason S. Fisherman, M.D.............. 40 Director
Jerry R. Mitchell, M.D., Ph.D........ 55 Director
Ruskin C. Norman, M.D.(2)............ 77 Director
Daniel D. Von Hoff, M.D.............. 49 Director and Co-Chairman of Scientific Advisory
Board
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

RICHARD L. LOVE has served as President, Chief Executive Officer and
Director of the Company since its inception in December 1993. Mr. Love has more
than 30 years of industry experience with more than 16 years in the biosciences
industry. Prior to forming ILEX, Mr. Love was Chief Operating Officer of CTRC
Research from 1991 to 1993. From 1983 through 1991, Mr. Love served as CEO of
Triton Biosciences Inc., a subsidiary of Shell Oil Company, and led the sale of
Triton Biosciences Inc. to Berlex Laboratories, Inc., a subsidiary of Schering,
A.G. Mr. Love earned his B.S. and M.S. in Chemical Engineering from Virginia
Polytechnic Institute.

ALEXANDER L. WEIS, PH.D., has served as Executive Vice President, Chief
Scientific Officer and Director of the Company since October 1994. From 1991
through 1994, Dr. Weis was the Director of Preclinical Research and Development
for CTRC Research. Prior to joining CTRC Research, Dr. Weis worked at Eastman
Kodak Company and Sterling Winthrop Inc. (currently STWB Inc.), the Weizmann
Institute of Sciences, Israel and the Russian Academy of Sciences in the former
USSR. Dr. Weis is also the owner and chief executive officer of Lipitek
International, Inc., one of the Company's subcontractors. See "Certain
Transactions." Dr. Weis received his Ph.D. in Organic Chemistry at the National
Academy of Sciences in the former USSR.

TIMOTHY J. WILLIAMSON has served as Senior Vice President Marketing and
Business Development of the Company since October 1994. From April 1990 through
October 1994, Mr. Williamson served as Vice President for Marketing and Sales
with Boehringer Mannheim Pharmaceuticals Corporation ("Boehringer"). Prior to
joining Boehringer, Mr. Williamson served as Regional Sales Director at
Genentech, Inc. and held various positions with Merck Sharp & Dohme, the U.S.
pharmaceuticals division of Merck & Co. Inc. Mr. Williamson holds his B.A. from
the University of Texas.

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<PAGE> 59

JAMES R. KOCH, CMA, has served as Vice President and Chief Financial
Officer of the Company since August 1996. Mr. Koch was the Vice President,
Finance and Chief Financial Officer for two start-up specialty pharmaceutical
companies, Symphony Pharmaceuticals, Inc. (1993-1996) and Neose Pharmaceuticals
(1991-1993) (currently Neose Technologies, Inc.). His prior experience also
includes ten years in senior financial management positions with G.D. Searle
Pharmaceutical. Mr. Koch holds his M.S. from the Krannert School of Management
at Purdue University and his B.S. in Mechanical Engineering from General Motors
Institute.

DEIRDRE K. TESSMAN, PH.D., has served as Vice President, Drug Development
of the Company since October 1994. From January 1991 to October 1994, Dr.
Tessman served as Director, Worldwide Pharmaceutical Projects for Schering AG,
and from 1987 to 1991 as Director of Pharmaceutical Project Development at
Triton Biosciences Inc. Dr. Tessman has also served as Director of Clinical
Research at Roskon Research Corporation, as Manager of Clinical Research at
Medco Research, Inc. and as a Scientist with Warner-Lambert/Parke Davis. Dr.
Tessman earned her B.S. from Marygrove College, her M.B.A. from the University
of Michigan and her Ph.D. from California Coast University.

PEDRO SANTABARBARA, M.D., PH.D., has served as Vice President, Medical
Affairs since August 1996. Prior to joining ILEX, he was Director of Clinical
Research Oncology for RPR in North America from August 1994 to August 1996, and
served Bristol-Myers Squibb Company in its medical oncology departments in
domestic and international positions from February 1988 to August 1994. Dr.
Santabarbara holds his M.D. and Ph.D. degrees from the University of Barcelona
where he specialized in Internal Medicine and Medical Oncology.

GARY V. WOODS joined ILEX as a Director in December 1993 and was elected
Chairman of the Board in October 1994. Since 1979, Mr. Woods has been employed
as President of McCombs Enterprises, Inc., an organization which invests in
automobile dealerships, oil and gas ventures, real estate and broadcasting. He
currently serves on the Board of Directors of several organizations, including
Titan Holdings, Inc., the CTRC, and the Greater San Antonio Chamber of Commerce,
and is Chairman of the Board of Trustees of CTRC Research. Mr. Woods also served
as President of the San Antonio Spurs, a professional basketball team, from 1988
to 1993. Mr. Woods received his B.B.A. from Southwest Texas State University and
his M.B.A. from Southern Methodist University and is a licensed Certified Public
Accountant.

A. DANA CALLOW, JR. has been a Director of ILEX since October 1995. He is a
partner of several Boston Capital Ventures' partnerships, which he co-founded in
1982. Prior to that, he was a management consultant for Braxton Associates, Inc.
He is or has been a director of many companies, including: PAREXEL
International, Inc., Medical Management of New England, Inc., Tektagen, Inc.,
and Continuity Marketing Corporation, Inc. Mr. Callow received his A.B. from
Tufts University and his M.B.A. from The Amos Tuck School at Dartmouth College.

JOHN L. CASSIS has been a Director of ILEX since October 1995. Mr. Cassis
joined Hambro Health International in 1994. Prior to that, he was a Director of
Salomon Brothers Inc, where he co-founded Salomon Brothers Venture Capital in
1986 and headed it from 1990 to 1994. From 1976 to 1981, he was a Managing
Director of Ardshiel Associates, Inc. (currently Ardshiel Inc.), a merchant
bank. In 1972, Mr. Cassis was employed by Johnson & Johnson ("J&J") where he
founded the Johnson & Johnson Development Corporation, that firm's venture
capital arm, and was J&J's Manager of Acquisitions. Mr. Cassis is currently on
the Board of Directors of HealthTech Services Corp., and is Chairman of the
Board of Directors of IMPATH Inc. and Dome Imaging Systems, Inc. Mr. Cassis
received his A.B. and M.B.A. from Harvard University.

JASON S. FISHERMAN, M.D., has been a Director of ILEX since October 1995.
Dr. Fisherman is currently a partner at Advent International Corporation. Prior
to joining Advent, Dr. Fisherman served as Senior Director of Medical Research
for Enzon, Inc. from 1991 to 1994. Between 1989 and 1992, he managed clinical
development of a number of anticancer drugs at the NCI. Dr. Fisherman is
currently a director of several private health care companies. Dr. Fisherman
received his B.A. in Molecular Biophysics

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<PAGE> 60

and Biochemistry from Yale, his M.D. from the University of Pennsylvania, and
his M.B.A. from Wharton. He is Board-certified in internal medicine and medical
oncology.

JERRY R. MITCHELL, M.D., PH.D., has been a Director of ILEX since December
1996. Dr. Mitchell co-founded MPI Research in November 1995 and has held the
position of Chief Executive Officer of MPI Research since November 1995 and is
co-Chairman of MPI. Between 1989 and November 1995, Dr. Mitchell held various
executive positions with the Upjohn Company. He became President of Upjohn
Laboratories in 1990, a member of Upjohn's Board of Directors in 1991 and,
subsequently, Vice Chairman of the Board in 1993. Dr. Mitchell has served on a
number of national science committees, including the National Academy of
Sciences (two committees), the FDA's Advisory Committee on Gastrointestinal
Drugs and the NIH Pharmaceutical Sciences Committee. He received M.D. and Ph.D.
degrees from Vanderbilt University and completed residency training in internal
medicine at Cornell University Medical Center.

RUSKIN C. NORMAN, M.D., has been a Director of ILEX since December 1993.
Dr. Norman is past member (Senior Partner) of Radiology Physician Associates, as
well as a previous President of St. Luke's Lutheran Hospital. In 1978, he held
the post of Chairman of the National Medical Advisory Committee of the American
Health Care Association. Dr. Norman serves on the Board of Directors of several
companies, including CTRC and Compass Bank -- San Antonio. Dr. Norman holds his
B.S. in Pharmacy from the St. Louis College of Pharmacy and his M.D. from the
Northwestern University Medical School.

DANIEL D. VON HOFF, M.D., has served as Co-Chairman, Scientific Advisory
Board and a Director of the Company since October 1994. Dr. Von Hoff has been
Director of IDD and Chief Executive Officer of CTRC Research since 1989 and
1995, respectively, and has also been a Clinical Professor of Medicine at
UTHSCSA since 1995. He is a holder of an NCI grant to conduct Phase I trials
with compounds from the NCI. Over the past 17 years, Dr. Von Hoff has conducted
national clinical trials with more than 110 new antineoplastic and biologic
agents. Dr. Von Hoff has served on the FDA's Oncology Advisory Committee and was
a member of the Board of Directors of the American Society of Clinical Oncology.
He is currently a member of the Board of Directors of the American Association
for Cancer Research and is the Director of Research for PRN Inc., a division of
Physicians Reliance Network. He is the recipient of numerous awards and honors
including the K. Bagshawe Honorary Lecture for the British Association for
Cancer Research, the EORTC Michel Clavel Lectureship and the Therapeutic
Frontiers Lecture Award from the American College of Clinical Pharmacy. He is a
Fellow of the American Association for the Advancement of Science and is a
recipient of both the Outstanding Professor Award and the Presidential Teaching
Award from UTHSCSA. Dr. Von Hoff holds his B.S. from Carroll College, and his
M.D. from Columbia College of Physicians and Surgeons.

All directors of the Company hold office until the next annual meeting of
stockholders and the election and qualification of their successors. The holders
of the Series A Preferred Stock and Series B Preferred Stock each have the right
to elect three members to the Board. This right to elect directors, along with
the other terms of the Preferred Stock, will be eliminated upon the consummation
of this offering. Each officer of the Company was chosen by the Board of
Directors and serves at the pleasure of the Board of Directors until his or her
successor is appointed or until his or her earlier resignation or removal in
accordance with applicable law.

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SCIENTIFIC ADVISORY BOARD

The Company has organized a Scientific Advisory Board which consists of
recognized scientists with expertise in oncology. The members of the Scientific
Advisory Board are appointed by the Board of Directors and review and comment
upon the Company's ongoing and proposed scientific projects. The Scientific
Advisory Board also advises the Company on potential areas of clinical interest
and provides scientific evaluations on products under development. The
Scientific Advisory Board meets semi-annually and certain members meet in
smaller groups or individually with the Company as needed. The Company provides
each member of the Scientific Advisory Board, other than the Co-Chairmen, with a
stipend in the amount of $2,000 per meeting and a one-time grant of an option
for 5,710 shares of the Company's Common Stock. The Company also reimburses each
member for expenses incurred when traveling to and attending meetings.

All members of the Scientific Advisory Board have commitments to and/or
consulting contracts with other organizations, including potential competitors
of ILEX, that may limit their availability to the Company. None of these
individuals is expected to devote more than a small portion of his or her time
to the Company. The following are the members of ILEX's Scientific Advisory
Board:

For a biography of DANIEL D. VON HOFF, M.D., see "-- Executive Officers and
Directors."

CHARLES A. COLTMAN, JR., M.D., is Professor of Medicine at the UTHSCSA and
the Director of the San Antonio Cancer Institute. He is President and CEO of
CTRC, Chairman of SWOG, and has received numerous citations for his research in
cancer control and the treatment of leukemias, lymphomas, and Hodgkin's Disease.
Dr. Coltman is Co-Chairman of ILEX's Scientific Advisory Board with Daniel D.
Von Hoff, M.D., and has served in such position since November 1994. Dr. Coltman
holds his M.D. from the University of Pittsburgh School of Medicine.

DAVID SAMUEL ALBERTS, M.D., has been a Professor of Medicine and
Pharmacology at the Arizona Cancer Center, Tucson, since 1975, has been a
Director of Cancer Prevention and Control at the NCI since 1988, and served as
chairman of the Oncology Drug Advisory Committee to the FDA from 1982-1984. Dr.
Alberts received his B.S. from Trinity College in 1962, and his M.D. from the
University of Virginia in 1966.

LAWRENCE H. EINHORN, M.D., has been associated with Indiana University
since 1973 and currently holds the title of Distinguished Professor of Medicine.
Dr. Einhorn has won numerous awards related to his cancer research, especially
in testicular cancer, and is the recipient of a National Cancer Institute
Outstanding Investigator Grant from 1985 through 1999. Dr. Einhorn received his
M.D. degree from the State University of Iowa Medical School in 1967.

MARK R. GREEN, M.D., is the Gilbreth Professor of Clinical Oncology, Chief
of Hematology Oncology and Director of the Hollings Cancer Center at the Medical
University of South Carolina in Charleston, South Carolina. Between 1985 and
1990, he served as the Director of the University of California San Diego Cancer
Center ("UCSD"), an NCI-designated Clinical Cancer Center, and, in 1992, Dr.
Green was appointed the first Edwin and Evelyn Tasch Professor in Cancer
Research at UCSD. He held that position until moving to the Medical University
of South Carolina as Director of the Hollings Cancer Center in August 1996. Dr.
Green's research interests are in clinical investigation with a focus in lung
cancer. He attended Harvard College and Harvard Medical School, receiving his
B.A. degree in 1966, and his M.D. in 1970.

WAUN KI HONG, M.D., is an American Cancer Society Clinical Research
Professor, and Professor of Medicine and Chairman of the Department of
Thoracic/Head and Neck Medical Oncology at M.D. Anderson Cancer Center, where he
also holds the Charles A. LeMaistre Chair in Thoracic Oncology. He received his
oncology training at Memorial Sloan-Kettering Cancer Center, and afterward
served as Chief of Medical Oncology at the Boston V.A. Medical Center until
joining M.D. Anderson in 1984. Dr. Hong is dedicated to translational research
in both head and neck and lung cancer, and also focuses on the area of
chemoprevention.

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ALEXANDRA M. LEVINE, M.D., joined the staff at the University of Southern
California School of Medicine in 1977 and is currently a Professor of Medicine
and Chief, Division of Hematology and Medical Oncology. Dr. Levine served as the
Executive Associate Dean of the University of Southern California School of
Medicine from 1985 to 1990. Dr. Levine's research interests include the
hematologic malignancies. She began an active program of AIDS research in 1981,
focused primarily on the cancers related to AIDS, and most recently on HIV
disease in women. She worked with Dr. Jonas Salk from 1987 until his death in
1995 on a potential AIDS vaccine. Dr. Levine was appointed to the Presidential
HIV/AIDS Advisory Council by President Clinton in June 1995, and currently
serves as Chair of the Research Committee for the Presidential Council. Dr.
Levine graduated from University of California at Berkely, and received her M.D.
from the University of Southern California School of Medicine. She received
training in Internal Medicine and Hematology at the University of Southern
California School of Medicine, and in Oncology at Emory University.

