INTROGEN THERAPEUTICS INC, S-1/A, 1996-11-12

INTROGEN THERAPEUTICS INC
S-1/A, 1996-11-12
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996

REGISTRATION NO. 333-11297
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 5

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTROGEN THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
DELAWARE 2834 74-2704230
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

301 CONGRESS AVENUE
SUITE 1850
AUSTIN, TEXAS 78701
(512) 320-5010
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

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

DAVID G. NANCE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTROGEN THERAPEUTICS, INC.
301 CONGRESS AVENUE
SUITE 1850
AUSTIN, TEXAS 78701
(512) 320-5010
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------

COPIES TO:

<TABLE>
<S> <C>
ROBERT D. BROWNELL, ESQ. JI HOON HONG, ESQ.
MARNIA NICHOLS, ESQ. SHEARMAN & STERLING
WILSON SONSINI GOODRICH & ROSATI 599 LEXINGTON AVENUE
PROFESSIONAL CORPORATION NEW YORK, NEW YORK 10022
650 PAGE MILL ROAD (212) 848-4000
PALO ALTO, CALIFORNIA 94304
(415) 493-9300
</TABLE>

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

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 of 1933 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 of
1933 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,
please check the following box. [ ]

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CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
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Common Stock, $0.001 par value...................... $17,250,000 $14,000(2)
</TABLE>

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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
(2) Previously paid.
------------------------

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 THIS 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

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED NOVEMBER 12, 1996

2,500,000 SHARES

LOGO
COMMON STOCK
------------------------

All of the shares of Common Stock offered hereby are being sold by Introgen
Therapeutics, Inc. Prior to this offering, there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price will be $6.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.

The Common Stock has been approved for quotation on the Nasdaq National
Market System under the symbol "INGN" subject to official notice of issuance.

Rhone-Poulenc Rorer Pharmaceuticals Inc., a party to a collaborative
arrangement with the Company, has agreed to purchase $6.0 million of Common
Stock concurrent with this offering in a private placement at a price per share
equal to the price to public. See "Business of Introgen -- Collaborative
Arrangements and Licensing Agreements."

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
------------------------

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.

<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
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Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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Per Share............................ $ $ $
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Total................................ $ $ $
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Total Assuming Full Exercise of Over-
Allotment Option(3)................ $ $ $
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</TABLE>

(1) See "Underwriting."
(2) Before deducting expenses estimated at $750,000, which are payable by the
Company.

(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 375,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."

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

The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about
1996.
------------------------

PAINEWEBBER INCORPORATED GENESIS MERCHANT GROUP
SECURITIES
------------------------

THE DATE OF THIS PROSPECTUS IS , 1996.

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.
<PAGE> 3

[ARTWORK]

Introgen's product development programs are at an early stage. Products, if
any, resulting from such programs cannot be made available for commercial sale
unless and until regulatory approval is obtained. The Company will be required
to complete additional clinical trials to demonstrate the safety and efficacy of
any potential products prior to filing for regulatory approval.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET SYSTEM
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Except as set forth in the financial statements or as otherwise indicated, all
information in this Prospectus assumes (i) the filing of the Company's restated
Certificate of Incorporation authorizing a class of undesignated Preferred
Stock, (ii) the conversion of all outstanding shares of Convertible Preferred
Stock into Common Stock, (iii) the adoption of the Director Option Plan and the
Employee Stock Purchase Plan, (iv) the increase of shares of Common Stock
authorized under the Incentive Stock Plan from 1,250,000 to 1,750,000, each of
which will be effective as of the closing of this offering, (v) the purchase by
RPR of $6.0 million of Common Stock concurrent with this offering in a private
placement at a price per share equal to the price to public, and (vi) no
exercise of the Underwriters' over-allotment option. See "Description of Capital
Stock" and "Underwriting." Rhone-Poulenc Rorer Inc. and its wholly-owned
subsidiaries are referred to in this Prospectus as "RPR." A glossary of defined
terms and acronyms used herein is located on page 58. In addition, all
information related to the Company's clinical data is reported as of September
27, 1996.

Introgen, Introgen Therapeutics, Inc. and the Introgen logo are claimed as
trademarks and service marks for the goods and services for which they are used.
This Prospectus may also include names and marks of companies other than
Introgen.

THE COMPANY

Introgen Therapeutics, Inc. ("Introgen" or the "Company") is focused on the
development of gene therapy products to treat cancer by direct introduction of
the therapeutic gene inside the body ("in vivo"). Introgen was the first company
to treat a human patient with a cancer gene replacement therapy in vivo, and it
is one of the few companies to have advanced to the clinic with more than one
delivery system (vector). Gene therapy is a new technology that is being
developed using genetic materials as therapeutic agents to treat genetic defects
causing cancer and other diseases. For treating cancer, gene therapy seeks to
restore or correct missing or aberrant gene functions either by the addition of
normal genes ("gene replacement") or by neutralizing the activity of defective
genes ("gene blocking"). Gene therapy in volves two significant components: the
therapeutic genetic material and the system to deliver this material to the
desired site. Introgen is developing two categories of gene cancer therapy
products: (1) "gene replacement" products based on the p53 tumor suppressor gene
and (2) "gene blocking" products designed to neutralize the activity of a mutant
K-ras oncogene. Missing or dysfunctional p53 tumor suppressor genes are the
single most common genetic alteration in cancer discovered to date and occur in
over 50% of human cancers. Mutated K-ras oncogenes have been found in a variety
of human cancers.

The Company is currently conducting Phase I/II clinical trials in the
United States of its lead products for the treatment of non-small cell ("NSC")
lung cancer and head and neck cancer. Additional clinical trials are expected to
commence in the United States, Europe and Asia over the next 12 to 18 months.
These clinical trials would include multi-center, Phase II/III trials of
Introgen's p53 "gene replacement" products. In addition, the Company is
currently conducting preclinical studies, and expects to initiate Phase I and
Phase I/II clinical trials, for products to treat cancers of the liver, bladder,
ovaries, brain, breast and prostate, as well as malignant ascites from
gastrointestinal cancers. The Company's current and expected clinical trials
test the Company's products both alone and in combination with standard cancer
treatments.

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<PAGE> 5

treatment site, and three showed tumor stabilization. All nine patients died
subsequently from progression of untreated sites of disease, or other
complications of cancer, unrelated to the efficacy or safety of the gene
therapy. Preliminary data from Introgen's clinical trials of Ad-p53 for the
treatment of head and neck cancer and lung cancer indicate that Ad-p53 injected
into tumors produces an increase in p53 expression, programmed cell death
("apoptosis") and tumor necrosis. The results of the RV-p53 trial for lung
cancer have been published in the September 1996 issue of the journal Nature
Medicine.

Development and commercialization of Introgen's p53 and K-ras products are
being pursued in conjunction with RPR pursuant to a collaboration arrangement
with potential aggregate payments to the Company of approximately $50.0 million
prior to product commercialization (including approximately $24.7 million
received to date for research and development payments and equity investments).
The collaboration arrangement provides that Introgen is primarily responsible
for completing the early stage research and development of products, which RPR
is obligated to fund. If RPR elects, it shall be primarily responsible for the
later stage development of the products. In North America, Introgen retains
exclusive manufacturing rights and may elect to form a marketing collaboration
with RPR with respect to collaboration products. Under such marketing
collaboration, RPR and Introgen would share the costs and profits of marketing
the collaboration products in North America. Introgen is entitled to royalties
on product sales arising from RPR's exclusive marketing and manufacturing rights
in Europe. Both parties may, at their own expense, develop and market products
in Japan, Korea, China, Taiwan and India. Introgen and RPR have agreed that they
will not market or license, and RPR will not develop, any p53 or K-ras gene
therapy products prior to October 2004, except under the terms of the
collaboration arrangement. Pursuant to the terms of a stock purchase agreement
between the Company and RPR, RPR has agreed to purchase $6.0 million of Common
Stock in a private placement concurrent with this offering at the price to
public in this offering, as well as to make an additional equity investment of
$2.5 million in 1997 and a potential future milestone payment of approximately
$2.5 million (provided that the collaboration agreements remain in effect).

Introgen has exclusively licensed 21 United States and 25 foreign patent
applications from the University of Texas M.D. Anderson Cancer Center
("UTMDACC"). These licensed patent applications relate to the use of tumor
suppressor genes in combination with DNA-altering treatments such as
chemotherapy and radiation, as well as genes, viral and non-viral delivery
systems, tissue-specific promoters and diagnostics. In January 1996, Introgen
received a notice of allowance of a licensed patent application of UTMDACC
covering certain recombinant p53 adenovirus compositions. Introgen is also
funding research at UTMDACC and the Sidney Kimmel Cancer Center ("SKCC") and has
the right to include certain patentable inventions that arise from the research
under its exclusive license with the corresponding institution.

The Company's objective is to remain a leading developer of gene therapy
products for the treatment of cancer. To accomplish its objective, Introgen's
strategy is to pursue rapid clinical development and regulatory approval of
products that address severe life-threatening cancers; focus on key therapeutic
genes; leverage collaborative arrangements; pursue and expand its patent
portfolio; and, in the longer term, enhance the breadth of its existing product
platform.

The Company was incorporated in Delaware on June 17, 1993. The Company's
principal executive offices are located at 301 Congress Avenue, Suite 1850,
Austin, Texas 78701, and its telephone number is (512) 320-5010.
------------------------------

For a discussion of certain risk factors, including discussions regarding
the Company's early stage of development, lack of commercially available
products and uncertainties related to clinical trials, to be carefully
considered when evaluating an investment in the shares of Common Stock offered
hereby, see "Risk Factors."

4
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company......... 2,500,000 shares(1)
Common Stock to be Outstanding after the
Offering.................................. 11,163,769 shares(2)
Use of Proceeds............................. To fund product research and development,
product clinical trials, manufacturing scale-up
and capacity expansion, support of sponsored
research programs, marketing and sales
organization development, and other general
corporate purposes.
Proposed Nasdaq National Market System
Symbol.................................... INGN
</TABLE>

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(1) Does not include $6.0 million of Common Stock that RPR has agreed to
purchase concurrent with this offering in a private placement at a price per
share equal to the price to public.

(2) Includes 1,000,000 shares of Common Stock to be purchased by RPR concurrent
with this offering in a private placement at an assumed price to the public
of $6.00 per share. Excludes, as of September 30, 1996, 746,354 shares of
Common Stock reserved for issuance upon the exercise of outstanding options
granted pursuant to the Company's Incentive Stock Plan at a weighted average
exercise price of $0.65 per share and 114,251 shares of Common Stock
issuable upon the exercise of outstanding warrants at a weighted average
exercise price of $7.17 per share. See "Management -- Stock Plans," "Certain
Transactions" and Notes 3 and 8 of Notes to Financial Statements included
herein.

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
-------------------- ---------------------------------
1996 1995 1996 1995 1994(1)
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative research and
development revenues from
affiliate....................... $ 2,588 $ 1,574 $10,449 $ 2,664 $ --
------ ------- -------
Operating expenses:
Research and development........ 3,026 1,640 11,020 3,372 571
General and administrative...... 192 177 972 624 115
------ ------- -------
Total operating expenses..... 3,218 1,817 11,992 3,996 686
------ ------- -------
Loss from operations.............. (630) (243) (1,543) (1,332) (686)
Interest income................... 102 50 240 107 --
Interest expense.................. (22) -- (29) -- --
------ ------- -------
Net loss.......................... $ (550) $ (193) $(1,332) $(1,225) $ (686)
====== ======= =======
Pro forma net loss per share(2)... $ (.07) $ (0.19)
====== =======
Shares used in per share
calculation..................... 7,761 7,126
====== =======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
PRO FORMA JUNE 30,
ACTUAL AS ADJUSTED(3) 1996
------- -------------- --------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................................... $ 7,009 $ 26,209 $ 7,024
Working capital......................................... 4,676 23,876 5,613
Total assets............................................ 8,930 28,130 8,965
Total liabilities....................................... 2,342 2,342 2,045
Accumulated deficit..................................... (3,793) (3,793) (3,244)
Stockholders' equity.................................... 6,588 25,788 6,920
</TABLE>

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(1) From the Company's inception on June 17, 1993 through June 30, 1994.

(2) See Note 2 of Notes to Financial Statements included herein for a
description of the computation of pro forma net loss per share.

(3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $6.00 per
share and the sale of 1,000,000 shares of Common Stock to RPR concurrent
with this offering in a private placement at a price equal to the intial
offering price and the receipt of the estimated net proceeds therefrom.

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<PAGE> 7

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information contained in this Prospectus,
in evaluating an investment in the shares offered hereby.