JEFFREY M. TRENT, PH.D., serves as both the Scientific Director and the
Chief of the Laboratory of Cancer Genetics, National Center for Human Genome
Research. Dr. Trent was recruited to the NIH Bethesda campus to establish the
Intramural Research Program of the National Center for Human Genome Research. He
received his Bachelor's Degree from Indiana University, and his Ph.D. from The
University of Arizona. He remained on the faculty at The University of Arizona
for several years, where he served as the Director of Basic Research for the
Arizona Comprehensive Cancer Center. He then accepted an Endowed Chair in
Oncology at The University of Michigan in Ann Arbor where he also directed the
Basic Science Program of the Cancer Center. His research interests are in the
molecular genetics and cytogenetics of human cancer.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Company or its stockholders for
monetary damages for breach of their fiduciary duty to the maximum extent
permitted by the Delaware Law. The Delaware Law does not permit liability to be
eliminated (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions, as provided
in Section 174 of the Delaware Law or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, as permitted in
Section 145 of the Delaware Law, the Certificate of Incorporation of the Company
provides that the Company shall indemnify its directors and executive officers
to the fullest extent permitted by Delaware Law, including those circumstances
in which indemnification would otherwise be discretionary, subject to certain
exceptions. The Certificate of Incorporation also provides that the Company may
advance expenses to directors and executive officers incurred in connection with
an action or proceeding as to which they may be entitled to indemnification,
subject to certain exceptions.

The Company has or will enter into indemnity agreements with each of its
directors and executive officers that provide the maximum indemnity allowed to
directors and executive officers by the Delaware Law and the Company's
Certificate of Incorporation, subject to certain exceptions, as well as certain
additional procedural protections. In addition, the indemnity agreements will
provide generally that the Company will advance expenses incurred by directors
and executive officers in any action or proceeding as to which they may be
entitled to indemnification subject to certain exceptions.

The indemnification provisions in the Company's Certificate of
Incorporation and the indemnity agreements to be entered into between the
Company and its directors and executive officers may permit indemnification for
liabilities arising under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

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The Company currently expects to carry director and officer liability
insurance following this offering.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee of the Company's Board of
Directors are Messrs. Cassis, Callow, Woods and Love. The Compensation Committee
makes recommendations to the Board of Directors regarding executive compensation
matters, including decisions relating to salary and bonus and grants of stock
options. During the last fiscal year, Mr. Love participated in deliberations
concerning compensation of executive officers of the Company other than himself.

DIRECTOR COMPENSATION

Following this offering, directors of the Company who are not officers or
employees of the Company ("Non-Employee Directors") will receive a fee of $1,000
per Board meeting and committee meeting attended, if such committee meeting is
held on a different day than a Board meeting. Directors of the Company who are
officers or employees of the Company will not receive additional compensation
for serving on the Board or on any committee thereof. The Company makes a
one-time option grant, upon a Non-Employee Director's first appointment to the
Board, to purchase 17,128 shares of Common Stock at the fair market value on the
date of grant. All options become exercisable at a rate of one-forty-eighth per
month, on a cumulative basis. The economic benefit of all options granted to Mr.
Woods and Dr. Norman has been transferred to CTRC Research, and the economic
benefit of the options granted to Mr. Cassis and Mr. Callow have been
transferred to Hambro America Biosciences, Inc. and Boston Capital Ventures III,
Limited Partnership, respectively, stockholders of the Company. See "-- Stock
Option Plans -- 1996 Non-Employee Director Stock Option Plan" and "Principal
Stockholders."

EXECUTIVE COMPENSATION

The following table summarizes all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the years
ended December 31, 1996 and 1995 by the Company's (i) Chief Executive Officer
and (ii) four other most highly-compensated executive officers whose total
compensation exceeded $100,000 during 1996 (together, the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
---------------------- SECURITIES ALL OTHER
FISCAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
--------------------------- ------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Richard L. Love 1996 $176,732 $45,000 -- $ 3,400(1)
President and Chief Executive 1995 $175,000 $35,000 28,546 $ 3,400(1)
Officer
Alexander L. Weis, Ph.D. 1996 $160,000 $24,000 -- --
Executive Vice President, 1995 $160,000 $16,000 28,546 --
Chief Scientific Officer
Timothy J. Williamson 1996 $129,000 $25,800 -- --
Senior Vice President, 1995 $112,885 $12,500 47,500 --
Marketing & Business Development
Deirdre K. Tessman, Ph.D. 1996 $134,000 $26,800 22,838 --
Vice President, Drug Development 1995 $125,000 $25,000 47,500 $15,790(2)
Pedro Santabarbara, M.D., Ph.D 1996(3) $ 58,153 $15,000 42,818 $44,843(4)
Vice President, Medical Affairs 1995 -- -- -- --
</TABLE>

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

(1) Life insurance premiums paid by the Company on behalf of Mr. Love.
(2) Relocation expenses paid by the Company to Dr. Tessman.

(3) Represents amounts received by Dr. Santabarbara after joining the Company in
September 1996.

(4) Represents relocation expenses in the amount of $18,733, a signing bonus of
$25,000 and interest paid on a loan by the Company on behalf of Dr.
Santabarbara in the amount of $1,110.

61
<PAGE> 64

STOCK OPTION PLANS

1995 Stock Option Plan

On April 10, 1995, the Board of Directors of the Company adopted, and the
stockholders of the Company approved, the 1995 Stock Option Plan (the "1995
Stock Option Plan"). The 1995 Stock Option Plan, as amended, provides for the
issuance of up to a maximum of 1,141,807 shares of the Company's Common Stock to
key employees of and consultants to the Company or any of its subsidiaries as
well as to directors of the Company, whether or not employees. Options granted
under the 1995 Stock Option Plan may be either incentive stock options ("ISOs")
or options which do not qualify as ISOs ("non-ISOs").

The 1995 Stock Option Plan is to be administered by a committee of at least
two members of the Board of Directors, chosen by the Board of Directors, and is
currently administered by the Company's Compensation Committee (the
"Committee"). The current members of the Committee are Messrs. Cassis, Callow,
Woods and Love. Subject to the provisions of the 1995 Stock Option Plan, the
Committee has the authority to determine the individuals to whom stock options
will be granted, the number of shares to be covered by each option, the option
price, the type of option, the option period, the vesting restrictions, if any,
with respect to the exercise of the option, the terms for the payment of the
option price and other terms and conditions. After the offering, non-employee
directors of the Company, which include various members of the Committee, will
not be eligible to receive options under the 1995 Stock Option Plan and will
thus qualify as "disinterested directors" within the meaning and for the
purposes of Rule 16b-3 under the Securities Exchange Act of 1934. Payment for
shares acquired upon exercise of an option must be made in cash.

The exercise price for shares may not be less than 100% of the fair market
value of the Common Stock on the date of grant (110% in the case of a grant of
an ISO to an individual who owns 10% or more of the outstanding stock of the
Company or any subsidiary (a "10% Stockholder")). Unless otherwise approved by
the Committee, an option may not be exercised during the first six months after
the date of its grant. All options must expire no later than ten years from the
date of grant. In general, no option may be exercised more than three months
after the termination of the optionee's service with the Company and any of its
subsidiaries. However, the three-month period is extended to 12 months if the
optionee's service is terminated by reason of disability, death or retirement.
No individual may be granted ISOs that become exercisable for the first time in
any calendar year for Common Stock having a fair market value, determined at the
time of grant, in excess of $100,000.

All options granted under the 1995 Stock Option Plan become fully vested
and exercisable upon a change of control of the Company. A "change of control"
of the Company is deemed to have occurred upon the consummation of a merger or
consolidation, or sale of all or substantially all of the Company's business or
assets, and, as a result thereof, less than 50% of the outstanding capital stock
of the surviving or acquiring entity is owned, in the aggregate, by the
stockholders of the Company immediately prior to such merger, consolidation or
sale.

Options may not be transferred during the lifetime of an optionee. Subject
to certain limitations set forth in the 1995 Stock Option Plan and applicable
law, the Board of Directors may amend or terminate the 1995 Stock Option Plan.
By its own terms, the 1995 Stock Option Plan will terminate at the discretion of
the Board of Directors.

At December 31, 1996, the Company has granted options to purchase an
aggregate of 688,680 shares of Common Stock at a weighted average exercise price
per share of $4.21.

1996 Non-Employee Director Stock Option Plan

The Company has adopted the 1996 Non-Employee Director Stock Option Plan
(the "Directors' Plan") to promote the Company's interests by attracting and
retaining highly-skilled, experienced and knowledgeable non-employee directors.
An aggregate of 171,271 shares of Common Stock have been reserved for issuance
under the Directors' Plan. Options granted under the Directors' Plan do not
qualify

62
<PAGE> 65

as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for the automatic grant to each of the Company's
current non-employee directors of an option to purchase 17,128 shares of Common
Stock and with respect to newly-elected or appointed non-employee directors, an
automatic grant of an option to purchase 17,128 shares of Common Stock effective
upon his or her initial election or appointment to the Board of Directors. The
options have an exercise price of 100% of the fair market value of the Common
Stock on the date of grant and have a ten-year term. All options become
exercisable at a rate of one-forty-eighth per month, on a cumulative basis. Each
outstanding option is subject to acceleration in the event of a change of
control of the Company (as defined in the Directors' Plan). The options may be
exercised by payment in cash, check or shares of Common Stock.

All options granted under the Directors' Plan become fully vested and
exercisable upon a change of control of the Company. A "change of control" of
the Company is deemed to have occurred upon the consummation of a merger,
consolidation or reorganization, or sale of all or substantially all of the
Company's business or assets, and, as a result thereof, less than 50% of the
outstanding capital stock of the surviving or acquiring entity is owned, in the
aggregate, by the stockholders of the Company immediately prior to such merger,
consolidation, reorganization or sale.

The following tables set forth information concerning individual grants of
stock options, exercises of stock options, and aggregate stock options held for
each of the Named Officers listed in the Summary Compensation Table above for
the year ended December 31, 1996:

OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS APPROXIMATE PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE MARKET PRICE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE AT GRANT EXPIRATION -------------------
NAME GRANTED(#)(1) 1996 PER SHARE DATE DATE 5% 10%
---- ------------- ------------- ----------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard L. Love........ -- -- -- -- -- -- --
Alexander L. Weis,
Ph.D................. -- -- -- -- -- --
Timothy J.
Williamson........... -- -- -- -- -- -- --
Deirdre K. Tessman,
Ph.D................. 11,419 3.2% $3.50 $3.50 6/13/06 $ 25,943 $ 68,718
11,419 3.2% $7.01 $7.01 10/20/06 $ 51,960 $137,633
Pedro Santabarbara,
M.D., Ph.D........... 42,818 11.8% $7.01 $7.01 8/27/06 $194,835 $516,085
</TABLE>

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

(1) The potential realizable value is calculated based on the term of the option
and is calculated by assuming that the fair market value of Common Stock on
the date of the grant as determined by the Board appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and the Common Stock received therefor is
sold on the last day of the term of the option for the appreciated price.
The 5% and 10% rates of appreciation are derived from the rules of the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price appreciation. The actual value realized may be greater
than or less than the potential realizable values set forth in the table.

AGGREGATE FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
12/31/96
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END($)(1)
----------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Richard L. Love................... 14,273 14,273 $121,275 $121,275
Alexander L. Weis, Ph.D........... 14,273 14,273 121,275 121,275
Timothy J. Williamson............. 23,750 23,750 280,840 280,840
Deirdre K. Tessman, Ph.D.......... 23,750 46,588 280,840 434,886
Pedro Santabarbara, M.D.,
Ph.D. .......................... 0 42,818 0 213,814
</TABLE>

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

(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at December
31, 1996 and the exercise prices of the options. Solely for purposes of
determining the value of options at December 31, 1996, the Company has
assumed that the fair market value of the Common Stock issuable upon
exercise of the option was $12.00 per share, the assumed initial public
offering price, since the Common Stock was not traded in an established
market prior to this offering.

63
<PAGE> 66

EMPLOYMENT AND CONSULTING AGREEMENTS

Richard L. Love is a party to an employment agreement with the Company for
a four-year period expiring in November 1998. The agreement provides for an
initial base salary of $175,000 per year. The agreement contains a
non-disclosure covenant and provides that for a period of one year after
termination of employment, Mr. Love may not compete with the Company by engaging
in certain Restricted Activities (as defined in the agreement). The agreement
provides that either party may terminate the agreement without cause upon 30
days' notice. If the agreement is terminated by the Company other than for
cause, the Company is obligated to pay Mr. Love a severance payment, unless Mr.
Love elects to receive limited accelerated vesting of his stock options. See
"Business -- Relationship with CTRC."

Alexander L. Weis, Ph.D., is a party to an employment agreement with the
Company for a four-year period expiring in November 1998. The agreement provides
for an initial base salary of $160,000 per year. The agreement contains a
non-disclosure covenant and provides that for a period of one year after
termination of employment, unless Dr. Weis elects not to receive severance
compensation, Dr. Weis may not compete with the Company by engaging in certain
Restricted Activities (as defined in the agreement). The agreement provides that
either party may terminate the agreement without cause upon 30 days' notice. If
the agreement is terminated by the Company for other than cause, the Company is
obligated to pay Dr. Weis a severance payment, unless Dr. Weis elects (i) to
receive limited accelerated vesting of his stock options or (ii) to have the
limitation on his Restricted Activities terminate on the date of such
termination. Dr. Weis's agreement also permits Dr. Weis to continue to be the
owner and chief executive officer of Lipitek International, Inc., a
subcontractor to the Company. See "Certain Transactions."

James R. Koch is a party to an employment agreement with the Company. The
agreement provides for an initial base salary of $125,000 per year. The
agreement provides that either party may terminate the agreement without cause
upon 30 days' notice; however, in the event the Company elects to terminate the
agreement without cause within three years of the date of the agreement, the
Company is required to pay to Mr. Koch a severance payment. The agreement
contains a non-disclosure covenant and provides that for a period of one year
after termination of employment, Mr. Koch will not compete with the Company,
solicit its customers or recruit its employees.

Pedro Santabarbara, M.D., Ph.D., is a party to an employment agreement with
the Company. The agreement provides for an initial base salary of $180,000 per
year. The agreement provides that either party may terminate the agreement
without cause upon 30 days' notice; however, in the event the Company elects to
terminate the agreement without cause within four years of the date of the
agreement, the Company is required to pay to Dr. Santabarbara a severance
payment. The agreement contains a non-disclosure covenant and provides that for
a period of one year after termination of employment, Dr. Santabarbara will not
compete with the Company, solicit its customers or recruit its employees.

Each of Dr. Von Hoff and Dr. Coltman is a party to a consulting agreement
with the Company pursuant to which they provide consulting services to the
Company in exchange for an annual retainer, compensation for services provided
at a per day and hourly rate, as applicable, and for attending meetings of the
Company's Scientific Advisory Board. The agreements contain a non-disclosure
covenant, provide that either party may terminate the agreement upon 60 days'
notice to the other party and provide that Dr. Von Hoff and Dr. Coltman will not
undertake affiliations that would conflict with their duties and
responsibilities to the Company without the Company's consent. Drs. Von Hoff's
and Coltman's agreements expire in December 1998 and October 1998, respectively.
See "Business -- Relationship with CTRC."