EARLY STAGE OF DEVELOPMENT; NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT

The Company is engaged in the development of gene therapy products and
related delivery systems for the treatment of cancer. No gene therapy products
are currently being marketed. The Company does not expect to have any products
commercially available for a number of years, if at all. Because the Company's
research and clinical development programs are at an early stage, substantial
additional research will be necessary in order for the Company to fully develop
products based on the Company's licensed technology. No assurance can be given
that any of the Company's development programs will be successfully completed,
that clinical trials will commence as planned, that required regulatory
approvals will be obtained on a timely basis, if at all, or that any products
for which approval may be obtained will be commercially successful. As products
are identified, they will require significant additional research, development,
preclinical and clinical testing, regulatory approval and substantial additional
investment prior to commercialization. There can be no assurance that any such
potential products will be successfully developed, proven to be safe and
efficacious in clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at acceptable costs, be eligible for
third party reimbursement from governmental or private insurers, be successfully
marketed or achieve market acceptance. Further, these potential products may
prove to have undesirable or unintended side effects and require complex
delivery systems that may prevent or limit their commercial use. The Company has
not completed any Phase I or Phase I/II clinical trials of its potential
products. To date, no gene therapy products for cancer have been approved for
sale in the United States or internationally. If any of the Company's
development programs are not successfully completed, required regulatory
approvals are not obtained, or products for which approvals are obtained are not
commercially successful, the Company's business, financial condition and results
of operations would be materially adversely affected.

The Company's business is subject to the risks inherent in the development
of new products using new technologies and approaches. There can be no assurance
that unforeseen problems will not develop with these technologies or
applications, that the Company will be able to successfully address
technological challenges it encounters in its research and development programs
or that commercially feasible products will ultimately be developed by the
Company. See "Business of Introgen -- Product Development Programs."

LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY

The Company is at a very early stage of development and has a limited
operating history which investors may use to evaluate its prospects or future
performance. Since its inception in June 1993, the Company has been engaged in
organizational and start-up activities, including the negotiation of the
collaborative agreements with UTMDACC and RPR, and early stage development of
potential gene therapy products for cancer. At September 30, 1996, the Company
had an accumulated deficit since inception of approximately $3.8 million. The
Company's only revenues to date have been payments from RPR under collaborative
research agreements and interest income. The Company anticipates that it will
incur losses in the future, which are likely to be greater than losses incurred
in prior years. Introgen also expects to incur substantial additional operating
expenses over the next several years as its research, development, preclinical
testing and clinical trial activities increase. To the extent that the Company
is unable to extend RPR's obligation to fund early stage research and
development beyond October 1997, the Company would incur even greater increases
in expenses and losses from operations. There can be no assurance that the
Company's products under development will be successfully developed or that its
products, if successfully developed, will generate revenues sufficient to enable
the Company to earn a profit. Introgen does not expect to generate revenues from
the sale of products, if any, for the foreseeable future. The Company's ability
to achieve profitability depends in part on its ability to enter into agreements
for product development, obtain regulatory approval for its products and develop
the capacity, or enter into agreements, for the manufacture, marketing and sale
of products. There can be no assurance that Introgen will obtain required

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<PAGE> 8

regulatory approvals, or successfully develop, manufacture, commercialize and
market product candidates or that the Company will ever achieve product revenues
or profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business of Introgen -- Collaborative
Arrangements and Licensing Agreements."

NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL; DISCRETION AS TO
USE OF PROCEEDS

The Company will require substantial additional funding in order to
continue its research and product development programs (including preclinical
testing and clinical trials of its product candidates), for operating expenses
and, for the pursuit of regulatory approvals for its product candidates.
Introgen may also require additional funding to establish manufacturing and
marketing capabilities in the future. The Company believes that its existing
capital resources, the net proceeds of this offering and the concurrent private
placement, and future payments under collaborative agreements will be sufficient
to satisfy its funding requirements through December 1997 but may not be
sufficient to fund the Company's operations to the point of commercial
introduction of any of its potential products. However, no assurance can be
given that such resources will be sufficient to conduct its research and
development programs as planned, or that changes in the Company's research and
development plans or other changes affecting the Company's operating expenses
will not result in the expenditure of such resources before such time. The
Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
magnitude of these programs, progress with preclinical testing and clinical
trials, the time and expense involved in obtaining regulatory approvals, if any,
competing technological and market developments, the establishment of additional
collaborative arrangements, the costs involved in filing and prosecuting patent
applications and enforcing patent claims, establishing manufacturing facilities,
conducting commercialization activities and arrangements, product in-licensing
and any possible acquisitions. There can be no assurance that the Company's cash
reserves and other liquid assets, including the net proceeds of this offering,
together with funding that may be received under the Company's collaborative
agreements will be adequate to satisfy its capital and operating requirements.

The Company intends to seek additional funding through collaborative
agreements and may seek additional funding through public or private sales of
the Company's securities, including equity securities, or from other sources. In
addition, the Company may pursue opportunities to obtain debt financing in the
future. There can be no assurance, however, that additional equity or debt
financing will be available on reasonable terms, if at all. Any future equity
financings may be dilutive to the Company's stockholders. If adequate funds are
not available, the Company may be required to curtail significantly one or more
of its research and development programs and/or obtain funds through
arrangements with corporate partners or others that may require the Company to
relinquish rights to certain of its technologies or product candidates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company expects to use the net proceeds of this offering to pay costs
and expenses related to product research and development, product clinical
trials, manufacturing scale-up and capacity expansion, support of sponsored
research programs, marketing and sales organization development, and other
general corporate purposes. As of the date of this Prospectus, other than as set
forth above, the Company's management has no specific plans as to the use of the
net proceeds from this offering, and will have broad discretion in the
application of the proceeds. Pending any such uses, the net proceeds will be
invested in investment-grade, interest-bearing securities. See "Use of
Proceeds."

DEPENDENCE ON COLLABORATIVE ARRANGEMENTS

The Company's business strategy for the development, clinical trials,
manufacturing and commercialization of its products includes maintaining and
entering into various collaborations with corporate partners, academic
institutions and others to help it carry out research, clinical testing,
manufacturing and commercialization of its products. To date, the Company has
entered into collaborative arrangements with several partners, including UTMDACC
and RPR. There can be no assurance that the Company will be able to maintain
existing collaborative arrangements, negotiate collaborative arrangements in the
future on acceptable terms, if at all, or that any such collaborative
arrangements will be successful. In addition, the Company's

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<PAGE> 9

leading product candidates are being developed in collaboration with RPR. Other
potential products of the Company are at a very early stage of preclinical
development, and there can be no assurance that the Company will be able to
enter into collaborative arrangements with established pharmaceutical companies
to develop and commercialize such potential products or that such arrangements
could be entered into within a reasonable period of time or on terms acceptable
to the Company.

To the extent that the Company is not able to maintain or establish such
arrangements, the Company would be required to undertake such activities at its
own expense, which would significantly increase the Company's capital
requirements and limit the programs the Company would be able to pursue. In
addition, the Company may encounter significant delays in introducing its
products into certain markets or find that the development, manufacture or sale
of its products in such markets is adversely affected by the absence of such
collaborative agreements. RPR's obligation to continue funding of early stage
research and development pursuant to the collaborative arrangement with Introgen
expires in October 1997. There can be no assurance that the funding under the
collaborative arrangement will be extended under the existing or acceptable
terms, if at all. If RPR does not elect to continue the funding, Introgen would
have to fund such research on its own. Moreover, under the collaboration
arrangement, Introgen is precluded from marketing or licensing to third parties
any p53 or K-ras products prior to October 2004. If the Company is successful in
developing such products on its own, this could delay marketing efforts.

The Company cannot control the amount and timing of resources that its
collaborative partners devote to the Company's programs or potential products,
which can vary because of factors unrelated to such programs or potential
products. In particular, RPR may be largely responsible for the later stage
clinical development of the Company's p53 and K-ras products being developed in
collaboration with RPR, and no assurance can be given as to the resources that
RPR will devote to such development. In addition, these relationships may in
some cases be terminated at the discretion of the Company or the Company's
collaborative partners with only limited notice to the Company and for reasons
outside the Company's control, including failure by the Company to meet certain
technical milestones or satisfy other contractual obligations, some of which may
require significant clinical progress.

If any of the Company's collaborative partners breaches or terminates its
agreements with the Company or fails to conduct its collaborative activities in
a timely manner, the preclinical or clinical development or commercialization of
product candidates or research programs will be delayed, and the Company will be
required to devote additional resources to product development and
commercialization or terminate certain development programs. There can also be
no assurance that disputes will not arise in the future with respect to the
ownership of rights to any technology developed with collaborators or otherwise.
Possible disagreements between collaborators and the Company could lead to
delays in the collaborative research, development or commercialization of
certain product candidates or could require or result in litigation or
arbitration, which may be time consuming and expensive, and would have a
material adverse effect on the Company's business, financial condition and
results of operations.

In addition, the Company's collaborative partners may develop outside of
the scope of the collaboration agreements, either alone or with others, products
that compete with the development and marketing of the Company's products.
Competing products, either developed by the collaborative partners or to which
the collaborative partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business of Introgen -- Collaborative
Arrangements and Licensing Agreements."

PATENT APPLICATIONS AND PROPRIETARY TECHNOLOGY

The Company's patent position, like that of other biotechnology and
pharmaceutical companies, is highly uncertain and involves complex legal and
factual questions. Claims made under patent applications may be denied or
significantly narrowed. There can be no assurance that any patents which may be
issued as a result of the Company's licensed United States and international
patent applications will provide any competitive advantage to the Company or
that they will not be successfully challenged, invalidated or circumvented in
the

8
<PAGE> 10

future. In addition, there can be no assurance that competitors, many of which
have substantial resources and have made significant investments in competing
technologies, will not seek to apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make, use and sell its
potential products either in the United States or in international markets.

Patent applications in the United States are, in most cases, maintained in
secrecy until patents issue, and publication of discoveries in the scientific or
patent literature frequently occurs substantially later than the date on which
the underlying discoveries were made. Consequently, the Company cannot be
certain that its licensed patent applications lay claim to the first made
inventions or that they were the first filed patent applications for such
inventions.

The biotechnology and pharmaceutical industry has been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies have employed intellectual property litigation to gain a
competitive advantage. There are a number of filed and issued patents related to
gene therapy and the treatment of cancer by gene therapy. A series of patents
controlled by Enzo Biochem, Inc. ("Enzo Biochem") relating to antisense
technology has recently been found invalid by the United States District Court
for the District of Delaware. Introgen anticipates that Enzo Biochem will appeal
this ruling. If the ruling is overturned and this series of patents is held to
be valid, Introgen's RV-AS-K-ras product could be subject to an infringement
claim.

Canji, Inc. ("Canji"), a wholly-owned subsidiary of Schering-Plough
Corporation ("Schering-Plough"), controls a pending United States patent
application and its European counterpart which involve p53 related therapeutic
applications. The Company's knowledge about the status of this United States
patent application is limited because this United States application has been
maintained in secrecy. The claims of the European counterpart to this
application have been rejected but could later be allowed based upon further
prosecution. Another pending United States patent application and its European
counterpart involve a method of supplying normal p53 function to a cell which
has lost such function and associated delivery systems. These patent
applications are controlled by Pharmagenics, Inc. ("Pharmagenics"). Accordingly,
since neither application has issued, the Company is unable to assess the
potential breadth and validity of these pending applications.

In addition, Canji controls an issued United States patent and its European
counterpart involving a method of treating mammalian cancer cells lacking normal
p53 protein by introducing into the cancer cell a normal p53 protein. While the
Company believes, after consultation with its patent counsel, that its potential
products do not infringe any valid claim of the Canji patent, there can be no
assurance that Canji will not assert a claim against the Company. Furthermore,
there can be no assurance that the Company will not become subject to any other
patent infringement claims or litigation arising out of pending applications,
should they issue, including the Canji and Pharmagenics applications described
above, or interference proceedings declared by the United States Patent and
Trademark Office ("USPTO") to determine the priority of inventions.

The defense and prosecution of intellectual property suits, USPTO
interference proceedings and related legal and administrative proceedings
involve complex legal and factual questions. As a result such proceedings are
costly and time-consuming to pursue and their outcome is uncertain. Litigation
may be necessary to enforce patents issued or licensed to the Company, to
protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference proceedings will result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. An adverse determination in litigation or interference
proceedings to which the Company may become a party could subject the Company to
significant liabilities to third parties or require the Company to seek licenses
from third parties or prevent the Company from selling its products in certain
markets, or at all. Although patent and intellectual property disputes are often
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that the necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could restrict or prevent the

9
<PAGE> 11

Company from manufacturing and selling its products, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.