For a discussion of circumstances affecting the termination and other
provisions of the employment and consulting agreements of Mr. Love and Drs.
Weis, Von Hoff and Coltman, see "Business -- Relationship with CTRC."

64
<PAGE> 67

CERTAIN TRANSACTIONS

ILEX was formed in December 1993 for the purpose of conducting certain
advanced drug development programs and pursuing commercial opportunities of
CTRC. As the majority holder of Series A Preferred Stock, CTRC Research has the
right to elect three members of the Company's Board of Directors. Upon
consummation of the offering, this right will terminate and CTRC Research will
beneficially own approximately 23.8% of the Company's outstanding shares of
Common Stock. See "Business -- Relationship with CTRC." The Company and CTRC
Research also have an agreement not to commence any legal action against, in the
case of CTRC Research, the Board of Directors of the Company, other than
Directors of the Company who are also employees or officers of or consultants to
ILEX, or, in the case of ILEX, the Board of Trustees of CTRC Research, for any
claim that would have been covered by any directors' and officers' liability
insurance policies maintained by CTRC or ILEX, as applicable, subject to certain
exceptions. This agreement will terminate upon consummation of this offering,
but such agreement will remain in effect with respect to any activity occurring
prior to the termination of the agreement.

In November 1994, CTRC Research granted the Company a revolving line of
credit of $500,000 bearing interest at the prime rate plus one-half of one
percent. The line of credit provided the Company with sufficient working capital
to initiate operations. At December 31, 1995, the outstanding balance and the
interest rate on this line of credit were $305,000 and nine percent,
respectively. In February 1996, the Company repaid the entire outstanding
balance on the line of credit, and the line of credit was terminated in December
1996.

Pursuant to a services agreement, CTRC Research has agreed to perform
certain administrative and technical support services for the Company. For the
period from October 1, 1994 through December 31, 1994, the year ended December
31, 1995 and the nine-month periods ended September 30, 1995 and 1996, the
Company paid CTRC Research approximately $143,000, $313,000, $247,000 and
$114,000, respectively, for these services and reimbursement of salaries and
benefits. In addition, the Company has a lease agreement with CTRC Research for
office space, a lab and the cGMP facility. For the period from inception through
December 31, 1994, the year ended December 31, 1995 and the nine-month periods
ended September 30, 1995 and 1996, the Company paid CTRC Research approximately
$5,000, $49,000, $22,000 and $30,000, respectively, related to these lease
agreements. The Company leases its cGMP facility from a non-profit corporation
that is controlled by CTRC Research and the Texas Research and Technology
Foundation. Such lease provides that rent will be paid at a fixed monthly rate
plus a percentage of gross sales from the facility, as defined in the lease. The
Company is not required to begin making fixed monthly payments until 1998 or
payments based on a percentage of gross sales until certain gross levels are
achieved. At December 31, 1994 and 1995, and September 30, 1996, the Company had
payables to CTRC Research amounting to approximately $166,000, $85,000 and
$48,000, respectively, related to the aforementioned services and lease
agreements.

Subcontractors provide the Company with consulting services and preclinical
and clinical testing related to certain of its contracts. During the period from
October 1, 1994, through December 31, 1994, the year ended December 31, 1995,
and the nine-month periods ended September 30, 1995 and 1996, the Company
incurred approximately the following expenses for subcontracting and consulting
costs to the named related parties:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- ---------------------
1994 1995 1995 1996
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
CTRC Research....................... $ 42,000 $140,000 $ 48,000 $ 257,000
Dr. Von Hoff........................ 36,000 136,000 122,000 205,000
UTHSCSA and Dr. Coltman............. -- 142,000 88,000 271,000
Lipitek International, Inc.......... 111,000 42,000 42,000 276,000
-------- -------- -------- ----------
Total..................... $189,000 $460,000 $300,000 $1,009,000
======== ======== ======== ==========
</TABLE>

65
<PAGE> 68

At December 31, 1994 and 1995 and September 30, 1996, the following
subcontractor and consulting costs were payable to the named related parties:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1994 1995 1996
-------- ------- -------------
<S> <C> <C> <C>
CTRC Research.................................... $ 9,000 $ 5,000 $ 60,000
Dr. Von Hoff..................................... 36,000 34,000 104,000
UTHSCSA and Dr. Coltman.......................... -- 24,000 22,000
Lipitek International, Inc....................... 81,000 21,000 37,000
-------- ------- --------
Total.................................. $126,000 $84,000 $223,000
======== ======= ========
</TABLE>

In June 1996, the Company entered into a services agreement with Lipitek
International, Inc. ("Lipitek"), a corporation whose sole stockholder and chief
executive officer is Dr. Alexander L. Weis, Executive Vice President, Chief
Scientific Officer of the Company. The scope of the services to be performed by
Lipitek pursuant to the agreement and the payment for such services will be
agreed to by the parties on a project-by-project basis. Subject to certain
conditions, the agreement may be terminated on 30 days' notice by either party.

During 1995, the Company entered into consulting services agreements with
Daniel D. Von Hoff, M.D. and Charles A. Coltman, Jr., M.D., co-chairmen of the
Company's Scientific Advisory Board. See "Management -- Employment and
Consulting Agreements." Dr. Von Hoff is also a director of the Company. Under
the terms of the agreements, the consultants are entitled to receive annual
retainers and fixed daily fees for full days of service and hourly fees for
partial days of service. In addition, the consultants exercised their right to
purchase shares of Common Stock under such agreements and financed a portion of
the Common Stock purchases with promissory notes to the Company. The promissory
notes of Dr. Von Hoff and Dr. Coltman are in the principal amounts of $64,000
and $38,000, respectively, and have balances at September 30, 1996 of $59,000
and $35,000, respectively. The promissory notes each bear interest at an annual
rate of 8% and mature in March 1999.

Pursuant to the terms of their employment agreements, Mr. Love and Dr. Weis
exercised their right to purchase shares of Common Stock and financed a portion
of the Common Stock purchases with promissory notes to the Company. The
promissory notes of Mr. Love and Dr. Weis are each in the principal amount of
$20,000 and have balances at September 30, 1996 of $19,000 and $0, respectively.
Pursuant to the terms of Dr. Santabarbara's employment agreement, the Company
arranged for and guaranteed a loan in the aggregate principal amount of $54,000
in Dr. Santabarbara's name, which loan is repayable on March 1, 1997.
Additionally, the Company has agreed to reimburse Dr. Santabarbara for monthly
interest payments in the amount of $366 on the loan. See
"Management -- Employment and Consulting Agreements."

66
<PAGE> 69

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 1996 and
as adjusted to give effect to the sale by the Company of the shares offered
hereby with respect to (a) each stockholder known by the Company to be the
beneficial owner of 5% or more of the Company's Common Stock, (b) each director
of the Company, (c) each Named Officer and other executive officers and (d) all
executive officers and directors as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1)(2) BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
CTRC Research Foundation........................... 2,782,127 30.3% 23.8%
8122 Datapoint
San Antonio, Texas 78229
Boston Capital Ventures III,
Limited Partnership(3)........................... 891,547 9.7% 7.6%
45 School Street
Boston, Massachusetts 02108
Hambro America Biosciences, Inc.(4)................ 836,388 9.1% 7.2%
650 Madison Avenue, 21st Fl.
New York, New York 10022
Perseus Pharmaceuticals, L.L.C.(5)................. 818,383 8.8% 6.9%
The Army and Navy Club Building
1627 I Street N.W., Suite 610
Washington, D.C. 20006
Advent International Corporation(6)................ 688,468 7.5% 5.9%
101 Federal Street
Boston, Massachusetts 02110
MPI Enterprises, L.L.C............................. 475,753 5.2% 4.1%
54943 N. Main Street
Mattawan, Michigan 49071
Pharmacia & Upjohn Company......................... 570,904 6.2% 4.9%
7000 Portage Road
Kalamazoo, Michigan 49001
Daniel D. Von Hoff, M.D.(7)........................ 379,652 4.1% 3.3%
Richard L. Love(8)................................. 288,307 3.1% 2.5%
Alexander L. Weis, Ph.D.(7)........................ 288,307 3.1% 2.5%
Timothy J. Williamson(9)........................... 23,750 * *
Deirdre K. Tessman, Ph.D.(9)....................... 23,750 * *
James R. Koch...................................... -- -- --
Pedro Santabarbara, M.D., Ph.D..................... -- -- --
John L. Cassis(10)(11)............................. 837,816 9.1% 7.2%
A. Dana Callow, Jr.(10)(12)........................ 903,231 9.8% 7.7%
Jason S. Fisherman, M.D.(10)....................... 1,428 * *
Jerry R. Mitchell, M.D., Ph.D.(13)................. 476,824 5.2% 4.1%
Ruskin Norman, M.D.(10)(14)........................ 21,496 * *
Gary V. Woods(10)(15).............................. 46,343 * *
All executive officers and directors as a group (13
persons)(11)(12)(13)(16)......................... 3,290,904 35.5% 27.9%
</TABLE>

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

* Less than 1%.

(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares of Common Stock beneficially
owned by a person and the percentage ownership of that person, shares of
Common Stock subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1996
are deemed outstanding. Such shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of any other person.
Except as otherwise noted, the street address of the named beneficial owner
is 14785 Omicron Drive, Suite 101, San Antonio, Texas 78245.

67
<PAGE> 70

(2) To the Company's knowledge, unless otherwise indicated below, the persons
and entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable.

(3) Includes 64,129 shares of Common Stock issuable upon exercise of warrants.

(4) Includes shares of Common Stock held by Cross Atlantic Partners K/S and
Cross Atlantic Partners II K/S, both of which are entities under common
control of Hambro America Biosciences, Inc. Includes 24,552 shares of
Common Stock issuable upon the exercise of warrants.

(5) Includes 163,677 shares of Common Stock issuable upon the exercise of
warrants.

(6) Includes shares of Common Stock held by Rovent II Limited Partnership,
Advent Performance Materials Limited Partnership, ADVENTACT Limited
Partnership and Advent International Investors II Limited Partnership, all
of which are entities under common control of Advent International
Corporation. Includes 23,513 shares of Common Stock issuable upon the
exercise of warrants.

(7) Includes 14,273 shares of Common Stock issuable upon the exercise of
options granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans."

(8) Includes 14,273 shares of Common Stock issuable upon the exercise of
options granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans."

(9) Consists of shares of Common Stock issuable upon the exercise of options
granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans."

(10) Includes 1,428 shares of Common Stock issuable upon the exercise of options
granted under the Company's 1996 Non-Employee Director Stock Option Plan.
See "Management -- Stock Option Plans."

(11) Includes 836,388 shares beneficially owned by Hambro America Biosciences,
Inc. Mr. Cassis, a partner of Hambro America Biosciences, Inc., may be
deemed to be a beneficial owner of the shares of Common Stock beneficially
owned by Hambro American Biosciences, Inc. Mr. Cassis disclaims any such
beneficial ownership.

(12) Includes 891,547 shares beneficially owned by Boston Capital Ventures III,
Limited Partnership. Mr. Callow, a general partner of the general partner
of Boston Capital Ventures III, Limited Partnership, may be deemed to be a
beneficial owner of the shares of Common Stock beneficially owned by Boston
Capital Ventures III, Limited Partnership. Mr. Callow disclaims any such
beneficial ownership. Includes 1,081 shares of Common Stock issuable upon
exercise of warrants.

(13) Includes 1,071 shares of Common Stock issuable upon exercise of options
under the Company's Non-Employee Director Stock Option Plan. See
"Management -- Stock Option Plans." Includes 475,753 shares beneficially
owned by MPI. Dr. Mitchell, co-founder and Chief Executive Officer of an
affiliate of MPI, may be deemed to be a beneficial owner of the shares of
Common Stock owned by MPI. Mr. Mitchell disclaims any such beneficial
ownership.

(14) Includes 1,159 shares of Common Stock issuable upon the exercise of
warrants.

(15) Includes 3,274 shares of Common Stock issuable upon the exercise of
warrants.

(16) Includes 8,211 shares of Common Stock issuable upon exercise of options
granted under the Company's 1996 Non-Employee Director Stock Option Plan.
Includes 90,319 shares of Common Stock issuable upon the exercise of
options granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans." Includes 5,514 shares of Common Stock
issuable upon exercise of warrants.

68
<PAGE> 71

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, $.01 par value, and 20,000,000 shares of Preferred Stock, $.01 par
value. As of December 31, 1996, the Company had issued and outstanding 9,179,594
shares of Common Stock which were held of record by 33 stockholders (after
giving effect to the conversion of all outstanding Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock into Common Stock and the Reverse Stock Split of the
outstanding shares of Common Stock), and no shares of Preferred Stock will be
outstanding upon consummation of this offering.

The following summary of certain provisions of the Common Stock and
Preferred Stock, outstanding warrants and related registration rights does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Certificate of Incorporation, as amended, the
various warrant documents and the amended registration rights agreement which
are included as exhibits to the Registration Statement of which this Prospectus
is a part.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote per share for
the election of directors and all matters to be submitted to a vote of the
Company's stockholders. Subject to the rights of any holders of Preferred Stock
which may be issued in the future, the holders of shares of Common Stock are
entitled to share ratably in such dividends as may be declared by the Board of
Directors and paid by the Company out of funds legally available therefor. In
the event of dissolution, liquidation or winding up of the Company, holders of
shares of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities and liquidation preferences, if any. Holders of
shares of Common Stock have no preemptive, subscription, redemption, conversion
rights or similar rights. The Company's Certificate of Incorporation does not
provide for cumulative voting rights with respect to the election of directors.
The outstanding shares of Common Stock are, and the shares of Common Stock to be
issued by the Company in connection with this offering will be, duly authorized,
validly issued, fully paid and nonassessable.

Delaware law does not require stockholder approval for any issuance of
authorized shares of Common Stock. Such authorized and unissued shares may be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. One of the
effects of the existence of unissued and unreserved Common Stock may be to
enable the Board of Directors to issue shares to persons friendly to current
management, which issuance could render more difficult or discourage an attempt
to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of the Company's
current management and possibly deprive the stockholders of opportunities to
sell their shares of Common Stock at prices higher than prevailing market
prices.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into 7,992,055 shares of Common Stock. See Note 5 of
Notes to Financial Statements for a description of the currently outstanding
Convertible Preferred Stock. Following the conversion, the Company's Certificate
of Incorporation will be amended to delete all references to such outstanding
series of Preferred Stock. Under the Certificate of Incorporation, as amended,
upon the closing of this offering, the Company's Board of Directors will be
authorized to issue Preferred Stock in one or more series with designations,
rights and preferences determined from time to time by its Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividends, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to holders
of Common Stock. In the event of

69
<PAGE> 72

issuance, the Preferred Stock could be used, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company.

WARRANTS

The Company has issued warrants to purchase 97,054 shares of Common Stock
at $3.50 per share to Vector Securities International, Inc. (the "Vector
Warrants") in connection with the provision of certain financial consulting
services. The Vector Warrants may be exercised in whole at any time or in part
from time to time prior to their expiration in September 2000.