In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through confidentiality and
proprietary information agreements. There can be no assurance that such
confidentiality or proprietary information agreements will not be breached, that
the Company would have adequate remedies for any breach, or that the Company's
trade secrets will not otherwise become known to or be independently developed
by competitors.

UNCERTAINTIES RELATED TO CLINICAL TRIALS

Before obtaining regulatory approvals for the commercial sale of any of its
potential products, the Company must demonstrate through preclinical testing and
clinical trials that the product is safe and effective for use in the target
indication. The Company's products have only been administered to a total of 48
patients. The results from preclinical testing and early clinical trials may not
be predictive of results obtained in later clinical trials, and there can be no
assurance that clinical trials conducted by the Company will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or
will result in marketable products. In addition, the Company's clinical trials
are conducted with patients who have failed conventional treatments and they are
often in the most advanced stages of the disease. During the course of
treatment, these patients can die or suffer adverse medical effects for reasons
that may not be related to the pharmaceutical agent being tested but which can
nevertheless adversely affect clinical trial results. A number of companies in
the biotechnology and pharmaceutical industries have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. If the Company's product candidates are not shown to be safe and
effective in clinical trials, the resulting delays in developing other products
and conducting related preclinical testing and clinical trials, as well as the
potential need for additional financing, would have a material adverse effect on
the Company's business, financial condition and results of operations.

The commencement and rate of completion of clinical trials conducted by the
Company may be delayed by many factors, including slower than expected patient
recruitment or unforeseen safety issues. In addition, the results of ongoing
clinical trials could cause the Company to terminate, modify or delay currently
scheduled clinical trials. Any delays in, or termination of, the Company's
clinical trials would have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
Introgen will be permitted by regulatory authorities to undertake any additional
clinical trials for its potential products or, if such additional trials are
conducted, that any of the Company's product candidates will prove to be safe
and efficacious or will receive regulatory approvals. See "Business of
Introgen -- Product Development Programs" and "-- Government Regulation."

GOVERNMENT REGULATIONS; NO ASSURANCE OF REGULATORY APPROVALS

The Company's research, preclinical testing and clinical trials of its
potential products are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous government
authorities in the United States, including the United States Food and Drug
Administration (the "FDA"), and in other countries where the Company intends to
test and market its product candidates. Prior to marketing, any product
developed by the Company must undergo an extensive regulatory approval process.
This regulatory process includes preclinical testing and clinical trials of each
product candidate to establish its safety and efficacy, can take many years and
require the expenditure of substantial resources, and will involve
post-marketing surveillance. Data obtained from preclinical testing and clinical
trials are susceptible to varying interpretations which could delay, limit or
prevent regulatory approval. In addition, delays or rejections may be
encountered based upon changes in FDA policy for drug approval during the period
of product development and the FDA regulatory review of each submitted new drug
application ("NDA") or product license application ("PLA"). Similar delays may
also be encountered in foreign countries. There can be no assurance that
regulatory approval will be obtained for any products developed by the Company.
Moreover, regulatory approval may entail limitations on the indicated uses of
the product. Further, even if regulatory approval is obtained, a marketed drug
and its manufacturer are subject to continuing review, and discovery of
previously unknown problems with a product or manufacturer can result in the
withdrawal of the product from the

10
<PAGE> 12

market. Violations of regulatory requirements at any stage, including
preclinical testing and clinical trials, the approval process or post-approval,
may result in various adverse consequences including the FDA's delay in
approving or its refusal to approve a product, withdrawal of an approved product
from the market, and the imposition of civil or criminal penalties against the
manufacturer and NDA or PLA holder. The Company has not completed any Phase I or
Phase I/II clinical trials of its potential products or commenced any Phase
II/III trials. To date, no gene therapy products for cancer have been approved
for sale in the United States or internationally. No assurance can be given that
the Company will be able to obtain FDA approval for any products. Failure to
obtain requisite regulatory approvals or failure to obtain approvals of the
scope requested will delay or preclude the Company from marketing its products,
could limit the commercial use of its products and would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business of Introgen -- Government Regulation."

INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE

The biotechnology and pharmaceutical industries are subject to rapid and
intense technological change. The Company faces, and will continue to face,
competition in the development and marketing of its product candidates from
academic institutions, government agencies, research institutions and
biotechnology and pharmaceutical companies. Competition may arise from other
drug development technologies, methods of preventing or reducing the incidence
of disease, including vaccines, and new small molecule or other classes of
therapeutic agents. There can be no assurance that developments by others will
not render the Company's product candidates or technologies obsolete or
noncompetitive.

There are many companies, both publicly and privately held, including
well-known pharmaceutical companies, as well as academic and other research
institutions, engaged in developing products for the treatment of cancer. The
Company is aware that Canji, a wholly-owned subsidiary of Schering-Plough, is
currently conducting clinical trials with p53 related gene therapy products.
Various small molecule drug and antisense approaches to cancer treatment are
being investigated by other companies in earlier stages of research and
development. The Company is also aware that Onyx Pharmaceuticals, Inc. has
initiated a clinical study of a virus-based therapy which targets cells that are
mutant for p53. Certain companies, including Merck & Co. and Genentech, Inc.,
are developing small molecule drugs to inhibit targets involving the ras
pathway. Other companies have developed or are developing small molecule drugs,
gene therapy and antisense approaches to treat ras-related cancers. Many of
these companies and institutions have substantially greater financial resources
and larger research and development staffs than the Company. In addition, many
of these competitors have significantly greater experience than the Company in
developing products, in undertaking preclinical testing and human clinical
trials, in obtaining FDA and other regulatory approvals of products and in
manufacturing and marketing products. Accordingly, the Company's competitors may
succeed in obtaining patent protection, receiving FDA approval or
commercializing products more rapidly than the Company. If and when the Company
commences commercial sales of products, it will be competing against companies
with greater marketing and manufacturing capabilities, areas in which it has
limited or no experience. The Company also competes with universities and other
research institutions in the development of products, technologies and
processes. In many instances, the Company competes with other commercial
entities in acquiring products or technologies from universities. See "Business
of Introgen -- Competition."

LIMITED MANUFACTURING EXPERIENCE

The material used in the Company's preclinical testing and clinical trials
was produced by UTMDACC and by a third-party contract manufacturer. The Company
recently completed a pilot-scale manufacturing facility with sufficient capacity
to supply Ad-p53 for currently planned clinical trials. The Company has not
produced RV-p53 or any of its other potential products at its pilot-scale
manufacturing facility. The production of clinical quantities of material
requires advanced manufacturing techniques and rigorous process controls.
Furthermore, the Company is required to register the facility with the FDA and
is subject to inspections confirming compliance with current Good Manufacturing
Practices ("cGMP") regulations established by the FDA. This facility is
currently producing its first batches of Ad-p53 for evaluation. No

11
<PAGE> 13

assurance can be given that the Company will be able to produce clinical
quantities of its potential products in compliance with applicable regulations
or at an acceptable cost.

The Company is considering the establishment of a commercial-scale cGMP
manufacturing facility to further support clinical trials and the possible
commercial sale of its potential products. If the Company decides to proceed
with construction, the Company estimates that it will take a minimum of
approximately 24 to 30 months at a minimum cost of approximately $8 to $12
million to construct and to validate the cGMP manufacturing facility. Companies
often encounter manufacturing difficulties, including problems involving
production yields, quality control and assurance or shortages of qualified
personnel, during the scale-up of manufacturing. There can be no assurance that
the Company will actually construct a commercial-scale cGMP manufacturing
facility, that the Company's estimates of the time and costs involved in
constructing such a facility are accurate or that if it is constructed, the
manufacturing facility will be able to produce commercial quantities of its
potential products in compliance with applicable regulations or at an acceptable
cost.

If the Company is unable to produce its potential products in clinical or,
if necessary, commercial quantities, then it will remain dependent on
third-party contract manufacturers for the production of such materials. There
are only a limited number of contract manufacturers who have the ability and
capacity to produce the Company's potential products. Failure by any such
contract manufacturer or the Company to deliver the Company's required
quantities of potential products on a timely basis and at commercially
reasonable prices would materially adversely affect the Company's business,
financial condition and results of operations.

NO MARKETING AND SALES EXPERIENCE

The Company has no experience in marketing or selling pharmaceutical
products and does not have a marketing and sales staff. In order to achieve
commercial success for any product candidate approved by the FDA, Introgen must
either develop a marketing and sales force or enter into arrangements with third
parties to market and sell its products. There can be no assurance that Introgen
will successfully develop such experience or that it will be able to enter into
marketing and sales agreements with others on acceptable terms, if at all. If
the Company develops its own marketing and sales capabilities as part of a
marketing collaboration with RPR to sell products in North America, it will
compete with other companies that have experienced and well-funded marketing and
sales operations. To the extent that RPR has exclusive marketing and sales
rights in Europe and to the extent that the Company enters into a marketing
collaboration with RPR, any revenues to be received by Introgen will be
dependent on the efforts of others. There can be no assurance that such efforts
will be successful. See "Business of Introgen -- Marketing and Sales."

NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS

The Company is highly dependent on the principal members of its scientific
and management staff. In order to pursue its product development and marketing
plans, the Company will be required to hire additional qualified scientific
personnel to perform research and development, as well as personnel with
expertise in clinical testing, government regulation, manufacturing and
marketing. In addition, the Company will be required to hire additional
qualified scientific personnel in order to meet its obligations to perform
research under its collaborative agreements with RPR. Expansion in product
development also is expected to require the addition of management personnel and
the development of additional expertise by existing management personnel.
Attracting and retaining qualified personnel, consultants and advisors will be
critical to the Company's success. There can be no assurance that the Company
will be able to attract and retain personnel on acceptable terms given the
competition for such personnel among biotechnology, pharmaceutical and health
care companies, universities and non-profit research institutions. In addition,
the Company relies on members of its Scientific Advisory Board and several other
consultants to assist the Company in formulating its research and development
strategy. All of Introgen's consultants and the members of the Company's
Scientific Advisory Board are employed by employers other than the Company, and
may have commitments to, or advisory or consulting agreements with, other
entities that may limit their availability to the Company. The loss of services
of any of these personnel could impede the achievement of the Company's
development objectives. See "Business of Introgen -- Scientific Advisory Board"
and "Management."

12
<PAGE> 14

POTENTIAL PRODUCT LIABILITY EXPOSURE AND LIMITED INSURANCE COVERAGE

The use of any of the Company's potential products in clinical trials, and
the sale of any approved products, may expose the Company to liability claims
resulting from the use of its products. These claims might be made directly by
consumers, health care providers or by pharmaceutical companies or others
selling such products. Introgen has obtained limited product liability insurance
coverage for its clinical trials in the amount of $2.0 million per occurrence
and $2.0 million in the aggregate. The Company intends to expand its insurance
coverage to include the sale of commercial products if marketing approval is
obtained for products in development. However, insurance coverage is becoming
increasingly expensive, and no assurance can be given that the Company will be
able to maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect the Company against losses due to liability. There can also
be no assurance that the Company will be able to obtain commercially reasonable
product liability insurance for any products approved for marketing. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations.

HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS

The Company's research and development processes involve the controlled use
of hazardous and radioactive materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by such laws and 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 believes that it is in compliance in all material
respects with applicable environmental laws and regulations. Accordingly, it
does not expect to make material capital expenditures for environmental control
facilities in the near-term. However, there can be no assurance that it will not
be required to incur significant costs to comply with environmental laws and
regulations in the future, or that the operations, business or assets of the
Company will not be materially adversely affected by the costs of compliance
with current or future environmental laws or regulations.

NO PRIOR PUBLIC MARKET FOR COMMON STOCK

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that a regular trading market will develop
and continue after this offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined through negotiations between the Company and
the representatives of the Underwriters (the "Representatives") and may not be
indicative of the market price of the Common Stock following this offering.
Among the factors considered in such negotiations are prevailing market
conditions, certain financial information of the Company, market valuations of
other companies that the Company and the Representatives believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant. See "Underwriting."

VOLATILITY OF COMMON STOCK PRICE

The market prices for securities of biotechnology and pharmaceutical
companies have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new therapeutic products by the Company or others, clinical trial
results, developments concerning collaborative arrangements, government
regulation, developments in patent or other proprietary rights, public concern
as to the safety of potential products developed by the Company or others,
future sales of substantial amounts of Common Stock by existing stockholders,
comments by securities analysts and general market conditions can have an
adverse effect on the market price of the Common Stock. In addition, the
realization of any of the risks described in

13
<PAGE> 15

these "Risk Factors" could have a dramatic and material adverse impact on market
price of the Company's Common Stock.

POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

As of September 30, 1996, 860,605 shares of Common Stock are issuable upon
the exercise of outstanding stock options, warrants and conversion rights. The
issuance of Common Stock, which will occur upon the exercise of such stock
options, warrants and conversion rights, and as a result of future sales of
Common Stock by the Company or by existing stockholders, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock. In private placement transactions between August 1994 and June 1996, the
Company sold to RPR and various institutional and individual investors shares of
convertible preferred stock of the Company (the "Convertible Preferred Stock"),
which will convert into 5,220,409 shares of Common Stock at the closing of this
offering. The sale of a significant number of shares by these investors could
have a substantial negative impact on the market price of the Common Stock or
impair the Company's ability to raise capital. In addition, RPR and the Board of
Regents of the University of Texas System (the "Board of Regents"), are
significant stockholders. The sale of shares by either of these entities could
have a substantial negative impact on the market price of the Common Stock. Each
of the Company's officers, directors and certain other stockholders has agreed
with the Representatives for a period of 180 days after the date of this
Prospectus, subject to certain exceptions, not to offer to sell, contract to
sell, grant an option to sell, or otherwise dispose of any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of PaineWebber Incorporated.
However, PaineWebber Incorporated may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to these
lock-up agreements. Certain stockholders are also entitled to registration
rights. See "Description of Capital Stock -- Registration Rights of Certain
Holders" and "Shares Eligible for Future Sale."

CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS

Following this offering, the present directors, executive officers and
principal stockholders of the Company and their affiliates will beneficially own
approximately 72% of the Common Stock. Accordingly, such stockholders, if they
act together, will have the ability to control the election of the Company's
directors and most other stockholders' actions. See "Principal Stockholders."

POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company's restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") does not provide for cumulative voting in the
election of directors. In addition, the Board of Directors has the authority,
without further action by the stockholders, to fix the rights and preferences
of, and issue shares of, Preferred Stock. Further, the Company is subject to
Section 203 of the Delaware General Corporation Law which, subject to certain
exceptions, restricts certain transactions and business combinations between a
corporation and a stockholder owning 15% or more of the corporation's
outstanding voting stock (an "interested stockholder") for a period of three
years from the date the stockholder becomes an interested stockholder. The lack
of cumulative voting, preferred stock provision and other provisions of the
Company's charter and Delaware corporate law may discourage certain types of
transactions involving an actual or potential change in control of the Company.
In addition, in the event of a merger, reorganization or change in the ownership
of the Company, all options outstanding under the Company's Incentive Stock Plan
and Director Option Plan shall be fully vested. See "Description of Capital
Stock -- Certain Charter and Bylaws Provisions and Delaware Anti-Takeover
Statute," "Management -- Compensation of Directors" and "-- Stock Plans."

14
<PAGE> 16

IMMEDIATE AND SUBSTANTIAL DILUTION

Upon the purchase of the Common Stock offered hereby, investors will
experience an immediate and substantial dilution of $3.69 per share in the pro
forma net tangible book value of the Common Stock they acquire in this offering
and in the RPR private placement. Additional dilution is likely to occur upon
the exercise of options, warrants and conversion rights granted by the Company.
See "Dilution" and "Shares Eligible for Future Sale."

ABSENCE OF CASH DIVIDENDS

The Company has never paid any cash dividends and does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. See
"Dividend Policy."

15
<PAGE> 17

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 $13.2 million
($15.3 million if the Underwriters' over-allotment option is exercised in full),
at an assumed initial public offering price of $6.00 per share, after deducting
the estimated underwriting discounts and commissions and offering expenses.

The Company anticipates using the net proceeds from this offering as
follows: approximately $10.8 million to fund its research and development
efforts, including product clinical trials, manufacturing scale-up and capacity
expansion and support of sponsored research programs, and approximately $2.4
million to fund marketing and sales organization development and other general
corporate purposes. Although the Company expects to use the proceeds from this
offering for the above mentioned activities no specific allocations of the
offering proceeds have been made by the Company. The actual amount and timing of
expenditures in each of these areas may vary significantly depending upon the
rate of the Company's progress in research and development, the results of
preclinical studies and clinical trials, the timing of regulatory approvals,
receipt of payments, if any, under collaborative agreements entered into by the
Company, the availability of alternative methods of financing, and competitive
developments. Pending such uses, the net proceeds of this offering will be
invested in investment-grade, interest-bearing securities.

The Company believes that its existing capital resources, the net proceeds
of this offering and the concurrent private placement, and future payments due
under collaborative agreements will be sufficient to satisfy its funding
requirements through December 1997 but may not be sufficient to fund the
Company's operations to the point of commercial introduction of any of its
potential products. There can be no assurance, however, that changes in the
Company's research and development plans or other changes affecting the
Company's operating expenses will not result in the expenditure of such
resources before such time. The Company will need to raise substantial
additional funds to continue to conduct its research and development programs
and to commence or continue the preclinical studies and clinical trials
necessary to obtain regulatory approval for any of its proposed products. There
can be no assurance that such funds will be available on favorable terms, or at
all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," and "Risk
Factors -- Need for Additional Funding; Uncertainty of Access to Capital;
Discretion as to Use of Proceeds."

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings, if any, and will not pay cash dividends
in the foreseeable future. Any future determination to pay cash dividends will
be at the discretion of the Board of Directors and will be dependent upon the
Company's financial condition, results of operations, capital requirements,
general business conditions and such other factors as the Board of Directors may
deem relevant.

16
<PAGE> 18

CAPITALIZATION

The following table sets forth as of September 30, 1996, after giving
effect to the 1.2 for 1 split of the Common Stock and the filing of an amendment
to the Company's Certificate of Incorporation authorizing 50,000,000 shares of
Common Stock, $0.001 par value, both effected in August 1996, (i) the pro forma
capitalization of the Company after giving effect to the conversion of all of
the outstanding shares of Convertible Preferred Stock into Common Stock and the
filing of the Restated Certificate of Incorporation authorizing 5,000,000 shares
of Preferred Stock, $0.001 par value (the "Preferred Stock"), at the closing of
this offering and (ii) the pro forma capitalization of the Company as adjusted
to reflect the issuance and sale of 2,500,000 shares of Common Stock offered
hereby at an assumed public offering price of $6.00 per share and the sale of $6
million of Common Stock to RPR in a concurrent private placement at a price per
share equal to the initial public offering price per share and the receipt of
the estimated net proceeds therefrom. This table should be read in conjunction
with the financial statements, related notes and other financial information
included herein.

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, 5,000,000 shares ($.001 par value)
authorized: none issued and outstanding pro forma or
pro forma as adjusted................................. -- --
Common Stock, 50,000,000 shares ($.001 par value)
authorized; 7,663,769 shares issued and outstanding
pro forma and 11,163,769 shares issued and outstanding
pro forma
as adjusted........................................... 7 11
Additional paid-in capital............................... 11,753 30,949
Deferred compensation.................................... (1,379) (1,379)
Accumulated deficit...................................... (3,793) (3,793)
------- -------
Total............................................ $ 6,588 $ 25,788
======= =======
</TABLE>

- ---------------
(1) Excludes, as of September 30, 1996, 746,354 shares of Common Stock reserved
for issuance upon exercise of outstanding options granted pursuant to the
Company's Incentive Stock Plan at a weighted average exercise price of $0.65
per share and 114,251 shares of Common Stock issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $7.17 per
share. See "Management -- Stock Plans," "Certain Transactions" and Notes 3
and 8 of Notes to Financial Statements.

17
<PAGE> 19

DILUTION

The pro forma net tangible book value of the Company as of September 30,
1996 was $6.6 million or $0.86 per share of Common Stock. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding after giving effect to the conversion of all outstanding shares of
Convertible Preferred Stock into Common Stock upon closing of this offering and
the 1.2 for 1 stock split effected in August 1996. Pro forma net tangible book
value dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in the offering made hereby and the
adjusted pro forma net tangible book value per share of Common Stock immediately
after completion of this offering. After giving effect to the sale of 2,500,000
shares of Common Stock offered hereby (at an assumed public offering price of
$6.00 per share) and the sale of $6 million of Common Stock to RPR in a
concurrent private placement at a price per share equal to the initial public
offering price per share and the receipt of the estimated net proceeds
therefrom, the adjusted pro forma net tangible book value as of September 30,
1996 would have been $25.8 million or approximately $2.31 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value of $1.45 per share to existing stockholders and an immediate dilution in
adjusted pro forma net tangible book value of $3.69 per share to new investors
of Common Stock in this offering and the private placement, as illustrated by
the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $ 6.00
Pro forma net tangible book value as of September 30, 1996........ $0.86
Increase attributable to new investors............................ 1.45
-----
Adjusted pro forma net tangible book value after offering........... 2.31
------
Dilution per share to new investors................................. $ 3.69
======
</TABLE>

The following table sets forth, on a pro forma basis as of September 30,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
(assuming a public offering price of $6.00 per share) by the existing holders of
Common Stock and by the new investors, before deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 7,663,769 68.6% $10,457,054 33.2% $ 1.36
New investors(1)......... 3,500,000 31.4% 21,000,000 66.8 6.00
---------- ------ ---------- ------
Total.......... 11,163,769 100.0% $31,457,054 100.0%
========== ====== ========== ======
</TABLE>

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

(1) Includes the sale of $6 million of Common Stock to RPR in a private
placement at a price per share equal to the initial public offering price
per share.

The calculation of net tangible book value and other computations above
assumes no exercise of outstanding options or warrants. As of September 30,
1996, 746,354 shares of Common Stock were subject to outstanding options granted
pursuant to the Company's Incentive Stock Plan at a weighted average exercise
price of $0.65 per share and 114,251 shares of Common Stock were subject to
outstanding warrants at a weighted average exercise price of $7.17 per share.
See "Management -- Stock Plans," "Certain Transactions" and Notes 3 and 8 of
Notes to Financial Statements.

18
<PAGE> 20

SELECTED FINANCIAL DATA

The selected financial data for the period from June 17, 1993 (date of
inception) through June 30, 1994, and for the years ended June 30, 1995 and 1996
and as of June 30, 1994, 1995 and 1996, are derived from the financial
statements of the Company which have been included elsewhere herein and have
been audited by Arthur Andersen LLP, independent public accountants. The
financial data for the three months ended September 30, 1996 and 1995 are
derived from unaudited financial statements included herein. The unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending June 30, 1997 or any future period. The data set forth below are
qualified by reference to and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------- -----------------------------
1996 1995 1996 1995 1994(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA) ------- ------- ------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative research and development
revenues from affiliate................ $ 2,588 $ 1,574 $10,449 $ 2,664 $ --
------
-
------ ------ ------ -------
Operating expenses:
Research and development............... 3,026 1,640 11,020 3,372 571
General and administrative............. 192 177 972 624 115
------
-
------ ------ ------ -------
Total operating expenses....... 3,218 1,817 11,992 3,996 686
------
-
------ ------ ------ -------
Loss from operations..................... (630) (243) (1,543) (1,332) (686)
Interest income.......................... 102 50 240 107 --
Interest expense......................... (22) -- (29) -- --
------
-
------ ------ ------ -------
Net loss................................. $ (550) $ (193) $(1,332) $(1,225) $(686)
====== ====== ====== ======= =======
Pro forma net loss per share(2).......... $ (.07) $ (0.19)
======
Shares used in per share calculation..... 7,761 7,126
======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1996 1995 1994
SEPTEMBER 30, ------- ------- -----
1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................ $ 7,009 $ 7,024 $ 2,799 $ 501
Working capital................................. 4,676 5,613 2,060 341
Total assets.................................... 8,930 8,965 3,478 521
Total liabilities............................... 2,342 2,045 903 180
Accumulated deficit............................. (3,793) (3,244) (1,911) (686)
Stockholders' equity............................ 6,588 6,920 2,575 341
</TABLE>

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

(1) From the Company's inception on June 17, 1993 through June 30, 1994.

(2) See Note 2 of Notes to Financial Statements for a description of the
computation of pro forma net loss per share.