In connection with the private placement of its Series C Preferred stock,
the Company has issued warrants to purchase 327,367 shares of Common Stock at
$8.76 per share (the "Series C Warrants"). The Series C Warrants may be
exercised in whole at any time or in part from time to time prior to their
expiration in July 2001.

The Company has issued warrants to purchase 28,546 shares of Common Stock
at $8.76 per share to Chestnut Partners, Inc. (the "Chestnut Warrants," and,
together with the Vector Warrants and the Series C Warrants, the "Warrants") in
connection with the provision of certain financial consulting services. The
Chestnut Warrants may be exercised in whole at any time or in part from time to
time prior to their expiration in 2001.

The exercise price of the Warrants may be paid in cash or surrender for
cancellation of a portion of the Warrants (valued according to a formula
described in the Warrants). The exercise price for the Warrants and the number
and kind of shares of Common Stock, or other securities and property issuable
upon exercise of the Warrants, are subject to adjustment upon a stock split,
stock dividend or subdivision. Additionally, an adjustment will be made upon a
sale of all or substantially all of the assets of the Company or in the case of
a reorganization, reclassification, consolidation or merger of the Company, in
order to enable holders of Warrants to purchase the kind and number of shares of
stock or other securities or property (including cash) receivable in such event
by a holder of the number of shares of Common Stock that might otherwise have
been purchased upon exercise of the Warrants. The exercise price of the Warrants
is also subject to adjustment in the event of the issuance by the Company of
shares of additional Common Stock subsequent to the date of the Warrants at a
price per share less than the exercise price of the Warrants.

The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company, and are subject to certain registration rights
agreements described below. See "-- Registration Rights."

REGISTRATION RIGHTS

In connection with the Company's private placements of its convertible
preferred stock and Warrants, the Company executed a Registration Rights
Agreement. The Registration Rights Agreement, as amended, provides that the
holders of more than an aggregate of 20% of the shares of Common Stock issuable
on conversion of the Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible
Preferred Stock and the Series C Warrants, shall be entitled to two demand
registrations on Form S-1 and an unlimited number of demand registrations on
Form S-2 or S-3, subject to certain limitations as to the amount of shares
registerable and the frequency of such demand registrations. Holders of more
than an aggregate of 50% of the shares of Common Stock issued upon conversion of
CTRC Research's Series A Convertible Preferred Stock and the Common Stock held
by Richard L. Love, Alexander L. Weis, Ph.D., Charles A. Coltman, Jr., M.D. and
Daniel D. Von Hoff, M.D. are also entitled to one demand registration on Form
S-1 and three demand registrations on Form S-2 or S-3.

In addition, if the Company proposes to register any of its securities,
either for its own account, or for the account of other stockholders, the
Company is required, with certain exceptions, to notify the holders described
above and the holder of the Vector Warrants and, subject to certain limitations,
to include in such registration all of the shares of Common Stock requested to
be included by such holders. The

70
<PAGE> 73

Company is generally required to pay all of the expenses of such registrations
other than the underwriting discounts and commissions.

CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW

Upon the consummation of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the
"Anti-Takeover Law") regulating corporate takeovers. The Anti-Takeover Law
prevents certain Delaware corporations from engaging, under certain
circumstances, in a "business combination" (which includes a merger or sale of
more than 10% of the corporation's assets) with any "interested stockholder" (a
stockholder who acquired 15% or more of the corporation's outstanding voting
stock without the prior approval of the corporation's board of directors) for
three years following the date that such stockholder became an "interested
stockholder." A Delaware corporation may "opt out" of the Anti-Takeover Law with
an express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholder's amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the provisions of the
Anti-Takeover Law.

CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

The Company has no supermajority, staggered board or other anti-takeover
provisions in either its Certificate of Incorporation or Bylaws. The Certificate
of Incorporation of the Company contains provisions which eliminate the personal
liability of its directors for monetary damages resulting from breaches of their
fiduciary duty other than liability for a breach of the duty of loyalty, acts or
omissions not in good faith that constitute a breach of the director's duty to
the Company, acts that involve intentional misconduct or a knowing violation of
the law, transactions in which the director receives an improper benefit and
acts or omissions for which liability is expressly provided by an applicable
statute. The Bylaws of the Company contain provisions requiring the
indemnification of the Company's directors and officers, and persons serving at
the request of the Company as a director or officer of another corporation, to
the fullest extent permitted under the Delaware General Corporation Law. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers of the Company.

LISTING

The Company's Common Stock has been approved for listing on the Nasdaq
National Market under the trading symbol "ILXO."

TRANSFER AGENT

The Transfer Agent for the Common Stock is ChaseMellon Shareholder
Services.

71
<PAGE> 74

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common
Stock, and any sale of substantial amounts of Common Stock in the open market
may adversely affect the market price of the Common Stock offered hereby.

Upon completion of this offering, there will be an aggregate of 11,679,594
shares of Common Stock outstanding assuming (i) no exercise of the Underwriters'
over-allotment option and (ii) no exercise of outstanding options to purchase
Common Stock. Of these shares, the 2,500,000 shares of Common Stock sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, unless such shares are held by "affiliates" of the
Company, as that term is defined under the Securities Act and the regulations
promulgated thereunder. The remaining 9,179,594 shares of Common Stock (the
"Restricted Shares") are held by officers, directors, employees and other
stockholders of the Company. The Restricted Shares were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act.

The Company and each of its directors, officers and certain other
stockholders, who own in the aggregate approximately 8,823,432 shares of Common
Stock, have agreed that they will not offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce an offering of, any
shares of Common Stock or any securities convertible into, or exchangeable for,
shares of Common Stock (without the prior consent of Salomon Brothers Inc) for a
period of 180 days after the effective date of the Registration Statement (the
"Effective Date"), provided that the Company may issue and sell shares of Common
Stock pursuant to the 1995 Stock Option Plan and the Directors' Plan.

Beginning 180 days after the Effective Date, approximately 4,179,012 of the
Restricted Shares will become eligible for sale subject to the provisions of
Rule 144 under the Securities Act. The remainder of the Restricted Shares held
by existing stockholders will become eligible for sale at various times
thereafter, subject to the provisions of Rule 144. Additionally, shares issued
pursuant to certain employee benefit plans and contracts with employees in
compliance with Rule 701 under the Securities Act may be sold beginning 90 days
after this offering by non-affiliates of the issuer subject to the manner of
sale requirements of Rule 144, but without compliance with the other
requirements of Rule 144. There are 688,680 shares of the Company's stock
outstanding which are covered by Rule 701.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(116,796 shares immediately after this offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale and certain
other limitations and restrictions. Pursuant to a recent proposal of the
Securities and Exchange Commission (the "Commission") that has not yet been
adopted, the two-year holding period described in the preceding sentence would
be reduced to one year. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above. Pursuant to a recent proposal of the
Commission that has not yet been adopted, the three-year holding period
described in the preceding sentence would be reduced to two years.

Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the Effective Date. However, unless Salomon Brothers Inc gives its
prior written consent, all officers and directors and certain other stockholders
have agreed not to sell or

72
<PAGE> 75

otherwise dispose of Common Stock of the Company for the 180-day period after
the Effective Date. See "Underwriting."

Within 90 days of the date of this Prospectus, the Company intends to file
a registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under its equity incentive plans, thus permitting
the resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. Such registration statements will become
effective immediately upon filing. As of December 31, 1996, options to purchase
688,680 shares of Common Stock at a weighted average exercise price of $4.21 per
share were outstanding under the Company's stock option plans.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to the Underwriters, and each of the Underwriters,
for whom Salomon Brothers Inc, Cowen & Company and Smith Barney Inc. are acting
as representatives (the "Representatives"), has severally agreed to purchase
from the Company the number of shares set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Salomon Brothers Inc........................................
Cowen & Company.............................................
Smith Barney Inc. ..........................................
---------
Total............................................. 2,500,000
=========
</TABLE>

In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares of Common Stock are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated. The Company has been advised by the Representatives that the
several Underwriters propose initially to offer such shares of Common Stock at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other dealers. After the initial
offering, the public offering price and such concessions may be changed.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock, at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments in the sale
of the shares of Common Stock that the Underwriters have agreed to purchase. To
the extent that the Underwriters exercise such option, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase a number of
option shares proportionate to such Underwriter's initial commitment.

The Company's officers and directors and the beneficial owners of more than
one percent of the Common Stock have agreed that they will not, without the
prior written consent of Salomon Brothers Inc, offer, sell or contract to sell,
or otherwise dispose of, directly or indirectly, or announce an offering of, any
shares of Common Stock beneficially owned by such person or any securities
convertible into, or exchangeable for, shares of Common Stock during the 180-day
period following the date of this

73
<PAGE> 76

Prospectus, other than shares of Common Stock disposed of as bona fide gifts.
The Company has agreed that it will not, without the prior written consent of
Salomon Brothers Inc, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offer of any shares of Common Stock,
options or any securities convertible into, or exchangeable for, shares of
Common Stock during the 180-day period following the date of this Prospectus;
provided, however, that the Company may issue and sell Common Stock pursuant to
any employee stock option in effect at the date of this Prospectus and the
Company may issue Common Stock issuable upon the conversion of securities or the
exercise of warrants outstanding on the date of this Prospectus. Salomon
Brothers Inc in its sole discretion may release any of the shares subject to the
lock-up at any time without notice.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.

The Representatives have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.

Prior to this offering there has been no public market for the Common
Stock. The price to the public for the Shares will be determined through
negotiations between the Company and the Representatives and will be based on,
among other things, the Company's financial and operating history and condition,
the prospects of the Company and its industry in general, the management of the
Company and the market prices of securities of companies engaged in businesses
similar to those of the Company. There can, however, be no assurance that the
prices at which the Shares will sell in the public market after this offering
will not be lower than the price at which it is sold by the Underwriters.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fulbright & Jaworski L.L.P., San Antonio,
Texas. Certain legal matters in connection with this offering will be passed
upon for the Underwriters by Cravath, Swaine & Moore, New York, New York.

EXPERTS

The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
auditing and accounting in giving said reports.

74
<PAGE> 77

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any contract or any other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024,
Washington D.C. 20549 and at the following regional offices of the Commission:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and at Seven World Trade Center, Suite 1300, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission, at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 upon the payment of the
fees prescribed by the Commission. The Commission maintains a WorldWide Web site
on the Internet at http://www.sec.gov that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission.

The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.

75
<PAGE> 78

ILEX ONCOLOGY, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1994 and 1995, and
September 30, 1996........................................ F-3
Statements of Operations -- For the Period From Inception
(October 1, 1994) Through December 31, 1994, the Year
Ended December 31, 1995, and the Nine-Month Periods Ended
September 30, 1995 and 1996............................... F-4
Statements of Stockholders' Equity -- For the Period From
Inception (October 1, 1994) Through December 31, 1994, the
Year Ended December 31, 1995, and the Nine-Month Period
Ended September 30, 1996.................................. F-5
Statements of Cash Flows -- For the Period From Inception
(October 1, 1994) Through December 31, 1994, the Year
Ended December 31, 1995, and the Nine-Month Periods Ended
September 30, 1995 and 1996............................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 79

On the effective date of both the securities offering and the reverse stock
split discussed in Note 13 in ILEX Oncology Inc.'s financial statements, we
expect to be in a position to render the following audit report.

ARTHUR ANDERSEN LLP

San Antonio, Texas

December 11, 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ILEX Oncology, Inc.:

We have audited the accompanying balance sheets of ILEX Oncology, Inc. (a
Delaware corporation), as of December 31, 1994 and 1995, and September 30, 1996,
and the related statements of operations and cash flows for the period from
inception (October 1, 1994) through December 31, 1994, the year ended December
31, 1995, and for the nine-month periods ended September 30, 1995 and 1996 and
the statements of stockholders' equity for the period from inception (October 1,
1994) through December 31, 1994, the year ended December 31, 1995, and for the
nine-month period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ILEX Oncology, Inc., as of
December 31, 1994 and 1995, and September 30, 1996, and the results of its
operations and its cash flows for the period from inception (October 1, 1994)
through December 31, 1994, the year ended December 31, 1995, and for the
nine-month periods ended September 30, 1995 and 1996, in conformity with
generally accepted accounting principles.

F-2
<PAGE> 80

ILEX ONCOLOGY, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARES

AND PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 79 $ 9,636 $ 7,663
Investments in marketable securities.................. -- -- 2,358
Accounts receivable, net of allowance for doubtful
accounts of $0, $123 and $123 in 1994, 1995 and
1996, respectively.................................. 1,015 720 996
Prepaid expenses and other............................ 7 394 507
------ ------- -------
Total current assets........................... 1,101 10,750 11,524
------ ------- -------
NONCURRENT ASSETS:
Investments in marketable securities.................. -- -- 7,391
------ ------- -------
PROPERTY AND EQUIPMENT:
Office equipment...................................... 67 252 458
Lab equipment......................................... -- -- 146
Leasehold improvements................................ -- 283 300
------ ------- -------
67 535 904
Less -- Accumulated depreciation and amortization..... (2) (28) (104)
------ ------- -------
65 507 800
------ ------- -------
Total assets................................... $1,166 $11,257 $19,715
====== ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances from related party........................... $ 150 $ 305 $ --
Accounts payable --
Related parties..................................... 166 85 50
Other............................................... 214 303 329
Accrued subcontractor costs --
Related parties..................................... 126 84 223
Other............................................... 410 680 345
Accrued liabilities................................... 79 119 368
Deferred revenue...................................... 78 170 478
------ ------- -------
Total current liabilities...................... 1,223 1,746 1,793
------ ------- -------
OTHER LONG-TERM LIABILITIES............................. -- -- 173
------ ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 8, 10 and 12)
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock, $0.01 par value;
20,000,000 shares authorized --
Series A; none, 2,991,477 and 2,991,477 issued and
outstanding in 1994, 1995 and 1996,
respectively...................................... -- 30 30
Series B; none, 3,101,448 and 3,101,448 issued and
outstanding in 1994, 1995 and 1996,
respectively...................................... -- 31 31
Series C; none, none and 1,309,424 issued and
outstanding in 1994, 1995 and 1996,
respectively...................................... -- -- 13
Common stock, $0.01 par value; 40,000,000 shares
authorized; 58, 1,187,539 and 1,187,539 shares
issued and outstanding in 1994, 1995 and 1996,
respectively........................................ -- 12 12
Additional paid-in capital............................ (11) 10,332 20,263
Receivables on sale of common stock (Note 5).......... -- (136) (113)
Accumulated deficit................................... (46) (758) (2,487)
------ ------- -------
Total stockholders' equity..................... (57) 9,511 17,749
------ ------- -------
Total liabilities and stockholders' equity..... $1,166 $11,257 $19,715
====== ======= =======
</TABLE>