19
<PAGE> 21

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

Since its inception in June 1993, the Company has devoted its resources
primarily to fund its research and development programs. At September 30, 1996,
the Company had an accumulated deficit since inception of approximately $3.8
million. The Company's only income to date has been payments from RPR under
collaborative research agreements and interest income. Introgen expects its
revenues and income for the next several years to continue to be derived solely
from these sources. RPR's obligation to continue funding Introgen's early stage
research and development activities pursuant to the collaboration arrangement
expires in October 1997. Even if RPR agrees to extend such research and
development funding, the terms of any such extension cannot be predicted. To the
extent that the Company is unable to extend such funding obligations of RPR
beyond October 1997, the Company would incur even greater increases in expenses
and losses from operations unless it is able to secure alternative funding. The
Company anticipates that it will incur losses in the future, which are likely to
be greater than losses incurred in prior years. There can be no assurance that
the Company's products under development will be successfully developed or that
its products, if successfully developed, will generate revenues sufficient to
enable the Company to earn a profit. Introgen does not expect to generate
revenues from the sale of products, if any, for the foreseeable future. See
"Risk Factors -- Limited Operating History; Uncertainty of Future Profitability"
and "-- Dependence on Collaborative Arrangements."

Payments in connection with collaborative research are recognized as
revenue as the Company performs its obligations related to such research
agreements. Deferred revenue is recorded for collaborative research payments
received for which the related expenses have not been incurred and for the
effect of research and development required to be funded by the Company under
the terms of its collaborative research agreements.

RESULTS OF OPERATIONS

Three Months Ended September 30, 1996 and 1995

Collaborative research and development revenues from affiliate (RPR) for
the three months ended September 30, 1996 were $2.6 million, as compared to $1.6
million for the three months ended September 30, 1995, an increase of 64%. This
increase was primarily due to increased reimbursement under collaborative
agreements as a result of increased preclinical research and development,
commencement of additional clinical trials and increased sponsored research
program activities.

The Company's research and development expenses for the three months ended
September 30, 1996 were $3.0 million, as compared to $1.6 million for the three
months ended September 30, 1995, an increase of 85%. This increase resulted
primarily from increased preclinical research and development, commencement of
additional clinical trials and increased sponsored research program activities.
The Company expects these expenses to increase in the future as these activities
continue to expand.

The Company recorded noncash deferred compensation of $892,000 and $693,000
for the three months ended September 30, 1996 and for the year ended June 30,
1996, respectively, in connection with certain options to purchase shares of
Common Stock granted during the three months ended September 30, 1996 and the
year ended June 30, 1996 of which $99,000 and $106,000 was recognized as
research and development expense for the three months ended September 30, 1996
and the year ended June 30, 1996, respectively. The remaining deferred
compensation of $1,379,000 at September 30, 1996, will be amortized ratably over
the vesting period of the options and will continue to impact the Company's
results of operations. See Notes 3 and 8 of Notes to Financial Statements.

General and administrative expenses increased to $192,000 for the three
months ended September 30, 1996, from $177,000 for the three months ended
September 30, 1995, an increase of 8%. The increase was due primarily to the
expansion of administrative support activities and increased business
development efforts. The Company expects these expenses to increase in the
future as these activities continue to expand.

Interest income for the three months ended September 30, 1996 increased to
$102,000, from $50,000 for the three months ended September 30, 1995, an
increase of 104% as a result of interest earned on higher cash balances derived
from private sales of stock to third parties and from stock sales to and
collaborative research payments from RPR.

20
<PAGE> 22

Interest expense for the three months ended September 30, 1996 increased to
$22,000 from zero for the three months ended September 30, 1995 as a result of
the financing of equipment acquisitions under capital leases. There were no
borrowings prior to September 30, 1995.

As a result of the foregoing, the Company recognized a net loss of $550,000
for the three months ended September 30, 1996, as compared to a net loss of
$193,000 for the three months ended September 30, 1995, an increase of 185%.

Years Ended June 30, 1996 and 1995

Collaborative research and development revenues from affiliate for the year
ended June 30, 1996 were $10.4 million, as compared to $2.7 million for the year
ended June 30, 1995, an increase of 292%. This increase was primarily due to
increased reimbursement under collaborative agreements as a result of increased
preclinical research and development, commencement of additional clinical trials
and increased sponsored research program activities.

The Company's research and development expenses for the year ended June 30,
1996 were $11.0 million, as compared to $3.4 million for the year ended June 30,
1995, an increase of 227%. This increase resulted primarily from increased
preclinical research and development, commencement of additional clinical trials
and increased sponsored research program activities.

General and administrative expenses increased to $972,000 for the year
ended June 30, 1996, from $624,000 for the year ended June 30, 1995, an increase
of 56%. The increase was due primarily to the expansion of administrative
support activities and increased business development efforts.

Interest income for the year ended June 30, 1996 increased to $240,000,
from $107,000 for the year ended June 30, 1995, an increase of 124% as a result
of interest earned on higher cash balances derived from private sales of stock
to third parties and from stock sales to and collaborative research payments
from RPR.

Interest expense for the year ended June 30, 1996 increased to $29,000 from
zero for the year ended June 30, 1995 as a result of the financing of equipment
acquisitions under capital leases during the year ended June 30, 1996. There
were no borrowings prior to June 30, 1995.

As a result of the foregoing, the Company recognized a net loss of $1.3
million for the year ended June 30, 1996, as compared to a net loss of $1.2
million for the year ended June 30, 1995, an increase of 9%.

Year Ended June 30, 1995 and the Period from Inception (June 17, 1993)
through June 30, 1994

Collaborative research and development revenues from affiliate for the year
ended June 30, 1995 were approximately $2.7 million. There were no revenues for
the period from June 17, 1993 (inception) through June 30, 1994. This increase
was the result of the commencement of preclinical research and development and
clinical trials in fiscal year 1995 and the corresponding receipt of payments
from RPR under the collaboration agreements.

The Company's research and development expenses for the year ended June 30,
1995 were approximately $3.4 million, as compared to $571,000 for the period
from June 17, 1993 (inception) through June 30, 1994, an increase of 491%. This
increase in research and development expenses resulted primarily from costs
related to the commencement of preclinical research and development and payments
for sponsored research and clinical trials.

General and administrative expenses increased to $624,000 for the year
ended June 30, 1995 from $115,000 for the period from June 17, 1993 (inception)
through June 30, 1994, an increase of 443%. This increase was due primarily to
increased business development efforts and the initiation of various
administrative support activities.

Interest income for the year ended June 30, 1995 of $107,000 was a result
of interest earned on cash balances resulting from stock sales and collaborative
research payments from RPR in fiscal 1995.

21
<PAGE> 23

As a result of the foregoing, the Company recognized a net loss of $1.2
million for the year ended June 30, 1995, as compared to a net loss of $686,000
for the period from June 17, 1993 (inception) through June 30, 1994, an increase
of 79%.

INCOME TAXES

The Company uses the liability method of accounting for income taxes. The
Company has had losses since inception and, therefore, has not been subject to
federal income taxes. As of June 30, 1996, the Company has generated net
operating loss (NOL) carryforwards of approximately $1.6 million and
approximately $12,500 of research and development credits which may be available
to reduce future income taxes. These carryforwards begin to expire in 2008. For
financial reporting purposes, a valuation allowance has been established as of
June 30, 1994, 1995 and 1996, to fully offset the Company's net deferred tax
assets, including those relating to its carryforwards. The Company's ability to
utilize these carryforwards to reduce future taxable income may be limited due
to ownership changes and may be further limited upon the completion of the
offering contemplated by this Prospectus. See Note 4 of Notes to Financial
Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception primarily through
private sales of its equity securities to third parties and from proceeds
received under research and development collaboration and stock purchase
agreements with RPR. Since June 17, 1993 (inception) through September 30, 1996,
the Company received approximately $9.9 million in net proceeds from sales of
its equity securities and $16.2 million under collaboration agreements with RPR.

At September 30, 1996, the Company had cash of approximately $7.0 million,
and working capital of approximately $4.7 million.

From June 17, 1993 (inception) through September 30, 1996, the Company has
acquired capital equipment in the aggregate amount of $811,000 through cash
purchases. Additionally, $1,061,000 of capital equipment has been acquired and
financed under capital lease arrangements during the same period.

Through September 30, 1996, the Company's collaborative research payments
have primarily been received in advance of each quarter's activity. The Company
expects its cash requirements to increase significantly in future periods. The
Company will require substantial funds to conduct research and development
programs, preclinical studies and clinical trials of its potential products and
to market any pharmaceutical products that are developed. The Company's capital
requirements will depend on numerous factors, including the progress of its
research and development programs, the scope and results of preclinical studies
and clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, changes in the Company's existing research relationships,
the ability of the Company to establish and maintain collaborative arrangements
providing for advance payments and the development of commercialization
activities and arrangements. In addition, it is possible the Company will expand
production of certain of its products during the fiscal years ending June 30,
1997 and thereafter for which the Company could expend significant resources
that could result in costs to the Company that have not been previously
incurred.

The Company believes that its existing capital resources, the net proceeds
of this offering and the concurrent private placement and future payments under
collaborative agreements will be sufficient to satisfy its funding requirements
through December 1997 but may not be sufficient to fund the Company's operations
to the point of commercial introduction of any of its potential products. There
can be no assurance, however, that changes in the Company's research and
development plans or other changes affecting the Company's operating expenses
will not result in the expenditure of such resources before such time.

22
<PAGE> 24

GENE THERAPY CANCER TREATMENT

Introgen's business is based upon the technology described in this section.
For a complete discussion of Introgen's business, see "Business of Introgen."

CANCER INCIDENCE AND CURRENT TREATMENT

Cancer remains a major and pressing health problem. In the United States
each year approximately 1.4 million people are newly diagnosed with cancer and
over 500,000 people die from the disease. It is the nation's second leading
cause of death, surpassed only by heart disease. Worldwide, approximately 6.5
million people are newly diagnosed with cancer each year. According to the most
recently available results of the Surveillance, Epidemiology and End Results
("SEER") program of the National Cancer Institute ("NCI"), the incidence rate of
all cancers combined increased between 1973 and 1991 by 31.5% for men and 13.6%
for women. Over the same period cancer mortality for all ages rose by 6.9%
according to the SEER data.

The financial costs of cancer are substantial both for the individual
patient and for health care systems. In 1994, the NCI estimated overall costs
for cancer in the United States at $104 billion: $35 billion for direct medical
costs, $12 billion for morbidity costs (cost of lost productivity), and $57
billion for mortality costs. Nearly half of the direct medical costs are due to
treatment of breast ($6 billion), lung ($5 billion), and prostate ($5 billion)
cancers. The cancer drug market in the United States was an estimated $3 billion
in 1995, and the worldwide cancer drug market is significantly larger.

Despite advancements in cancer research in recent years, better treatments
for cancer are urgently needed. The current therapeutic approaches of surgery,
chemotherapy and/or radiation therapy have proven ineffective or only partially
effective in many cancer types, and the newer approach of immunotherapy has not
yet been shown to be widely applicable. In many cases, cancer is either
inaccessible or impossible to remove completely by surgery. For certain cancers
such as head and neck cancer, surgery can be an effective treatment of the
cancer but may result in severe disfigurement of the patient. Radiation therapy
and chemotherapy patients frequently suffer from the toxicity of those
treatments, which limit their effectiveness. Drug resistance to chemotherapeutic
drugs is also a major problem. According to the American Cancer Society, in the
United States there is an annual incidence of over 500,000 cancer patients with
a variety of solid tumors which often cannot be treated effectively due to
multidrug resistance. The conventional therapies are also marked by debilitating
side effects and frequently the necessity to administer additional and costly
medications to ameliorate such side effects.

GENE THERAPY

Gene therapy is a new technology that is being developed using genetic
materials as therapeutic agents to treat genetic defects causing cancer and
other diseases. Gene therapy seeks to restore or correct missing or aberrant
gene functions either by the addition of normal genes ("gene replacement") or by
neutralizing the activity of defective genes ("gene blocking"). Gene therapy
involves two significant components: the therapeutic genetic material and the
system to deliver this material to the desired site. Gene therapy is a rapidly
developing area of medicine although its effectiveness in treating human disease
still remains to be established. The significant promise of gene therapy was
affirmed in a report on December 7, 1995 by the Advisory Committee to the
Director of the National Institutes of Health ("NIH"). The report also
emphasized the importance of developing improved delivery vehicles (vectors) and
animal models for gene therapy.

Cancer accounts for the majority of current clinical investigations
involving gene therapy. Cancer may be particularly amenable to gene therapy in
part because with today's technology the treatment goal of rapidly eliminating
tumor cells can potentially be more readily accomplished than can the long-term
restoration of lost or missing gene function required in treating certain other
diseases. Moreover, a favorable risk-benefit profile is more likely to exist for
short-term treatment of a life-threatening disease. In fact, to date, clinical
experience with gene therapy for cancer has revealed that patients generally do
not experience clinically significant adverse events due to this treatment, a
finding in contrast to established treatments which are frequently toxic and
debilitating.