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

F-3
<PAGE> 81

ILEX ONCOLOGY, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT

PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
INCEPTION NINE MONTHS
(OCTOBER 1, 1994) ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------
1994 1995 1995 1996
----------------- ----------------- ------ -------
<S> <C> <C> <C> <C>
REVENUE:
Product development.................. $1,065 $3,551 $2,467 $ 2,899
Contract research services........... 188 658 536 842
-------- -------- ------ -------
Total revenue................ 1,253 4,209 3,003 3,741
-------- -------- ------ -------
OPERATING EXPENSES:
Research and development costs....... 945 3,213 2,224 2,503
General and administrative........... 156 1,312 886 1,914
Costs of contract research
services.......................... 78 330 207 1,040
Subcontractor costs.................. 119 199 151 468
-------- -------- ------ -------
Total operating expenses..... 1,298 5,054 3,468 5,925
-------- -------- ------ -------
OPERATING LOSS......................... (45) (845) (465) (2,184)
OTHER INCOME (EXPENSE):
Interest income...................... -- 159 5 459
Interest expense..................... (1) (26) (18) (4)
-------- -------- ------ -------
NET LOSS............................... $ (46) $ (712) $ (478) $(1,729)
======== ======== ====== =======
NET LOSS PER SHARE..................... $(0.01) $(0.09) $(0.06) $ (0.20)
======== ======== ====== =======
WEIGHTED AVERAGE SHARES USED IN
COMPUTING NET LOSS PER SHARE......... 7,544 7,737 7,553 8,460
======== ======== ====== =======
</TABLE>

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

F-4
<PAGE> 82

ILEX ONCOLOGY, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES ISSUED AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- ------------------- -------------------
SHARES $0.01 SHARES $0.01 SHARES $0.01 SHARES $0.01
ISSUED AND PAR ISSUED AND PAR ISSUED AND PAR ISSUED AND PAR
OUTSTANDING VALUE OUTSTANDING VALUE OUTSTANDING VALUE OUTSTANDING VALUE
----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, inception (October 1, 1994)... -- $-- -- $-- -- $-- -- $--
Net assets transferred and liabilities
assumed............................. -- -- -- -- -- -- 58 --
Capital contribution by CTRC
Research............................ -- -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- -- --
--------- --- --------- --- --------- --- --------- ---
BALANCES, December 31, 1994............. -- -- -- -- -- -- 58 --
Issuance of common stock.............. -- -- -- -- -- -- 1,187,481 12
Issuance of Series A convertible
preferred stock..................... 2,991,477 30 -- -- -- -- -- --
Private placement of Series B
convertible preferred stock for
cash................................ -- -- 3,101,448 31 -- -- -- --
Issuance cost of Series B convertible
preferred stock..................... -- -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- -- --
--------- --- --------- --- --------- --- --------- ---
BALANCES, December 31, 1995............. 2,991,477 30 3,101,448 31 -- -- 1,187,539 12
Private placement of Series C
convertible preferred stock for
cash................................ -- -- -- -- 1,309,424 13 -- --
Issuance cost of Series C convertible
preferred stock..................... -- -- -- -- -- -- -- --
Payments received on receivables on
sale of common stock................ -- -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- -- --
--------- --- --------- --- --------- --- --------- ---
BALANCES, September 30, 1996............ 2,991,477 $30 3,101,448 $31 1,309,424 $13 1,187,539 $12
========= === ========= === ========= === ========= ===

RECEIVABLES
ADDITIONAL ON SALE
PAID-IN OF COMMON ACCUMULATED
CAPITAL STOCK DEFICIT TOTAL
---------- ----------- ----------- -------
<S> <C> <C> <C> <C>
BALANCES, inception (October 1, 1994)... $ -- $ -- $ -- $ --
Net assets transferred and liabilities
assumed............................. (22) -- -- (22)
Capital contribution by CTRC
Research............................ 11 -- -- 11
Net loss.............................. -- -- (46) (46)
------- ----- ------- -------
BALANCES, December 31, 1994............. (11) -- (46) (57)
Issuance of common stock.............. 195 (136) -- 71
Issuance of Series A convertible
preferred stock..................... (30) -- -- --
Private placement of Series B
convertible preferred stock for
cash................................ 10,834 -- -- 10,865
Issuance cost of Series B convertible
preferred stock..................... (656) -- -- (656)
Net loss.............................. -- -- (712) (712)
------- ----- ------- -------
BALANCES, December 31, 1995............. 10,332 (136) (758) 9,511
Private placement of Series C
convertible preferred stock for
cash................................ 9,987 -- -- 10,000
Issuance cost of Series C convertible
preferred stock..................... (56) -- -- (56)
Payments received on receivables on
sale of common stock................ -- 23 -- 23
Net loss.............................. -- -- (1,729) (1,729)
------- ----- ------- -------
BALANCES, September 30, 1996............ $20,263 $(113) $(2,487) $17,749
======= ===== ======= =======
</TABLE>

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

F-5
<PAGE> 83

ILEX ONCOLOGY, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1,
1994) NINE MONTHS
THROUGH YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------
1994 1995 1995 1996
----------------- ------------ ------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (46) $ (712) $ (478) $ (1,729)
Adjustments to reconcile net loss to net cash
provided by (used in) operating
activities --
Provision for uncollectible receivables..... -- 123 120 --
Depreciation and amortization............... 2 25 18 77
Change in assets and liabilities --
(Increase) decrease in assets --
Accounts receivable.................... (1,015) 172 280 (276)
Prepaid expenses and other............. (7) (387) (288) (113)
Increase (decrease) in liabilities --
Accounts payable....................... 380 7 536 (9)
Accrued liabilities.................... 577 269 (24) 53
Deferred revenue....................... 67 93 238 308
Other long-term liabilities............ -- -- -- 173
------- ------- ------- --------
Net cash provided by (used in) operating
activities.................................. (42) (410) 402 (1,516)
------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities............ -- -- -- (10,749)
Maturities of marketable securities........... -- -- -- 1,000
Purchase of property and equipment............ (40) (468) (154) (370)
------- ------- ------- --------
Net cash used in investing activities....... (40) (468) (154) (10,119)
------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash............. -- 66 66 --
Repayments of receivables on sale of common
stock....................................... -- 5 4 23
Issuance of Series B preferred stock.......... -- 10,865 10,865 --
Issuance of Series C preferred stock.......... -- -- -- 10,000
Stock issuance costs paid..................... -- (656) (656) (56)
Capital contribution by CTRC Research at
inception................................... 11 -- -- --
Advances from related party................... 150 155 155 --
Repayment of advances from related party...... -- -- -- (305)
------- ------- ------- --------
Net cash provided by financing activities... 161 10,435 10,434 9,662
------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... $ 79 $ 9,557 $10,682 $ (1,973)
CASH AND CASH EQUIVALENTS, beginning of
period........................................ -- 79 79 9,636
------- ------- ------- --------
CASH AND CASH EQUIVALENTS, end of period........ $ 79 $ 9,636 $10,761 $ 7,663
------- ------- ------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest.................................... $ 1 $ 20 $ 19 $ 10
Income taxes................................ -- -- -- --
</TABLE>

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

F-6
<PAGE> 84

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1995 AND 1996

(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION,

PER SHARE INFORMATION OR AS OTHERWISE INDICATED)

1. ORGANIZATION AND OPERATIONS:

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

The Company is a drug development company focused exclusively on oncology.
The Company is focused primarily in the areas of identification, development,
manufacturing and regulatory approval of oncology compounds to develop cancer
therapeutics, build a chemoprevention product platform and serve as a
value-added provider of contract development services. In addition to its
proprietary product development programs, the Company offers contract research
services to both the pharmaceutical and biotechnology industries.

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

The Company may require substantial additional funds to conduct research
and development, to develop further its potential pharmaceutical products, to
manufacture and market any pharmaceutical products that may be developed and to
expand its contract research services business. The Company expects its capital
and operating expenditures to increase substantially over the next several
years. The Company has no current sources of funding beyond the proceeds from
the IPO (see Note 13), its collaborative agreements with its strategic partners,
its drug development service operations, existing cash and cash equivalents and
investments in marketable securities. The Company believes that the estimated
net proceeds of the IPO, its collaborative agreements with strategic partners,
its contract research services, existing cash and cash equivalents and
investments in marketable securities will satisfy its cash requirements for the
foreseeable future. There can be no assurance, however, that additional funds
will be available on acceptable terms, if at all.

Although it was incorporated in December 1993, the Company did not commence
operations until October 1, 1994, after CTRC Research's assignment to the
Company of certain rights and assets, including CTRC Research's advanced drug
development and manufacturing programs.

The Company changed its name to ILEX Oncology, Inc., on December 22, 1994.
Prior to 1996, the Company had been in the development stage.

F-7
<PAGE> 85

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

Product Development -- Revenues from drug development studies are based on
the time incurred on such studies and recognized on a percentage-of-completion
basis. The Company is reimbursed for investigator costs based on actual costs
incurred or predetermined rates and out-of-pocket costs incurred during the
performance of the study. Revenues related to reimbursed investigator costs are
included in product development revenues and the related expenses are included
as a component of research and development expenses. Revenues related to the
milestone payments of the drug development studies are recognized based on the
completion of the milestone measurements. Revenues from license fees related to
drug development studies are recognized upon execution of the related contract.

Contract Research Services -- Revenues from contract research services are
related to both fixed price and hourly based customer contracts and are
recognized on a percentage-of-completion basis or as such services are
performed.

Property and Equipment

Property and equipment are reported at cost and depreciated over the
estimated useful lives of the individual assets using the straight-line method.
Leasehold improvements represent capitalized employee salaries related to
construction and other miscellaneous costs incurred to bring the leased cGMP
(current Good Manufacturing Practices) facility (Note 10) into use. Leasehold
improvements are amortized over the lesser of the life of the lease or the
useful life of the related property. Expenditures for maintenance and repairs
are charged to expense as incurred. The estimated lives used in computing
depreciation and amortization are as follows:

<TABLE>
<S> <C>
Office equipment............................................ 3 - 10 years
Lab equipment............................................... 5 - 10 years
Leasehold improvements...................................... 15 years
</TABLE>

Deferred Revenue

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

Investments in Marketable Securities

Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments in
debt securities and marketable equity securities be designated as trading, held
to maturity or available for sale. At September 30, 1996, marketable debt
securities have been categorized as held to maturity and are stated at amortized
cost, as these securities have staggered maturity dates, and management of the
Company does not intend to liquidate these securities before maturity.
Marketable debt securities with an original maturity of less than one year are
classified in the balance sheet as current assets, while securities with a
maturity of greater than one year are classified as long-term assets.

Credit Risk and Major Customer

The Company places its excess temporary cash and cash equivalents in a
money market account with a high quality financial institution. At times, such
amounts may be in excess of the FDIC insurance limit. The Company's accounts
receivable are from pharmaceutical and biotechnology companies. Based on the
Company's evaluation of the collectibility of these accounts receivable, an
allowance for doubtful

F-8
<PAGE> 86

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

accounts of $0, $123 and $123 was necessary as of December 31, 1994 and 1995,
and September 30, 1996, respectively. The remaining accounts receivable are from
pharmaceutical and biotechnology companies that are financially strong and,
thus, the Company believes the exposure to credit risk related to the remaining
accounts receivable is minimized.

From inception through December 31, 1994, the year ended December 31, 1995,
and the nine-month periods ended September 30, 1995 and 1996, 85 percent, 84
percent, 82 percent and 68 percent, respectively, of revenue arose from one
customer.

Estimates in Financial Statements

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

Income Taxes

Deferred tax liabilities and assets are recorded based on enacted income
tax rates that are expected to be in effect in the period in which the deferred
tax liability or asset is expected to be settled or realized. A change in the
tax laws or rates results in adjustments to the deferred taxes in the period in
which the tax laws or rates are changed.

The Company has incurred losses since inception for both book and tax
purposes as of September 30, 1996. Accordingly, no income taxes have been
provided for in the consolidated financial statements for the period from
inception to December 31, 1994, and the year ended December 31, 1995, and the
nine-month periods ended September 30, 1995 and 1996.

Statements of Cash Flows

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

Noncash financing and investing activities for the period from October 1,
1994, to December 31, 1994, included CTRC Research's assignment of certain
rights and assets to the Company and the Company's assumption of certain
liabilities related to the issuance of the Series A convertible preferred shares
(See Note 5). In connection with this assignment in 1994, the Company recorded
the following balances as reflected on the books and records of CTRC Research:

<TABLE>
<S> <C>
Office equipment............................................ $ 27
Accrued subcontractor costs................................. 6
Accrued liabilities......................................... (44)
Deferred revenue............................................ (11)
----
Contributed deficit......................................... $(22)
====
</TABLE>

Noncash financing and investing activities for the year ended December 31,
1995, included the sale of $208 of common stock in exchange for a note
receivable for the same amount. (See Note 5.)

F-9
<PAGE> 87

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Net Loss Per Share

Net loss per share has been computed using the weighted average number of
shares of common stock outstanding during the period, as adjusted for the
1.75161005882673 for 1 reverse stock split discussed in Note 13. Common
equivalent shares attributable to convertible preferred stock, stock options and
warrants are excluded from the computation as their effect is antidilutive.
However, convertible preferred stock, common stock, stock options and warrants
issued prior to the initial public offering (the "IPO") with a price below the
estimated IPO price have been included as outstanding for all periods presented.

New Accounting Pronouncements

Reclassifications

Certain reclassifications have been made to prior year balances to conform
to current year financial statement presentation.

3. INVESTMENTS IN MARKETABLE SECURITIES:

Marketable securities due within one year and classified as current assets
at September 30, 1996, include the following:

<TABLE>
<CAPTION>
COST FAIR VALUE
------ ----------
<S> <C> <C>
U.S. Treasury securities.................................... $2,358 $2,357
====== ======
</TABLE>

Marketable securities due after one year through five years and classified
as noncurrent assets at September 30, 1996, include the following:

<TABLE>
<CAPTION>
COST FAIR VALUE
------ ----------
<S> <C> <C>
U.S. Treasury securities.................................... $7,391 $7,351
====== ======
</TABLE>

Gross unrealized holding gains and losses at September 30, 1996, were
approximately $21 and $62, respectively. For the purpose of determining gross
realized gains and losses, the cost of securities sold is based upon specific
identification.

4. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

In December 1991, Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" ("FAS 107"), was issued.
FAS 107 requires disclosures of the fair value of financial instruments. The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments held by the Company.

F-10
<PAGE> 88

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

Investment in marketable securities -- The fair value of marketable
securities is based on currently published market quotations.

5. STOCKHOLDERS' EQUITY:

In April 1995, certain consultants and employees of the Company exercised
rights to purchase, in aggregate, 1,187,481 shares of common stock pursuant to
their respective consulting or employment agreements for $208. A portion of this
amount was paid in cash and a portion was financed by the Company. At September
30, 1996, notes receivable from the consultants and employees related to these
financings equaled $113. The notes receivable bear interest at an annual rate of
8 percent and mature in March 1999. Payments of principal and interest are due
quarterly with the remaining balance due at maturity. The notes receivable are
presented as a deduction from stockholders' equity for financial reporting
purposes.

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

The terms of the Series A convertible preferred stock provide for
cumulative annual dividends of approximately $0.26 per share that are payable at
the discretion of the board of directors, a liquidation preference of
approximately $3.24 per share plus accrued but unpaid dividends, an option to
convert into common stock on a one-share to one-share basis, automatic
conversion to common stock on a one-share to one-share basis upon the effective
completion of the Company's IPO (see Note 13), and various protective provisions
limiting, among other things, issuance of senior equity securities, any merger
or sale of substantially all the assets of the Company and restrictions on the
declaration and payment of dividends.

In September 1995, the Company effected a private placement of 3,101,448
shares of Series B convertible preferred stock. The terms of the Series B
convertible preferred stock provide for cumulative annual dividends of
approximately $0.28 per share that are payable at the discretion of the board of
directors, a liquidation preference of approximately $3.50 per share plus
accrued but unpaid dividends, an option to convert common stock on a one-share
to one-share basis, automatic conversion to common stock on a one-share to
one-share basis upon the effective completion of the Company's IPO (see Note
13), and various protective provisions comparable to those of the Series A
convertible preferred stock.

In July 1996, the Company effected a private placement of 1,309,424 shares
of Series C convertible preferred stock. The terms of the Series C convertible
preferred stock provide for cumulative annual dividends of approximately $0.61
per share that are payable at the discretion of the board of directors, a
liquidation preference of approximately $7.64 per share plus accrued but unpaid
dividends, an option to convert common stock on a one-share to one-share basis,
automatic conversion to common stock on a one-share to one-share basis upon the
effective completion of the Company's IPO (see Note 13), and various protective
provisions comparable to these of the Series A and Series B convertible
preferred stock.

6. STOCK OPTIONS AND STOCK PURCHASE WARRANTS:

In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), was issued. FAS 123
defines a fair value based method of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt

F-11
<PAGE> 89

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

that method of accounting for all of their employee stock compensation plans.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period
of the award, which is usually the vesting period. However, FAS 123 also allows
entities to continue to measure compensation costs for employee stock
compensation plans using the intrinsic value method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The
Company has adopted FAS 123 effective January 1, 1996, and has elected to remain
with the accounting prescribed by APB 25. The Company has made the required
disclosures prescribed by FAS 123.

During 1995, the Company adopted a stock option plan (the "Plan"). Under
the Plan, incentive stock options may be granted to key employees and
consultants of the Company as approved by a committee of the Company's board of
directors. The stock options granted as part of the consulting and employee
agreements described in Note 7 are covered by the Plan. Originally, the Company
had reserved 570,904 shares of common stock for issuance in accordance with the
Plan. In October 1996, the Company increased the number of authorized shares of
common stock reserved for issuance under the Plan to 1,141,807. Stock options
vest pursuant to the individual stock option agreements, usually 25 percent per
year beginning one year from the date of grant, with unexercised options
expiring 10 years from the date of grant.

A summary of the status of the Company's fixed stock option plan for the
year ended December 31, 1995, and the nine-month periods ended September 30,
1995 and 1996, and changes during the periods on those dates is presented below:

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
DECEMBER 31, 1995 1995 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period................... -- $ -- -- $ -- 337,490 $2.41
Granted.................... 337,490 2.41 225,010 1.86 183,334 4.84
Exercised.................. -- -- -- -- -- --
Forfeited.................. -- -- -- -- (6,395) 3.50
------- ----- ------- ----- ------- -----
Outstanding, end of
period................... 337,490 $2.41 225,010 $1.86 514,429 $3.22
======= ===== ======= ===== ======= =====
Options exercisable at end
of period................ 41,981 $1.31 -- $ -- 56,255 $1.86
======= ===== ======= ===== ======= =====
Weighted average fair value
of options granted during
the period............... $1.09 $0.87 $2.68
===== ===== =====
</TABLE>

F-12
<PAGE> 90

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the information about fixed stock options
outstanding at September 30, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED -------------------------
AVERAGE NUMBER WEIGHTED
REMAINING WEIGHTED EXERCISABLE AT AVERAGE
NUMBER CONTRACTUAL AVERAGE SEPTEMBER 30, EXERCISE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE 1996 PRICE
--------------- ----------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.18...................... 110,826 8.7 years $0.18 27,707 $0.18
$3.50...................... 333,720 9.2 years $3.50 28,548 $3.50
$7.01...................... 69,883 9.9 years $7.01 -- $7.01
------- ------
514,429 9.3 years $3.26 56,255 $1.86
======= ======
</TABLE>

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

<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -----------------
1995 1995 1996
------------ ------ -------
<S> <C> <C> <C>
Net loss
As reported.................................. $ (712) $ (478) $(1,729)
------ ------ -------
Pro forma.................................... $ (725) $ (478) $(1,819)
------ ------ -------
Loss per share
As reported.................................. $(0.09) $(0.06) $ (0.20)
------ ------ -------
Pro forma.................................... $(0.09) $(0.06) $ (0.22)
------ ------ -------
</TABLE>

The fair value of each option grant was estimated on the date of the grant
using the minimum value method as the Company was a nonpublic entity when such
options were granted. This value is the current stock price less the present
value of the exercise price for a stock that does not pay dividends. The
assumptions used for the minimum value computation for the year ended December
31, 1995, and the nine-month periods ended September 30, 1995 and 1996, are: the
risk free interest rates are 6.2 percent, 6.3 percent and 6.6 percent,
respectively; the exercise price is equal to the fair market value of the
underlying common stock at the grant date; the expected life of the option is
the term to expiration; and the common stock will pay no dividends. No
disclosures are presented for the period ended December 31, 1994, as no options
were issued at that date.

In connection with the private placement of Series B convertible preferred
stock, the Company issued a warrant for the purchase of 97,054 shares of common
stock at approximately $3.50 per share to the securities firm that assisted in
the private placement of Series B convertible preferred stock. The warrant may
be exercised in whole at any time or in part from time to time, prior to its
expiration in September 2000.

In connection with the private placement of Series C convertible preferred
stock, the Company issued 327,367 warrants for the purchase of common stock at
approximately $8.76 per share to the Series C convertible preferred
stockholders. The warrants may be exercised in whole at any time or in part from
time to time, prior to their expiration in July 2001.

In July 1996, the Company entered into a consultation agreement with a firm
for services related to the Company's proposed IPO (see Note 13). In connection
with this agreement, the Company issued to

F-13
<PAGE> 91

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the firm a warrant for the purchase of 28,546 shares of the Company's common
stock at approximately $8.76 per share. The warrant may be exercised in whole or
in part from time to time, prior to its expiration in July 2001.

In October 1996, the Company adopted a nonemployee directors' stock option
plan (the "Directors' Plan"). Under the Directors' Plan, each nonemployee
director is granted a one-time option equaling 17,128 shares of common stock. In
October and December 1996, the nonemployee directors were granted 119,896
options exercisable at approximately $7.01 per share. These options vest at 1/48
per month beginning from the date of grant, with unexercised options expiring 10
years from the date of grant.

7. RELATED-PARTY TRANSACTIONS:

In November 1994, CTRC Research granted the Company a revolving line of
credit of $500 bearing interest at the prime rate plus 1/2 of 1 percent. The
line of credit provided the Company with sufficient working capital to initiate
operations. At December 31, 1995, the outstanding balance and the interest rate
on this line of credit were $305 and 9 percent, respectively. In February 1996,
the Company repaid the entire outstanding balance on the line of credit. In
1996, the Company and CTRC Research terminated the line of credit.

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

Subcontractors provide the Company with consulting services and preclinical
and clinical testing related to certain of its contracts. Such costs may be
included in either research and development costs or subcontractor costs in the
accompanying financial statements. During the period from October 1, 1994,
through December 31, 1994, the year ended December 31, 1995, and the nine-month
periods ended September 30, 1995 and 1996, the Company incurred the following
expenses for subcontracting costs:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ --------------
1994 1995 1995 1996
---- ---- ---- ------
<S> <C> <C> <C> <C>
CTRC Research................................... $ 42 $140 $ 48 $ 257
Director of the Company......................... 36 136 122 205
Stockholders.................................... -- 142 88 271
Company owned by officer/director
of the Company................................ 111 42 42 276
---- ---- ---- ------
$189 $460 $300 $1,009
==== ==== ==== ======
</TABLE>

F-14
<PAGE> 92

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1994 and 1995, and September 30, 1996, the following
subcontractor costs were payable to related parties:

<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
<S> <C> <C> <C>
CTRC Research.......................................... $ 9 $ 5 $ 60
Director of the Company................................ 36 34 104
Stockholders........................................... -- 24 22
Company owned by officer/director of the Company....... 81 21 37
---- --- ----
$126 $84 $223
==== === ====
</TABLE>

During 1995, the Company entered into consulting services agreements with
two individuals. Both consultants have been designated as co-chairmen of the
Company's Scientific Advisory Board and one of the consultants is also a
director of the Company. Under the terms of the agreements, the consultants are
entitled to receive annual retainers and fixed daily fees for full days of
service or hourly fees for partial days of service. In addition, the consultants
were granted the right to purchase common stock as stipulated in the agreements.
As discussed in Note 5, the consultants exercised this right and financed a
portion of the common stock purchases with a promissory note to the Company.
Each consultant was also granted stock options to acquire 28,546 shares of
common stock. (See Note 6.) The consulting services agreements expire during
fiscal year 1998.

The Company maintains employment agreements with four employees. The terms
of the four agreements provide for base salaries and benefits. Under two of
these agreements, the employees were granted the right to purchase common stock.
As discussed in Note 5, the two employees exercised this right and financed a
portion of the common stock purchases with a promissory note to the Company.
Additionally, each of these two employees was granted stock options to acquire
28,546 shares of common stock. (See Note 6.) These two agreements expire in
1998.

8. LICENSING AGREEMENTS:

In 1994, the Company obtained two licensing agreements for oncology
compounds from CTRC Research in conjunction with the assignment described in
Note 1. During 1995 and through September 30, 1996, the Company entered into
five additional licensing agreements. In November 1996, the Company entered into
one additional licensing agreement for an oncology compound. All of the
licensing agreements grant the Company the right to develop and market the
oncology compounds covered by such agreements and to license the rights to such
compounds to other third parties.

Under the terms of the agreements, the Company is required to pay upfront
fees and/or annual fees, as defined in the agreements. For the period from
October 1, 1994, through September 30, 1996, the Company paid upfront fees
and/or annual fees totaling $585. The Company's future commitment under these
agreements is $150,000 due in March of 1997. In addition, the Company must also
pay royalties upon commercialization of the compounds. Under certain agreements,
the Company is required to make milestone payments, as defined in the
agreements. At September 30, 1996, the Company had not attained any of the
events that require a milestone payment.

Pursuant to an agreement with Sanofi, the Company granted Sanofi a
worldwide option to license and use the Company's information relating to two of
its oncology compounds for the development and commercialization of such
compounds. In connection with the agreement, Sanofi agreed to reimburse the
Company for costs incurred in the development of the compounds. In addition, the
Company is entitled to certain milestone payments and royalties on net sales of
the compounds.

F-15
<PAGE> 93

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In December 1994, Sanofi notified the Company of its decision to terminate
support for the development of one of the oncology compounds. In 1995, Sanofi
funded the wind-down effort and paid for certain future obligations the Company
incurred with respect to this compound. Such amounts paid to the Company were
not material to the Company's financial position or results of operations. In
October 1996, the Company reached an agreement with Janssen Pharmaceutica
("Janssen"), an affiliate of Johnson & Johnson Development Corporation, whereby
the Company granted Janssen an option to license and use the Company's
information relating to this compound for its development and commercialization.
In connection with the agreement, Janssen agreed to reimburse the Company for
costs incurred in the development of the compound not to exceed a predetermined
amount. In addition, the Company is entitled to certain milestone payments and
royalties based on various levels of manufacturing costs of marketable product,
as defined in the agreement.

9. EMPLOYEE BENEFITS:

The Company has an employee benefit plan and trust for certain employees
who meet specified length of service requirements. The plan qualifies under
Section 401(k) of the Internal Revenue Code as a salary reduction plan.
Employees may elect to contribute a certain percentage of their salary on a
before-tax basis. Employees are immediately fully vested in their contributions
and begin vesting in employer contributions after one year of service, as
defined in the plan document. The plan is a defined contribution plan with
employer contributions made solely at the discretion of the board of directors.
From inception through September 30, 1996, no employer contributions had been
made by the Company. During the period from inception through December 31, 1994,
the year ended December 31, 1995, and the nine-month periods ended September 30,
1995 and 1996, administrative expenses incurred by the Company related to this
plan were not significant.

In December 1990, Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS
106"), was issued. FAS 106 requires employers to recognize the obligation to
provide postretirement benefits to employees during the periods that employees
render service to earn the benefit. Previously, generally accepted accounting
principles provided that employers could report such expenses in the period the
related costs were paid. The Company does not provide such benefits to its
employees, thus, FAS 106 has no effect on the results of operations of the
Company.

In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("FAS 112"), was issued. FAS
112 requires employers to recognize the obligation to provide benefits to former
or inactive employees after employment but before retirement, if certain
conditions are met. The Company does not provide such benefits to its employees,
thus, FAS 112 has no effect on the results of operations of the Company.

10. OPERATING LEASES:

The Company has several noncancelable operating leases for office space and
equipment. As described in Note 7, one of the leases is with CTRC Research, a
related party. Rent expense associated with these leases was approximately $15,
$77, $56 and $238 for the period from inception to December 31, 1994, the year
ended December 31, 1995, and the nine-month periods ended September 30, 1995 and
1996, respectively.

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

F-16
<PAGE> 94

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At September 30, 1996, future minimum lease payments under all operating
leases are as follows:

<TABLE>
<CAPTION>
RELATED PARTY OTHER TOTAL
------------- ------ ------
<S> <C> <C> <C>
Three months ending December 31, 1996.............. $ 7 $ 75 $ 82
Year ending December 31 --
1997............................................. 28 502 530
1998............................................. 120 644 764
1999............................................. 120 658 778
2000............................................. 120 671 791
2001............................................. 120 489 609
Thereafter....................................... 1,070 1,070 2,140
</TABLE>

In February 1996, the Company entered into a noncancelable lease agreement
for equipment to be used in the cGMP facility. The lease requires the Company to
make monthly payments of approximately $16 and expires in 2001. Under the terms
of the agreement, the Company is required to maintain $825 in the form of U.S.
Treasury notes as collateral for the equipment. The U.S. Treasury notes
collateral requirement will be reduced, as defined in the lease agreement,
through the life of the lease.

11. INCOME TAXES:

As of September 30, 1996, the Company had net operating loss carryforwards
of approximately $2,256 for U.S. federal income tax purposes which are available
to reduce future taxable income of which $35, $578 and $1,643 will expire in
2009, 2010 and 2011, respectively. The tax effects of significant temporary
differences representing deferred income tax assets and liabilities are as
follows as of December 31, 1995, and September 30, 1996:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Net operating loss carryforward......................... $ 208 $ 767
Expense provisions...................................... 53 79
Other tax differences, net.............................. (11) (9)
Valuation allowance..................................... (250) (837)
----- -----
Total deferred income tax assets.............. $ -- $ --
===== =====
</TABLE>

The valuation allowance as of December 31, 1995, and September 30, 1996,
represents tax benefits of certain future net operating loss carryforwards which
were not realizable at that date.