To become cancerous, a cell must first undergo mutations to escape the
multiple controls on cell division and then accumulate further changes to become
endowed with the capacity for invasion and metastasis. This evolution from a
normal to a cancerous state usually takes many years. Cells are frequently
exposed to a variety of agents -- from both external and internal
sources -- that damage DNA. Even minor DNA damage can have profound effects,
causing certain genes to become overactive, to undergo partial or complete
inactivation, or to function abnormally. Although cells have a number of
protective and backup mechanisms that allow them to compensate for most DNA
damage, the failure of such systems can lead to the

23
<PAGE> 25

development of cancer. Damage to two classes of genes in particular has been
found to play a crucial role in the evolution and expansion of cancer: tumor
suppressor genes and oncogenes. Tumor suppressor genes block cancerous growth of
cells. Activated oncogenes promote cancerous growth of cells. Gene therapy seeks
to selectively abrogate genetic lesions occurring in cancer cells, thereby
restoring normal control and protective pathways. If successful gene therapies
are developed, the cancer cells could be targeted with little consequence to
surrounding normal tissue.

THE P53 TUMOR SUPPRESSOR GENE

The protein encoded by the p53 tumor suppressor gene is believed to be a
central, vital regulator of cellular activities in that many of the signals that
monitor the state of a cell converge on p53. p53 has been implicated in the
control of the cell cycle, DNA repair and replication, cell differentiation,
genomic plasticity and programmed cell death ("apoptosis"). If the DNA of a cell
undergoes a limited amount of damage, the cell has an array of enzymes to repair
it; if the damage is extensive, the cell undergoes apoptosis, a process thought
to be involved in preventing cancer. p53 is capable of such wide-ranging effects
because it orchestrates the activity of a host of other genes and proteins.
Because of the multiple roles of p53, the cell is extremely vulnerable to the
loss of this gene.

p53 mutations are the single most common genetic alteration observed to
date, appearing in at least 50% of human cancer cases, including approximately
half of all NSC lung cancers and, according to several studies, approximately
60% of all head and neck cancers. Researchers have documented more than 51 types
of human tumors carrying p53 mutations.

Evidence from laboratory and preclinical studies suggests that while
multiple genetic mutations are required for cells to become cancerous, restoring
the function of a tumor suppressor gene may be sufficient to slow, stop or kill
cancer cells (see Figure 1 below, which is a theoretical depiction of p53
inducing apoptosis or growth arrest of cancer cells). The Company believes that
the p53 gene holds promise as an effective cancer therapeutic that would restore
normal tumor suppressor functions. Consequently, the Company has entered into
clinical trials with p53 "gene replacement" therapies. See "Business of
Introgen -- Product Development Programs."

FIGURE 1.

P53 DIAGRAM

24
<PAGE> 26

THE K-RAS ONCOGENE

Activated oncogenes, such as K-ras, promote cancerous growth of cells. In
normal specialized cells, like those found in the lung, breast and other
tissues, oncogenes are inactive. In many cancer cells oncogenes become
overactive. Activated oncogenes give cells inappropriate signals to grow.
Mutations in the K-ras oncogene have been found to lead to continuous abnormal
stimulation of cell proliferation associated with human cancer (see Figure 2
below, which is a theoretical depiction of K-ras antisense gene therapy
inhibiting abnormal growth of cancer cells).

FIGURE 2.

K-RAS DIAGRAM

Mutations in K-ras have been found in 30% to 40% of lung adenocarcinomas,
70% to 90% of pancreatic adenocarcinomas and 30% to 40% of colorectal cancers.

Evidence exists that mutant ras reduces the propensity of certain cells to
undergo apoptosis. Accordingly, the Company intends to initiate clinical trials
of a gene therapy product that delivers into the cell a portion of the normal
K-ras gene which is oriented in an antisense (reverse) direction. It is
anticipated that RNA from the antisense fragment will bind with RNA derived from
the activated K-ras gene and block the production of K-ras protein. If such
binding occurs successfully, the Company believes that this could stop or slow
the progression of the cancer. See "Business of Introgen -- Product Development
Programs."

DELIVERY SYSTEMS

An essential requirement of gene therapy is a suitable delivery system for
introducing therapeutic genes into cancer cells. Two major approaches that have
been employed to deliver genes to tumor cells are viral and non-viral delivery
systems (vectors). Different disease targets and routes of administration
generally require delivery systems with differing performance characteristics.

Thus far most gene therapy clinical trials have relied on retroviral
vectors as the delivery system. The retroviral vector can cause the therapeutic
gene to be incorporated into the cancer cell's chromosomes, which permits the
gene to persist and function for an extended time period. Retroviral vectors are
effective only in dividing cells -- such as cancer cells -- and therefore are
less likely to affect normal cells, and they can also

25
<PAGE> 27

infect nearly all cell types. Retroviral vector systems can result in high
levels of production (expression) of the therapeutic gene product and can be
manufactured in large quantities to meet very stringent safety specifications.
However, since all the cells in a tumor are not dividing at the same time,
repeated treatment may be necessary. Furthermore, since retroviral vectors are
believed to integrate randomly into the host cell's genetic material, this may
disrupt or inappropriately activate the functions of cellular genes near or at
the integration sites.

Adenoviral delivery systems have different characteristics than retroviral
delivery systems. Adenoviral vectors can infect and express genes in
non-dividing as well as dividing cells, thereby potentially reducing the need
for repeated treatments. They can be grown to very high concentration and can
therefore be used to deliver a concentrated therapeutic dose. The DNA of these
vectors does not generally integrate into the cell genome. Instead, it typically
remains as an autonomous genetic unit inside the nucleus and eventually
disintegrates. This feature protects normal cells that might have taken up the
viral vector. Cancer cells may not require the long-term presence of such
therapeutic genes because the treated cells may become endowed with the
capability of either undergoing apoptosis or repairing genetic damage. A major
concern of the adenoviral delivery system is the immune response to viral
proteins that it is capable of inducing in the patient. Such an immune response
may reduce or eliminate the efficacy of repeat doses of adenoviral-based gene
therapeutics. However, a local-regional application of the adenoviral vector,
such as that being utilized by Introgen, may be a means of minimizing an immune
response.

Introgen believes that no single gene therapy delivery system will be
applicable to all clinical needs. Accordingly, the Company is pursuing the
development of both retroviral and adenoviral delivery systems in parallel.
Introgen believes that the performance characteristics of retroviral and
adenoviral delivery systems are complementary, potentially allowing a wide range
of diseases and routes of administration to be successfully addressed. Both
types of viral vectors have been modified to eliminate their ability to
replicate in a human host. In addition, the Company is pursuing the development
of non-viral delivery systems, which it believes could potentially prove useful
as alternatives to viral delivery for certain clinical indications. However,
non-viral technology is at an earlier state of development than viral vector
technology, and improvements are needed in the ability of non-viral systems to
deliver therapeutic genes efficiently. See "Business of Introgen -- Product
Development Programs."

26
<PAGE> 28

BUSINESS OF INTROGEN
OVERVIEW

Introgen is focused on the development of gene therapy products to treat
cancer by direct introduction of the therapeutic gene inside the body ("in
vivo"). Introgen was the first company to treat a human patient with a cancer
gene replacement therapy in vivo, and it is one of the few companies to have
advanced to the clinic with more than one delivery system (vector). For treating
cancer, gene therapy seeks to restore or correct missing or aberrant gene
functions either by the addition of normal genes ("gene replacement") or by
neutralizing the activity of defective genes ("gene blocking"). Introgen is
developing two categories of gene therapy cancer products: (1) "gene
replacement" products based on the p53 tumor suppressor gene and (2) "gene
blocking" products designed to neutralize the activity of a mutant K-ras
oncogene. The Company is currently conducting Phase I/II clinical trials in the
United States of its lead products for the treatment of NSC lung cancer and head
and neck cancer. Additional clinical trials are expected to commence in the
United States, Europe and Asia over the next 12 to 18 months. These scheduled
clinical trials would include multi-center, Phase II/III trials of Introgen's
p53 "gene replacement" products. In addition, the Company is currently
conducting preclinical studies, and expects to initiate Phase I and Phase I/II
clinical trials, for products to treat cancers of the liver, bladder, ovaries,
brain, breast and prostate, as well as malignant ascites from gastrointestinal
cancers. The Company's current and expected clinical trials test the Company's
products both alone and in combination with standard cancer treatments.

Preliminary results from Introgen's Phase I/II human clinical trials
indicate that its p53 "gene replacement" products demonstrate promise with
respect to both lack of toxicity and tumor response. These trials have involved
361 doses of p53 injected into the tumors of 48 patients. Thirty-nine of these
patients have been treated with p53 delivered by an adenoviral vector
("Ad-p53"), and nine patients have been treated with p53 delivered by a
retroviral vector ("RV-p53"). There has been no clinically significant
vector-related toxicity noted. Data from seven of the nine patients in
Introgen's RV-p53 trial for lung cancer could be clinically evaluated with
respect to tumor response. Two patients could not be evaluated in this study due
to complications unrelated to the therapy. Of the seven patients evaluated,
three showed tumor regression at the treatment site, and three showed tumor
stabilization. All nine patients died subsequently from progression of untreated
sites of disease, or other complications of cancer, unrelated to the efficacy or
safety of the gene therapy. Preliminary data from the Company's clinical trials
of Ad-p53 for the treatment of head and neck cancer and lung cancer indicate
that Ad-p53 injected into tumors produces an increase in p53 expression,
apoptosis, and tumor necrosis. The results of the RV-p53 trial for lung cancer
have been published in the September 1996 issue of the journal Nature Medicine.

Development and commercialization of Introgen's p53 and K-ras products are
being pursued in conjunction with RPR pursuant to a collaboration arrangement
with potential aggregate payments to the Company of approximately $50.0 million
prior to product commercialization (including approximately $24.7 million
received to date for research and development payments and equity investments).
The collaboration arrangement provides that Introgen is primarily responsible
for completing the early stage research and development of products, which RPR
is obligated to fund. If RPR elects, it shall be primarily responsible for the
later stage development of the products. In North America, Introgen retains
exclusive manufacturing rights and may elect to form a marketing collaboration
with RPR to market collaboration products. Introgen is entitled to royalties on
product sales arising from RPR's exclusive marketing and manufacturing rights in
Europe. Both parties may, at their own expense, develop and market products in
Japan, Korea, China, Taiwan and India. Introgen and RPR have agreed that they
will not market or license, and RPR will not develop, any p53 or K-ras gene
therapy products prior to October 2004, except under the terms of the
collaboration arrangement. Pursuant to the terms of a stock purchase agreement
between the Company and RPR, RPR has agreed to purchase $6.0 million of Common
Stock in a private placement concurrent with this offering at the price to
public in this offering, as well as to make an additional equity investment of
$2.5 million in 1997 and a potential future milestone payment of approximately
$2.5 million (provided that the collaboration agreements remain in effect).

Introgen has exclusively licensed 21 United States and 25 foreign patent
applications from UTMDACC. In addition, Introgen has exclusively licensed two
United States applications and one foreign patent application from SKCC. These
licensed patent applications relate to the use of tumor suppressor genes in

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combination with DNA-altering treatments such as chemotherapy and radiation, as
well as genes, viral and non-viral delivery systems, tissue-specific promoters
and diagnostics. In January 1996, Introgen received a notice of allowance of a
licensed patent application covering certain recombinant p53 adenovirus
compositions. Introgen is also funding research at UTMDACC and SKCC and has the
right to include certain patentable inventions that arise from the research
under its exclusive license with the corresponding institution.

BUSINESS STRATEGY

The Company's objective is to remain a leading developer of gene therapy
products for the treatment of cancer. Introgen's approach is to seek out product
applications that move from the laboratory to human applications in a rapid time
frame. To accomplish its objective, Introgen's strategy is to:

Pursue Rapid Clinical Development and Regulatory Approval. The Company
believes that emphasis on clinical trials of products to treat life-threatening
cancers will allow sufficient toxicity and efficacy data to be acquired
relatively rapidly. The Company seeks to obtain accelerated regulatory approval
and market entry for gene therapy cancer products that address severe,
life-threatening, malignant diseases for which alternative treatments are either
unsatisfactory or non-existent. The FDA recently indicated that it will expand
the use of the accelerated approval process for cancer treatments. Accordingly,
the Company believes that its products are candidates for fast-track approval by
regulatory authorities.