The Company's income tax benefit at the statutory federal income tax rate
for the period from Inception to December 31, 1994, and the year ended December
31, 1995, and the nine-month period ended September 30, 1996, differs from the
actual income tax benefit of $0 for those periods, as the Company has provided a
valuation reserve equal to the income tax benefit amount computed at the
statutory federal tax rate.

The availability of the NOL carryforward to reduce U.S. federal taxable
income is subject to various limitations under the Internal Revenue Code of 1986
(the "Code"), as amended, in the event of an ownership change as defined in
Section 382 of the Code. The Company has not experienced a limitation of its NOL
carryforward as a result of the changes in ownership. The Company's management
believes that the IPO (see Note 13) will result in a change in control, however,
it will not materially limit its ability to utilize NOL carryforwards in the
future.

F-17
<PAGE> 95

ILEX ONCOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES:

CTRC Research is attempting to obtain a private letter ruling from the U.S.
Internal Revenue Service ("IRS") to confirm certain tax implications to CTRC
Research associated with the formation of the Company by CTRC Research. A
provision in the employment and consulting agreements entered into between the
Company and certain individuals requires the Company and such individuals to
renegotiate the terms of such agreements in the event that CTRC Research is
unable to obtain a favorable private letter ruling from the IRS. If the Company
is unable to successfully negotiate the terms of such agreements, they
automatically terminate. The Company's management does not believe that the
ultimate outcome of the private letter ruling, or any impact it may have on
employment agreements between the Company and certain individuals, will have a
material adverse effect on the financial condition of the Company.

13. SECURITIES OFFERING:

The Company has filed a Registration Statement with the Securities and
Exchange Commission for an underwritten offering of 2,500,000 shares of common
stock (the "Offering"). In connection with the Offering, the board of directors
approved a 1.75161005882673 for 1 reverse stock split of the Company's common
stock effective upon the effective date of the Offering. All common stock,
convertible preferred stock, options, warrants and per share information
included in the accompanying financial statements has been adjusted to give
retroactive effect to the split. The Company expects to use the net proceeds of
the offering to fund its research and development activities, which may include
the formation of joint ventures and other collaborative relationships. In
addition, the Company intends to use some of the proceeds of this offering to
expand its contract research services through internal growth, including the
acquisition of information technology and expansion of other strategic
collaborations. The Company intends to use the remainder of the proceeds of this
offering for working capital and general corporate purposes. Pending the
aforementioned uses, the Company intends to invest the net proceeds of this
offering in government securities and investment-grade, interest-bearing
instruments.

14. SUBSEQUENT EVENTS:

In November 1996, the Company effected a private placement of 113,953
shares of Series D convertible preferred stock. The terms of the Series D
convertible preferred stock provide for cumulative annual dividends of
approximately $0.72 per share that are payable at the discretion of the board of
directors, a liquidation preference of approximately $8.78 per share plus
accrued but unpaid dividends, an option to convert common stock on a one-share
to one-share basis, automatic conversion to common stock on a one-share to
one-share basis upon the effective completion of the Company's IPO (see Note
13), and various protective provisions comparable to those of the Series A,
Series B and Series C convertible preferred stock.

In December 1996, the Company effected a private placement of 475,753
shares of Series E convertible preferred stock. The terms of the Series E
convertible preferred stock provide for cumulative annual dividends of
approximately $0.48 per share that are payable at the discretion of the board of
directors, a liquidation preference of approximately $10.51 per share plus
accrued but unpaid dividends, an option to convert common stock on a one-share
to one-share basis, automatic conversion to common stock on a one-share to
one-share basis upon the effective completion of the Company's IPO (see Note
13), and various protective provisions comparable to those of the Series A,
Series B, Series C and Series D convertible preferred stock.

In connection with the private placement of Series E convertible preferred
stock, the Company entered into an agreement with an entity for an equally-owned
joint venture for research collaboration endeavors. Under the agreement, the
Company will provide the joint venture with $1.0 million in initial funding.

F-18
<PAGE> 96

NO DEALER, SALESPERSON OR OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR
ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 21
Selected Financial Data............. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 23
Business............................ 28
Management.......................... 56
Certain Transactions................ 65
Principal Stockholders.............. 67
Description of Capital Stock........ 69
Shares Eligible for Future Sale..... 72
Underwriting........................ 73
Legal Matters....................... 74
Experts............................. 74
Additional Information.............. 75
Index to Financial Statements....... F-1
</TABLE>

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

UNTIL MARCH , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECT-
ING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBU-
TION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGA-
TION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS OR WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

2,500,000 SHARES

ILEX ONCOLOGY, INC.

COMMON STOCK
($.01 PAR VALUE)

LOGO

SALOMON BROTHERS INC
COWEN & COMPANY
SMITH BARNEY INC.
PROSPECTUS

DATED , 1997
<PAGE> 97

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated expenses payable by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby (other than underwriting discounts and commissions).

<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $11,326
NASDAQ National Market System application fee............... 46,700
NASD filing fee............................................. 4,238
Legal fees and expenses..................................... *
Transfer Agent and Registrar fee and expenses............... *
Accounting fees and expenses................................ *
Blue sky fees and expenses (including counsel fees)......... *
Printing costs.............................................. *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>

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

* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify any person under such Section in connection
with a proceeding by or in the right of the corporation to procure judgment in
its favor, as provided in the preceding sentence, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action, except that no indemnification shall be
made in respect thereof unless, and then only to the extent that, a court of
competent jurisdiction shall determine upon application that such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper. A person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
any person who was successful on the merits or otherwise in defense of any
action, suit or proceeding or in defense of any claim, issue or matter in any
proceeding, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. A Delaware corporation may
pay for the expenses (including attorneys' fees) incurred by an officer or
director in defending a proceeding in advance of the final disposition upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.

Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages

II-1
<PAGE> 98

for a breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases, or (iv) for any
transaction from which the director derived an improper personal benefit.
Article 10 of the Company's Certificate of Incorporation, as amended, eliminates
the liability of directors to the fullest extent permitted by Section 102(b)(7)
of the DGCL. The DGCL permits the purchase of insurance on behalf of directors
and officers against any liability asserted against directors and officers and
incurred by such persons in such capacity, or arising out of their status as
such, whether or not the corporation would have the power to indemnify directors
and officers against such liability.

The Registrant also has a policy insuring its directors and officers
against certain liabilities, including liabilities under the Securities Act.

Section 8 of the Underwriting Agreement (contained in Exhibit 1.1 hereto)
provides for indemnification by the Underwriters of directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933, under certain circumstances.

See "Item 17. Undertakings" for a description of the Securities and
Exchange Commission's position regarding such indemnification provisions.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the last three years, the Registrant sold the following securities
which were not registered under the Securities Act of 1933, as amended (the
"Act"). All share numbers have been adjusted to reflect a 1-for-1.75161005882673
reverse stock split that will occur before the closing of this offering.

The Company was incorporated in December 1993, and January 1994, issued 58
shares of Common Stock to CTRC Research Foundation in exchange for a $1,000
capital contribution.

In November 1994 and January and March 1995, the Company contracted to sell
1,187,481 shares at $0.18 per share of Common Stock to the founders of the
Company, Richard L. Love, Daniel D. Von Hoff, Alexander L. Weis and Charles A.
Coltman. The shares were subsequently issued in early 1995. Each of these sales
was made pursuant to Section 4(2) of the Securities Act.

In April 1995, the Company issued to CTRC Research Foundation and the
University of Texas Health Sciences Center at San Antonio 2,991,477 of its
Series A Convertible Preferred Stock in exchange for certain assets and rights
transferred to the Company as capital contributions, pursuant to Section 4(2) of
the Securities Act.

In September 1995, the Company issued 3,101,448 shares of Series B
Convertible Preferred Stock to various sophisticated private investors, pursuant
to Section 4(2) of the Securities Act and Regulation D thereunder. The aggregate
purchase price for the Series B Convertible Preferred Stock was $10,865,000.

In July 1996, the Company issued to Perseus Pharmaceuticals, L.L.C., Drug
Royalty Corporation, Inc. and certain holders of the Company's Series B
Convertible Preferred Stock, 1,309,424 shares of its Series C Convertible
Preferred Stock and warrants (the "Series C Warrants") for the purchase of
327,367 shares of Common Stock for an aggregate purchase price of $10 million,
pursuant to Section 4(2) of the Securities Act and Regulation D thereunder.

The Series C Warrants entitle the holder, upon exercise thereof, to
purchase from the Company shares of its Common Stock at a price per share of
$8.76. The holders of the Series C Warrants are provided certain registration
rights that arise upon the Company's proposal to register, subsequent to its
initial public offering, the Common Stock for sale to the public under the
Securities Act. The Series C Warrants are also subject to certain adjustments
which may be made to the number of shares purchasable resulting from stock
splits, issuance of additional Common Stock, issuance of additional warrants or
other rights or issuance of securities convertible into Common Stock by the
Company. The

II-2
<PAGE> 99

Company has also issued warrants to Vector Securities International, Inc. and
Chestnut Partners, Inc. for the purchase of 97,054 and 28,546 shares of Common
Stock, respectively. The warrants issued to Vector Securities International,
Inc. were issued in September 1995 in consideration of services rendered in
connection with the offering of the Series B Convertible Preferred Stock and
have an exercise price of $3.50 per share. The warrant issued to Chestnut
Partners, Inc. was issued in July 1996 in consideration of services rendered in
connection with this offering on substantially the same terms as the Series C
Warrant. See "Description of Capital Stock -- Warrants."

In November 1996, the Company issued to Johnson & Johnson Development
Corporation, pursuant to Section 4(2) of the Securities Act and Regulation D
thereunder, 113,953 shares of Series D Convertible Preferred Stock, for an
aggregate purchase price of $1.0 million.

In December 1996, the Company issued to MPI Enterprises, L.L.C., pursuant
to Section 4(2) of the Securities Act and Regulation D thereunder, 475,753
shares of Series E Convertible Preferred Stock, for an aggregate purchase price
of $5.0 million.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

II-3
<PAGE> 100

<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
10.12** -- Agreement dated November 1, 1994 [cGMP Plant] by and
among Texas Research and Technology Foundation, CTRC
Research Foundation, TRTF/CTRCRF Building Corporation and
the Company
10.13+** -- License Agreement [Piritrexim Isethionate] dated March
31, 1995 by and among Burroughs Wellcome Co., The
Wellcome Foundation Limited and the Company
10.14+** -- License Agreement [Oxypurinol] dated March 31, 1995 by
and among Burroughs Wellcome Co., The Wellcome Foundation
Limited and the Company
10.15+** -- License Agreement [Crisnatol Mesylate] dated November 1,
1993 by and among Burroughs Wellcome Co., The Wellcome
Foundation Limited and CTRC Research Foundation
10.16+** -- Amendment and Agreement with Respect to License Agreement
[crisnatol mesylate] dated October 5, 1996 amending
License Agreement dated November 1, 1993 by and among
Burroughs Wellcome Co., The Wellcome Foundation Limited
and CTRC Research Foundation
10.17+** -- License Agreement [Eflornithine] between ILEX Oncology,
Inc. and Marion Merrell Dow Inc. and its subsidiaries
Merrell Dow Pharmaceuticals Inc. and Marion Merrell Dow
France Et Cie
10.18+** -- Development and License Agreement [crisnatol mesylate]
dated October 11, 1996 by and among the Company and
Janssen Pharmaceutica, N.V.
10.19+** -- License Agreement [Farnesyl Transferase Inhibitors] dated
July 1, 1996 by and between Sother Limited and the
Company
10.20+** -- License Agreement [RP 60475] dated November 18, 1994
between Rhone-Poulenc Rorer S.A. and the Company
10.21+** -- Agreement dated November 25, 1996 between Hoffmann-La
Roche, Inc. and the Company [RO23-7553]
10.22+** -- License and Development Agreement [MGBG] dated October 1,
1992 between Sterling Winthrop Inc. and CTRC Research
Foundation
10.23+** -- Research Collaboration Agreement dated December 12, 1995
between CTRC Research Foundation and Sanofi
10.24** -- Consent, Acknowledgment and Waiver Agreement dated
September 1994 by and among CTRC Research Foundation,
Sterling Winthrop Inc. and the Company
10.25+** -- Drug Development Project Agreement
[4-hydroperoxycyclophosphamide] effective April 1, 1993
between CTRC Research Foundation and MGI Pharma, Inc.
10.26** -- Material Transfer Agreement [Dihydro-5-Azacytidine] dated
March 9, 1995 between the Company and the National
Institutes of Health
10.27+** -- Patent License Agreement--Exclusive [Methyl-Glyoxal
Bis-Guanylhydrazone] dated September 8, 1991 between the
National Institutes of Health and Cancer Therapy and
Research Center
10.28** -- Agreement for Services dated February 15, 1995 between
the Company and The University of Texas Health Science
Center at San Antonio
10.29** -- Agreement for Services effective September 20, 1994
between CTRC Research Foundation and The University of
Texas Health Science Center at San Antonio
10.30** -- Master Services Agreement (Preclinical Services) dated
June 11, 1996 by and between the Company and Lipitek
International, Inc.
</TABLE>

II-4
<PAGE> 101

<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
10.31** -- Letter Agreement dated September 28, 1995 between Cross
Atlantic Partners K/S, Boston Capital Ventures III.
Limited Partnership, Rovent II Limited Partnership, CTRC
Research Foundation and the Company
10.32** -- Warrant for the purchase of shares of Common Stock dated
September 1995 between the Company and Vector Securities
International, Inc.
10.33* -- Warrant for the Purchase of shares of Common Stock dated
July 1996 between the Company and Chestnut Partners, Inc.
10.34** -- Institute for Drug Development Program Agreement dated
September 20, 1994 between CTRC Research Foundation and
The University of Texas Health Science Center at San
Antonio
10.35** -- Subordinated Option Agreement dated March 27, 1995
between CTRC Research Foundation and the Company
10.36** -- Employment Agreement dated November 2, 1994 between
Richard L. Love and the Company
10.37** -- Amendment to Employment Agreement dated April 4, 1995
between Richard L. Love and the Company
10.38** -- Amendment to Employment Agreement dated September 27,
1995 between Richard L. Love and the Company
10.39** -- Employment Agreement dated November 2, 1994 between
Alexander L. Weis, Ph.D. and the Company
10.40** -- Amendment to Employment Agreement dated April 10, 1995
between Alexander L. Weis, Ph.D. and the Company
10.41** -- Amendment to Employment Agreement dated September 27,
1995 between Alexander L. Weis, Ph.D. and the Company
10.42** -- Employment Agreement dated August 13, 1996 between James
R. Koch and the Company
10.43** -- Employment Agreement dated August 27, 1996 between Pedro
Santabarbara, M.D., Ph.D. and the Company
10.44** -- Letter Agreement dated November 2, 1994 between Alexander
L. Weis, Ph.D. and the Company
10.45** -- Consulting Services Agreement dated March 16, 1995
between the Company and Charles A. Coltman, Jr., M.D.
10.46** -- Consulting Services Agreement dated January 1, 1995
between the Company and Daniel Von Hoff, M.D.
10.47** -- 1995 Stock Option Plan for the Company
10.48** -- 1996 Non-Employee Director Stock Option Plan for the
Company
10.49** -- Form of Non-Employee Director Stock Option Agreement
10.50** -- Third Amended and Restated Registration Rights Agreement
between the Company, CTRC and the holders of the Series
B, C, D and E Preferred Stock
10.51** -- Convertible Preferred Stock Purchase Agreement dated
September 29, 1995 among the Company and the holders of
Series B Preferred Stock
10.52** -- Convertible Preferred Stock Purchase Agreement dated
December 11, 1996 between the Company and MPI
10.53** -- Convertible Preferred Stock Purchase Agreement dated
November 11, 1996 between the Company and Johnson &
Johnson Development Corporation
</TABLE>

II-5
<PAGE> 102

<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
10.54** -- Convertible Preferred Stock Purchase Agreement dated as
of July 22, 1996 among the Company and the holders of
Series C Preferred Stock
10.55** -- Form of Pledge Agreement between Cancer Therapy and
Research Center Endowment and each of Gary V. Woods,
Ruskin C. Norman, M.D. and Robert V. West, Jr., Ph.D.
10.56+** -- Exclusive License Agreement [Oxypurinol] dated November
27, 1996 between MGI Pharma, Inc. and the Company
10.57+** -- Exclusive License Agreement [DHAC] dated November 27,
1996 between MGI Pharma, Inc. and the Company
10.58** -- Stock Purchase Agreement dated April 11, 1995 between
Daniel Von Hoff and the Company
10.59** -- Stock Purchase Agreement dated April 11, 1995 between
Alexander L. Weis and the Company
10.60** -- Stock Purchase Agreement dated April 11, 1995 between
Richard L. Love and the Company
10.61** -- Stock Purchase Agreement dated April 11, 1995 between
Charles A. Coltman, Jr. and the Company
10.62** -- Promissory Note dated April 12, 1995 between Daniel Von
Hoff and the Company
10.63** -- Promissory Note dated April 12, 1995 between Richard L.
Love and the Company
10.64** -- Promissory Note dated April 12, 1995 between Charles A.
Coltman, Jr. and the Company
10.65** -- Promissory Note dated April 12, 1995 between Alexander L.
Weis and the Company
10.66** -- Ownership Restriction Agreement dated December 11, 1996
between MPILEX Management, L.L.C., MPILEX Partners, L.P.
and holders of units thereof.
10.67** -- Agreement of Limited Partnership of MPILEX Partners, L.P.
among MPILEX Management, L.L.C.
10.68** -- Regulations of MPILEX Management, L.L.C. dated December
1996.
10.69+** -- License Agreement dated December 11, 1996 between MPILEX
Partners, L.P. and the Company
11.1** -- Computation of Earnings Per Share
23.1 -- Consent of Arthur Andersen LLP
23.2* -- Consent of Fulbright & Jaworski L.L.P. (included in 5.1)
24.1** -- Power of Attorney (included on signature page of initial
filing of this Registration Statement)
27** -- Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

** Previously filed.

+ Confidential treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities
and Exchange Commission.

II-6
<PAGE> 103

(b) Financial Statement Schedules:

All financial statement schedules, for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission, are
not required under the related instructions, are inapplicable or information
required is included in the financial statements and therefore have been
omitted.

ITEM 17. UNDERTAKINGS.

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-7
<PAGE> 104

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Antonio, State of Texas on January 27, 1997.

ILEX ONCOLOGY, INC.

By: /s/ RICHARD L. LOVE

----------------------------------
Richard L. Love
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY V. WOODS* Director January 27, 1997
- -----------------------------------------------------
Gary V. Woods

/s/ RICHARD L. LOVE President, Chief Executive January 27, 1997
- ----------------------------------------------------- Officer and Director
Richard L. Love (Principal Executive
Officer)

/s/ ALEXANDER L. WEIS, Ph.D.* Director January 27, 1997
- -----------------------------------------------------
Alexander L. Weis, Ph.D.

/s/ JAMES R. KOCH* Vice President and Chief January 27, 1997
- ----------------------------------------------------- Financial Officer
James R. Koch (Principal Financial and
Accounting Officer)

/s/ DANIEL D. VON HOFF, M.D.* Director January 27, 1997
- -----------------------------------------------------
Daniel D. Von Hoff, M.D.

/s/ JOHN L. CASSIS* Director January 27, 1997
- -----------------------------------------------------
John L. Cassis

/s/ A. DANA CALLOW, JR.* Director January 27, 1997
- -----------------------------------------------------
A. Dana Callow, Jr.

/s/ RUSKIN C. NORMAN, M.D.* Director January 27, 1997
- -----------------------------------------------------
Ruskin C. Norman, M.D.

/s/ JASON S. FISHERMAN, M.D.* Director January 27, 1997
- -----------------------------------------------------
Jason S. Fisherman, M.D.

/s/ JERRY R. MITCHELL, M.D., Ph.D.* January 27, 1997
- -----------------------------------------------------
Jerry R. Mitchell, M.D., Ph.D.

*By:/s/ RICHARD L. LOVE
--------------------------------------------------
Richard L. Love
as Attorney-in-Fact
</TABLE>

II-8
<PAGE> 105

EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1** -- Amended and Restated Certificate of Incorporation of the
Company
3.2** -- Bylaws of the Company, as amended
4.1* -- Specimen of certificate representing Common Stock, $.01
par value, of the Company
5.1* -- Opinion of Fulbright & Jaworski L.L.P. regarding legality
of the Common Stock being registered
10.1** -- Revolving Promissory Note dated November 18, 1994, in the
original principal amount of $500,000, payable by the
Company to CTRC Research Foundation
10.2** -- Loan Agreement dated November 18, 1994 between the
Company and CTRC Research Foundation
10.3** -- Letter Agreement dated December 4, 1996 between the
Company and CTRC Research Foundation terminating the line
of credit
10.4** -- Assignment of Rights and Assets dated November 1994 from
CTRC Research Foundation to the Company
10.5** -- First Amendment to Assignment of Rights and Assets dated
September 1995 between ILEX Oncology, Inc. and CTRC
Research Foundation
10.6** -- Services Agreement dated November 18, 1994 between CTRC
Research Foundation and the Company
10.7** -- Covenant Not To Sue dated September 1995 between CTRC
Research Foundation and the Company
10.8** -- Office Lease dated October 1, 1994 between the Company
and CTRC Research Foundation
10.9** -- Lease Agreement dated October 1, 1994 between Texas
Research and Technology Foundation and the Company
10.10** -- Lease Agreement dated September 1, 1995 between CTRC
Research Foundation and the Company
10.11** -- Commercial Industrial Sublease Agreement between
TRTF/CTRCRF Building Corporation and the Company
10.12** -- Agreement dated November 1, 1994 [cGMP Plant] by and
among Texas Research and Technology Foundation, CTRC
Research Foundation, TRTF/CTRCRF Building Corporation and
the Company
10.13+** -- License Agreement [Piritrexim Isethionate] dated March
31, 1995 by and among Burroughs Wellcome Co., The
Wellcome Foundation Limited and the Company
10.14+** -- License Agreement [Oxypurinol] dated March 31, 1995 by
and among Burroughs Wellcome Co., The Wellcome Foundation
Limited and the Company
10.15+** -- License Agreement [Crisnatol Mesylate] dated November 1,
1993 by and among Burroughs Wellcome Co., The Wellcome
Foundation Limited and CTRC Research Foundation
10.16+** -- Amendment and Agreement with Respect to License Agreement
[crisnatol mesylate] dated October 5, 1996 amending
License Agreement dated November 1, 1993 by and among
Burroughs Wellcome Co., The Wellcome Foundation Limited
and CTRC Research Foundation
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
10.17+** -- License Agreement [Eflornithine] between ILEX Oncology,
Inc. and Marion Merrell Dow Inc. and its subsidiaries
Merrell Dow Pharmaceuticals Inc. and Marion Merrell Dow
France Et Cie
10.18+** -- Development and License Agreement [crisnatol mesylate]
dated October 11, 1996 by and among the Company and
Janssen Pharmaceutica, N.V.
10.19+** -- License Agreement [Farnesyl Transferase Inhibitors] dated
July 1, 1996 by and between Sother Limited and the
Company
10.20+** -- License Agreement [RP 60475] dated November 18, 1994
between Rhone-Poulenc Rorer S.A. and the Company
10.21+** -- Agreement dated November 25, 1996 between Hoffmann-La
Roche, Inc. and the Company [RO23-7553]
10.22+** -- License and Development Agreement [MGBG] dated October 1,
1992 between Sterling Winthrop Inc. and CTRC Research
Foundation
10.23+** -- Research Collaboration Agreement dated December 12, 1995
between CTRC Research Foundation and Sanofi
10.24** -- Consent, Acknowledgment and Waiver Agreement dated
September 1994 by and among CTRC Research Foundation,
Sterling Winthrop Inc. and the Company
10.25+** -- Drug Development Project Agreement
[4-hydroperoxycyclophosphamide] effective April 1, 1993
between CTRC Research Foundation and MGI Pharma, Inc.
10.26** -- Material Transfer Agreement [Dihydro-5-Azacytidine] dated
March 9, 1995 between the Company and the National
Institutes of Health
10.27+** -- Patent License Agreement--Exclusive [Methyl-Glyoxal
Bis-Guanylhydrazone] dated September 8, 1991 between the
National Institutes of Health and Cancer Therapy and
Research Center
10.28** -- Agreement for Services dated February 15, 1995 between
the Company and The University of Texas Health Science
Center at San Antonio
10.29** -- Agreement for Services effective September 20, 1994
between CTRC Research Foundation and The University of
Texas Health Science Center at San Antonio
10.30** -- Master Services Agreement (Preclinical Services) dated
June 11, 1996 by and between the Company and Lipitek
International, Inc.
10.31** -- Letter Agreement dated September 28, 1995 between Cross
Atlantic Partners K/S, Boston Capital Ventures III.
Limited Partnership, Rovent II Limited Partnership, CTRC
Research Foundation and the Company
10.32** -- Warrant for the purchase of shares of Common Stock dated
September 1995 between the Company and Vector Securities
International, Inc.
10.33* -- Warrant for the Purchase of shares of Common Stock dated
July 1996 between the Company and Chestnut Partners, Inc.
10.34** -- Institute for Drug Development Program Agreement dated
September 20, 1994 between CTRC Research Foundation and
The University of Texas Health Science Center at San
Antonio
10.35** -- Subordinated Option Agreement dated March 27, 1995
between CTRC Research Foundation and the Company
10.36** -- Employment Agreement dated November 2, 1994 between
Richard L. Love and the Company
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
10.37** -- Amendment to Employment Agreement dated April 4, 1995
between Richard L. Love and the Company
10.38** -- Amendment to Employment Agreement dated September 27,
1995 between Richard L. Love and the Company
10.39** -- Employment Agreement dated November 2, 1994 between
Alexander L. Weis, Ph.D. and the Company
10.40** -- Amendment to Employment Agreement dated April 10, 1995
between Alexander L. Weis, Ph.D. and the Company
10.41** -- Amendment to Employment Agreement dated September 27,
1995 between Alexander L. Weis, Ph.D. and the Company
10.42** -- Employment Agreement dated August 13, 1996 between James
R. Koch and the Company
10.43** -- Employment Agreement dated August 27, 1996 between Pedro
Santabarbara, M.D., Ph.D. and the Company
10.44** -- Letter Agreement dated November 2, 1994 between Alexander
L. Weis, Ph.D. and the Company
10.45** -- Consulting Services Agreement dated March 16, 1995
between the Company and Charles A. Coltman, Jr., M.D.
10.46** -- Consulting Services Agreement dated January 1, 1995
between the Company and Daniel Von Hoff, M.D.
10.47** -- 1995 Stock Option Plan for the Company
10.48** -- 1996 Non-Employee Director Stock Option Plan for the
Company
10.49** -- Form of Non-Employee Director Stock Option Agreement
10.50** -- Third Amended and Restated Registration Rights Agreement
between the Company, CTRC and the holders of the Series
B, C, D and E Preferred Stock
10.51** -- Convertible Preferred Stock Purchase Agreement dated
September 29, 1995 among the Company and the holders of
Series B Preferred Stock
10.52** -- Convertible Preferred Stock Purchase Agreement dated
December 11, 1996 between the Company and MPI
10.53** -- Convertible Preferred Stock Purchase Agreement dated
November 11, 1996 between the Company and Johnson &
Johnson Development Corporation
10.54** -- Convertible Preferred Stock Purchase Agreement dated as
of July 22, 1996 among the Company and the holders of
Series C Preferred Stock
10.55** -- Form of Pledge Agreement between Cancer Therapy and
Research Center Endowment and each of Gary V. Woods,
Ruskin C. Norman, M.D. and Robert V. West, Jr., Ph.D.
10.56+** -- Exclusive License Agreement [Oxypurinol] dated November
27, 1996 between MGI Pharma, Inc. and the Company
10.57+** -- Exclusive License Agreement [DHAC] dated November 27,
1996 between MGI Pharma, Inc. and the Company
10.58** -- Stock Purchase Agreement dated April 11, 1995 between
Daniel Von Hoff and the Company
10.59** -- Stock Purchase Agreement dated April 11, 1995 between
Alexander L. Weis and the Company
10.60** -- Stock Purchase Agreement dated April 11, 1995 between
Richard L. Love and the Company
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
10.61** -- Stock Purchase Agreement dated April 11, 1995 between
Charles A. Coltman, Jr. and the Company
10.62** -- Promissory Note dated April 12, 1995 between Daniel Von
Hoff and the Company
10.63** -- Promissory Note dated April 12, 1995 between Richard L.
Love and the Company
10.64** -- Promissory Note dated April 12, 1995 between Charles A.
Coltman, Jr. and the Company
10.65** -- Promissory Note dated April 12, 1995 between Alexander L.
Weis and the Company
10.66** -- Ownership Restriction Agreement dated December 11, 1996
between MPILEX Management, L.L.C., MPILEX Partners, L.P.
and holders of units thereof.
10.67** -- Agreement of Limited Partnership of MPILEX Partners, L.P.
among MPILEX Management, L.L.C.
10.68** -- Regulations of MPILEX Management, L.L.C. dated December
1996.
10.69+** -- License Agreement dated December 11, 1996 between MPILEX
Partners, L.P. and the Company
11.1** -- Computation of Earnings Per Share
23.1 -- Consent of Arthur Andersen L.L.P.
23.2* -- Consent of Fulbright & Jaworski L.L.P. (included in 5.1)
24.1** -- Power of Attorney (included on signature page of initial
filing of this Registration Statement)
27** -- Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

** Previously filed.

+ Confidential treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities
and Exchange Commission.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of the
headnote to our report (and to all references to our firm) included in or made a
part of this Registration Statement. (R No. 333-17769)

ARTHUR ANDERSEN LLP

San Antonio, Texas

January 24, 1997