Focus on Key Therapeutic Genes. Introgen endeavors to maximize the
probability of successful product development by carefully selecting appropriate
therapeutic genes for incorporation into its gene therapy cancer products. For
example, the p53 tumor suppressor gene, upon which many of the Company's initial
products are based, is among the most well-established and central genes
involved in preventing cancer, and the ability of the normal p53 gene to
preserve the integrity of the genome and prevent unchecked cellular
proliferation is well documented. Similarly, the role of a mutated K-ras
oncogene in stimulating abnormal cellular proliferation has been well studied,
as has the ability of interventions that neutralize mutant K-ras activity to
inhibit abnormal cell growth. Within the last year the Company has begun
preclinical research with an adenoviral vector for C-CAM, a therapeutic gene
whose expression is missing in prostate cancer.

Leverage Collaborative Arrangements. Introgen intends to continue to
establish collaborative arrangements with leading pharmaceutical companies and
academic institutions, such as RPR and UTMDACC, to develop and commercialize
products. In particular, the Company's collaborative partners are expected to
provide research, manufacturing and marketing expertise. The Company believes
that establishing and maintaining collaborations with corporate and academic
partners will enable the Company to more effectively and economically leverage
its resources to develop and market products. The Company's efforts in
establishing collaborative arrangements have recently resulted in a sponsored
research agreement and exclusive license with SKCC, and a letter of intent for a
Collaborative Research and Development Agreement ("CRADA") with RPR and NCI.

Pursue and Expand Patent Portfolio. The Company will enhance its existing
patent portfolio by pursuing additional patents through collaborative
arrangements, sponsored research and internal research. The Company presently
has the exclusive royalty-bearing license to 23 United States patent
applications and 26 foreign patent applications. In addition, the Company is
currently funding research at UTMDACC and SKCC and has the right to include
certain patentable inventions that arise from this funded research under the
exclusive license with the corresponding institution. The Company is also
pursuing patents on products, applications, and constructs arising from its own
internal research programs. In January 1996, Introgen received a notice of
allowance of a licensed patent application covering certain recombinant p53
adenovirus compositions.

Enhance Product Breadth. Introgen's long term strategy is to provide a
broad portfolio of gene therapy products for cancer and other life-threatening
diseases. The Company believes that several of its products under development
may be effective in the treatment of indications not currently the focus of the
Company's clinical trials. The Company will continue to develop therapeutic
genes and other technologies that show promise as commercial applications
through licensing, collaborative arrangements and internal research.

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PRODUCT DEVELOPMENT PROGRAMS

Introgen is currently conducting clinical development on two categories of
products: (1) "gene replacement" products based on the p53 tumor suppressor gene
and (2) "gene blocking" products designed to neutralize the activity of a mutant
K-ras oncogene. Introgen's p53 products have been developed using two delivery
systems: one employing a retroviral vector ("RV-p53") and the other employing an
adenoviral vector ("Ad-p53"). Introgen's initial K-ras product consists of a
partial antisense K-ras gene delivered by a retroviral vector ("RV-AS-K-ras").
The table below sets forth the clinical status for the Company's products by
indication. For the purposes of this table, a clinical trial is assumed to
commence when the Company has obtained required regulatory approval and begins
enrolling patients.

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

<TABLE>
<CAPTION>
Indication Technology Development/Clinical Status
<S> <C> <C>
--------------------------------------------------------------------------------------------
NSC Lung Cancer RV-p53 Phase I/II
Ad-p53 Phase I/II (US)
Preclinical, IRB(1) approved
(Japan)
Ad-p53 + Cisplatin Phase I/II
RV-AS-K-ras IND(2) approved
--------------------------------------------------------------------------------------------
Head and Neck Cancer Ad-p53 Phase I/II
Ad-p53 + Surgery Phase I/II
Ad-p53 + Cisplatin Preclinical, IRB approved
(The Netherlands)
--------------------------------------------------------------------------------------------
Liver Cancer (Hepatoma) Ad-p53 Preclinical
(percutaneous delivery)
Ad-p53 Preclinical
(intra-arterial delivery)
--------------------------------------------------------------------------------------------
Bladder Cancer Ad-p53 Preclinical
--------------------------------------------------------------------------------------------
Ovarian Cancer Ad-p53 Preclinical
Ad-p53 + Cisplatin Preclinical
--------------------------------------------------------------------------------------------
Brain Cancer (Glioblastoma) Ad-p53 Preclinical
--------------------------------------------------------------------------------------------
Breast Cancer Ad-p53 Preclinical
--------------------------------------------------------------------------------------------
Malignant Ascites Ad-p53 Preclinical, IRB approved
(United Kingdom)
--------------------------------------------------------------------------------------------
Prostate Cancer Ad-C-CAM Preclinical
--------------------------------------------------------------------------------------------
</TABLE>

(1) Institutional Review Board ("IRB") approval is required for protocols that
involve the use of humans in the study of pharmaceutical products.
(2) Investigational New Drug ("IND") application approval is required before the
Company can commence human clinical trials.

As of September 27, 1996, the Company's trials have involved 361 doses of
p53 injected into tumors of 48 patients. The Company believes that
reintroduction of normal p53 genes into cancer cells may cause the cells either
to undergo a process of programmed cell death (apoptosis) or to repair genetic
damage sufficiently to restore responsiveness to normal cellular controls. With
respect to the K-ras antisense gene therapy, the Company believes that when the
RNA of antisense K-ras combines with that of a mutant K-ras oncogene, it may
block its action and induce the growth arrest or killing of cells receiving the
transferred gene. The primary

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<PAGE> 31

endpoint being measured in the clinical trials is reduced tumor size. However,
additional endpoints are being investigated to verify gene delivery, gene
expression and mechanism of response.

Clinical trials in addition to those listed above are expected to commence
in the United States, Europe and Asia over the next 12 to 18 months. These
clinical trials would include multi-center, Phase II/III trials of Introgen's
p53 "gene replacement" products. In addition, the Company expects to initiate
Phase I and Phase I/II trials for products to treat cancers of the liver,
bladder, ovaries, brain, breast and prostate, as well as malignant ascites from
gastrointestinal cancers. The Company's current and expected trials test the
Company's products both alone and in combination with standard cancer
treatments.

The Company has not yet completed any Phase I or Phase I/II clinical trials
for its potential products. There can be no assurance that future clinical
studies will commence on schedule or that RPR will elect to proceed with later
stage development. The results of ongoing clinical trials could cause the
Company to delay or terminate currently planned clinical trials. In addition,
research on some of the Company's potential products is being performed in
conjunction with NCI pursuant to a letter of intent. The letter of intent
anticipates that the Company will enter into a formal CRADA, however, there can
be no assurance that the CRADA will be finalized. In addition, research relating
to several of the Company's products including the Company's second tumor
suppressor gene, C-CAM, is conducted pursuant to an agreement with UTMDACC,
which is subject to ratification by the Board of Regents. To date, no gene
therapy products for cancer have been approved for sale in the United States or
internationally. See "Risk Factors -- Early Stage of Development; No Assurance
of Successful Product Development," "-- Dependence on Collaborative
Arrangements," "-- Uncertainties Related to Clinical Trials" and "-- Government
Regulations; No Assurance of Regulatory Approvals."

Non-Small Cell Lung Cancer

Lung cancer is the leading cause of cancer death in the United States, with
an estimated 177,000 new cases in 1996. Most lung cancer patients die within a
year of diagnosis. The five year survival rate is approximately 13% for all
stages of lung cancer and approximately 47% for localized disease stages. The
unfavorable prognosis for the disease is due to the poor responsiveness of lung
cancer to the standard therapies of surgery, chemotherapy and radiation, as well
as combinations of these therapies. NSC lung cancers (which include
adenocarcinoma, large-cell lung cancer and squamous cell carcinoma) account for
75% to 80% of all lung cancers. Mutations of p53 are found in approximately half
of NSC lung cancers. According to several studies K-ras mutations appear in
approximately 20% of NSC lung cancers.

In Introgen's sponsored preclinical studies, both "gene replacement" with
p53 and "gene blocking" therapy with antisense K-ras reduced the growth of NSC
lung cancer. Adenoviral introduction of the p53 gene into NSC lung cancer cells
in vitro reduced the growth rate by approximately 75% in cell lines with p53
mutations or deletions. In a nude mouse model of orthotopic human lung cancer,
Ad-p53 treatment reduced tumor formation by an average of 67% and tumors that
did develop following such treatment were significantly smaller. Testing of
RV-AS-K-ras in a mouse model of orthotopic human lung cancer indicated that
tumor formation was inhibited in 80% to 90% of mice in three studies.

Introgen's Phase I/II clinical trials for the treatment of NSC lung cancer
began in 1995 and are being conducted at UTMDACC. These trials are restricted to
patients with advanced metastatic lung cancer who have failed to respond to
conventional cancer treatments and have tumors with missing or mutant p53 genes.
Each trial involves the intralesional injection of the product into one tumor
site. One trial involves RV-p53 delivered alone in up to 14 patients. Nine
patients have been treated with RV-p53 in this trial. The second trial involves
Ad-p53 delivered alone in up to 27 patients. Nine patients have been treated
with Ad-p53 in this trial. The third trial involves the treatment of up to 27
patients with Ad-p53 in conjunction with cisplatin, a chemotherapeutic agent.
Six patients have been treated in this trial.

As reported in the September 1996 issue of Nature Medicine, preliminary
results from the Company's human clinical trials indicate that its RV-p53
product demonstrates promise with respect to both lack of toxicity and tumor
response. The preliminary data from nine patients with NSC lung cancer who were
treated with RV-p53 alone in the Company's Phase I/II trial indicate no
clinically significant vector-related toxicity.

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<PAGE> 32

Data from seven of the nine patients in the Company's RV-p53 trial for NSC lung
cancer could be clinically evaluated with respect to tumor response. Two
patients could not be evaluated in this study due to complications unrelated to
the therapy: one died from an unrelated complication of cancer two weeks after
completing the treatment, and the other was removed from the study after a
single injection because of complications of general anesthesia. Of the seven
patients evaluated, three showed tumor regression at the treatment site, three
showed tumor stabilization and one showed tumor progression. All nine patients
died subsequently from progression of untreated sites of disease, or other
complications of cancer, unrelated to the efficacy or safety of the gene
therapy.

Head and Neck Cancer

Cancers of the head and neck are the fourth most common malignancy
worldwide with an estimated 400,000 new cases each year. These cancers primarily
include squamous cell carcinoma of the oral cavity, pharynx and larynx. The
overall rate of survival of these patients is approximately 50%. A majority of
patients (60%) are diagnosed with locally advanced disease with a cure rate of
only approximately 30%. Conventional treatment for head and neck cancer patients
is surgery and/or radiation. Surgery frequently results in facial disfigurement.
The majority of these patients relapse, and development of a recurrent tumor is
almost always fatal. In a published study, the tumors of 68% of head and neck
cancer patients were found to contain one or more p53 mutations.

In preclinical studies sponsored by Introgen, gene therapy with p53 reduced
the growth of head and neck cancer. Adenoviral introduction of p53 into head and
neck cancer cell lines resulted in growth suppression and cell death regardless
of the endogenous p53 status of the tumor cells. Growth of both p53 normal and
p53 mutant tumor cell lines was inhibited by Ad-p53 in two mouse models of head
and neck cancer. In a microscopic residual model, the incidence of tumor
formation in animals implanted with tumor cell lines containing p53 normal genes
was 14% (2 of 14 animals tested) following Ad-p53 treatment and 79% (11 of 14)
following treatment with a control vector (an 82% reduction in tumor formation).
The incidence of tumor formation in animals implanted with tumor cell lines
containing p53 mutant genes was 0% (0 of 16) following treatment with Ad-p53 and
100% (16 of 16) following treatment with a control vector. In an established
tumor model, Ad-p53 treatment significantly reduced the size of tumors formed by
either p53 normal or p53 mutant head and neck cancer cells.

Introgen's Phase I/II clinical trials for the treatment of head and neck
cancer with Ad-p53 commenced in 1995 at UTMDACC and are ongoing. These trials
are restricted to patients who have extensive incurable local or regional
disease and who have either failed or cannot receive conventional treatment. The
first trial in progress involves the delivery of Ad-p53 alone to a maximum of 27
patients with non-resectable (inoperable) disease. Fourteen patients have been
treated in this trial. The second trial involves delivery of Ad-p53 in
conjunction with surgery for up to 27 patients with resectable disease. Ten
patients have been treated in this trial.

Results of the head and neck trials have been promising. The preliminary
data from 24 patients in both trials showed no clinically significant
vector-related toxicity after treatment. Preliminary data from these trials
indicates that Ad-p53 injected into tumors produces an increase in p53
expression, apoptosis and tumor necrosis.

Liver Cancer (Hepatoma)

There will be an estimated 20,000 new cases of primary liver and biliary
passage cancer in the United States in 1996; further, metastatic liver cancer
occurs at least 20 times more frequently than primary liver cancer. The annual
number of deaths from liver cancer worldwide is estimated to exceed 250,000. No
adequate therapy exists for many patients with liver tumors, and few patients
are viable candidates for surgery. The median survival for patients with
non-resectable liver cancer unresponsive to conventional therapy is less than
six months.

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<PAGE> 33

Introgen and RPR have a letter of intent with the NCI to conduct Phase I/II
clinical trials, using its Ad-p53 product, for this indication under an NCI
CRADA. The protocol being developed will test percutaneous injection of Ad-p53
alone and subsequently Ad-p53 in combination with cisplatin.

Bladder Cancer

There will be an estimated 52,900 new cases of bladder cancer during 1996
in the United States. The annual number of deaths from this indication in the
United States is estimated to be 12,000. Bladder anatomy and ease of access can
allow high concentrations of gene therapeutic agents to be delivered directly to
the bladder cancer. Mutations of the p53 gene occur in approximately 80% of
invasive transitional-cell carcinomas of the bladder. Their frequency appears to
be positively correlated with the grade and stage of bladder cancer, and such
mutations may be important in the multistep progression of the disease.

In preclinical studies sponsored by Introgen, "gene replacement" with p53
reduced in vitro growth of bladder cancer cells that were either mutant for or
missing p53. Since Ad-p53 may be delivered intravesically to treat bladder
cancer, Introgen is currently conducting toxicology studies to support this
route of administration. Introgen and RPR have a letter of intent with the NCI
to conduct Phase I/II clinical trials, using its Ad-p53 product, for this
indication under an NCI CRADA.

Ovarian Cancer

There will be an estimated 26,700 new cases of ovarian cancer in the United
States in 1996 with 14,800 deaths. While approximately 80% of patients present
with advanced, incurable disease the cancer remains accessible to treatment
within the peritoneal cavity. Overexpression of mutant p53 often occurs in
invasive epithelial ovarian cancers, and many mixed mesodermal sarcomas of the
ovary also overexpress p53.

In preclinical studies sponsored by Introgen, "gene replacement" with p53
reduced the in vitro growth of ovarian cancer cells that were either mutant for
or missing p53. In orthotopic models of human ovarian cancer in nude mice,
animals treated intraperitoneally with Ad-p53 showed enhanced survival and
reduced tumor growth relative to control groups. Since Ad-p53 may be delivered
intraperitoneally to treat ovarian cancer, Introgen is currently conducting
toxicology studies to support this alternative route of administration.

Introgen and RPR have a letter of intent with the NCI to conduct Phase I/II
clinical trials, using its Ad-p53 product, for this indication under an NCI
CRADA. These trials are expected to test the use of Ad-p53 alone and in
conjunction with either surgery or cisplatin.

Brain Cancer (Glioblastoma)

An estimated 13,000 people die of cancers of the brain and central nervous
system in the United States each year. Tumors of astrocytic cell origin, the
most common brain tumors, are graded in terms of malignancy, with high grades
carrying an extremely poor prognosis. According to several studies,
approximately 40% of all high-grade astrocytomas (glioblastoma) involve missing
or mutated p53 tumor suppressor genes.

In preclinical studies sponsored by Introgen, "gene replacement" with p53
in vitro induced apoptosis in glioblastoma cells that were mutant for p53, and
reduced the growth of glioblastoma cells that contained a normal p53 gene.

Introgen and RPR have a letter of intent with the NCI to conduct a Phase
I/II clinical trial, using its Ad-p53 product, for this indication under an NCI
CRADA.

Breast Cancer

An estimated 184,000 new cases of breast cancer will occur in women in the
United States during 1996, and more than 44,000 are expected to die of the
disease. According to several studies, alterations in p53 are the most common
changes identified to date in breast cancer, occurring in 25% to 45% of breast
cancer cases. p53 mutations are associated with aggressive tumors and a poor
patient prognosis both for remaining disease-free and for survival.

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<PAGE> 34

Introgen and RPR have a letter of intent with the NCI to conduct a Phase II
clinical trial, using its Ad-p53 product, for this indication under an NCI
CRADA. This trial is designed to administer Ad-p53 to patients with locally
recurrent breast cancer involving the chest wall.

Malignant Ascites

There are an estimated 200,000 new cases of gastrointestinal cancer each
year in the United States, and the Company believes that approximately the same
number of new cases occur in Europe. Malignant ascites (comprised of malignant
cells and fluid in the peritoneal cavity) occurs in up to one-fifth of all
patients suffering from a gastrointestinal cancer, usually late during the
course of the disease. The median survival for patients with newly diagnosed
malignant ascites is approximately two to six months, depending on the tumor
type. Therefore, standard therapy has focused on palliation of symptoms,
maximizing ambulatory out-of-hospital time and minimizing treatment-induced
morbidity.

Currently, Introgen is conducting preclinical toxicity and pharmacokinetic
studies related to malignant ascites.

Prostate Cancer

In the United States, prostate cancer is the most common cancer and the
second leading cause of male cancer death. In 1996, there are projected to be
317,000 new cases of prostate cancer and approximately 41,000 deaths directly
attributable to this disease. The magnitude of the prostate cancer problem in
the United States is expected to increase as the age distribution of American
men shifts to an increased number of older males.

The Company is engaged in the preclinical testing of a second tumor
suppressor gene, C-CAM, delivered by an adenoviral vector ("Ad-C-CAM") for the
treatment of prostate cancer. Mutations or inappropriate regulation of C-CAM may
be involved in cancer of the prostate. Preclinical studies conducted at UTMDACC
identified C-CAM as a tumor suppressor based on its ability to alter the growth
rate and characteristics of prostate cancer cells in both in vitro and in vivo
models of human prostate cancer. Prostate cancer cells treated with Ad-C-CAM
vectors showed significantly slower growth rates and reduced tumorigenicity.
Furthermore, non-tumorigenic prostate cells became tumorigenic when C-CAM levels
were experimentally reduced through an antisense RNA approach. Following
completion of preclinical studies, the Company anticipates filing an IND
application, which, if approved, will permit clinical trials to begin.

Additional Preclinical Development

Anti-proliferative (Bystander) Effector. Data from the Company's
preclinical in vitro and animal studies of Ad-p53 and RV-p53 gene therapies
indicate that functional genetic material is delivered ("transduction") to less
than 100% of the tumor cells. However, transduction of 100% of the tumor cells
does not appear necessary to achieve regression of treated tumors. Instead a
"bystander effect" appears to operate in which transduced cells are able to
induce an anti-proliferative effect on non-transduced, neighboring cells.
Introgen is conducting preclinical research to identify the anti-proliferative
effector molecules involved in this bystander effect. If the Company is
successful in identifying such molecules, it could further elucidate the
mechanisms by which therapeutic genes are able to mediate tumor regression and
could result in additional therapeutic approaches to cancer treatment.

Single Chain Antibody. Intracellular antibody, or intrabody, technology
provides a novel potential avenue for gene therapy cancer treatments. In this
approach, the gene that is introduced into the cancer cells produces an
antibody-like molecule, which is intended to block the action of a particular
disease-mediating protein by binding to it. Introgen is collaborating with RPR
in the development of a single-chain antibody to ras proteins delivered by an
adenoviral vector ("Ad-scFv-ras"). Different possible constructs are in testing
at both Introgen and RPR. The goal will be to produce an intracellular antibody
that interferes with the ability of ras proteins to transmit growth signals,
thereby limiting tumor formation or growth. Certain technology in this area was
developed at a leading cancer center, licensed by RPR, and made available for
use under the Introgen-RPR collaboration arrangement.

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COLLABORATIVE ARRANGEMENTS AND LICENSING AGREEMENTS

Introgen's strategy is to enter into collaboration agreements or licensing
arrangements with third party partners for product development, manufacturing
and marketing. The Company believes that it will be necessary to enter into
collaborative arrangements and licensing arrangements with other companies in
the future to develop, commercialize, manufacture and market additional
products. To varying degrees, the Company is dependent on its collaborative
partners and licensors for the preclinical study, clinical development,
regulatory approval, manufacturing and marketing of products based on the
results of these collaborative research programs. The agreements with these
collaborative partners and licensors allow such third parties significant
discretion in electing whether to pursue any of these activities. See "Risk
Factors -- Dependence on Collaborative Arrangements."

Rhone-Poulenc Rorer

In October 1994, Introgen entered into two collaboration agreements with
RPR to develop and commercialize gene therapy cancer products in two fields, one
to develop products based on the p53 pathway and one to develop products based
on K-ras inhibition. Under the terms of the agreements, Introgen is primarily
responsible for conducting research and development of the products through
completion of Phase I or Phase I/II clinical trials and RPR is obligated to fund
such early stage research and development until October 1997.

Following completion of Phase I or Phase I/II clinical trials of a product
funded by RPR, RPR has the option to proceed with later stage development and
commercialization of such product (a "Later Stage Product"). If it so elects,
RPR will finance and be primarily responsible for conducting later stage
clinical trials, including all further submissions of existing Investigational
New Drug applications ("INDs") as well as preparation of all PLAs and
Establishment License Applications ("ELAs") for the Later Stage Product. Unless
RPR terminates the applicable collaboration agreement, it is obligated to
proceed with later stage development for at least one Later Stage Product in the
applicable field (either products based upon the p53 pathway or products based
upon K-ras inhibition). If RPR terminates the collaboration agreement for a
particular field then RPR may not develop or commercialize any products in such
field for three years and Introgen may pursue the development and
commercialization of such Later Stage Products and other products in such field.

If RPR does not elect to continue funding early stage development in the
applicable field beyond October 1997 or such later date as the parties may
agree, Introgen would have to fund such development. However, RPR would only
have rights under the applicable collaborative agreement to products that are
Later Stage Products when RPR ceases funding early stage development. In any
event, unless the applicable collaboration agreement is terminated, Introgen and
RPR are precluded from marketing or licensing, and RPR is precluded from
developing, any gene therapy cancer products in the applicable field prior to
October 2004, except pursuant to the terms of the applicable collaboration
agreement.

In North America, Introgen has the right to form a marketing collaboration
with RPR for the marketing of the products developed under the collaborative
agreements. Under a marketing collaboration Introgen and RPR would share the
costs and profits of marketing products. In the event Introgen does not elect to
form a marketing collaboration, RPR will retain exclusive marketing rights in
North America, subject to royalties on product sales to Introgen. In addition,
Introgen retains exclusive manufacturing rights in North America, including an
exclusive supply arrangement with RPR in the event a marketing collaboration is
not formed. In Europe, RPR retains exclusive marketing and manufacturing rights,
subject to royalties to Introgen on product sales. In Japan, Korea, India, China
and Taiwan, both companies have the right, at their own expense, to develop,
market and manufacture products.

RPR may terminate the collaboration agreements, in whole or in part with
respect to individual products, at any time upon six months' notice. During the
six month period following the effective date of termination of the agreements,
RPR will reimburse Introgen for noncancellable obligations or commitments
incurred prior to such notice in accordance with certain provisions of the
agreements. In the event of any such termination

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<PAGE> 36

(other than for cause), RPR may not develop or commercialize any of the products
under the purview of the collaboration agreements for a period of three years.

In October 1994, Introgen and RPR entered into a stock purchase agreement
under which RPR agreed to make a series of equity investments in Introgen. Under
the terms of the stock purchase agreement, as amended, RPR has agreed to make
certain investments and a milestone payment in addition to amounts previously
paid. RPR has agreed to purchase $6.0 million of Common Stock in a private
placement concurrent with this offering at the price to public in this offering
as well as to purchase $2.5 million of Common Stock on October 1, 1997, so long
as the collaboration agreements are then in effect, at the higher of the price
to public in this offering or the then current average trading price; and
subject to the terms of the stock purchase agreement, to make a payment of
approximately $2.5 million at the earlier of (1) the completion of Phase III
clinical trials for a collaboration product, (2) a commercial sale of a
collaboration product, or (3) June 1, 1999. The aggregate potential payments to
Introgen under the collaboration agreements and the stock purchase agreement is
approximately $50.0 million prior to product commercialization (including
approximately $24.7 million received to date for research and development
payments and equity investments). Under the terms of the stock purchase
agreement, so long as RPR holds at least 15% of the outstanding stock of the
Company, the Company shall include a nominee of RPR, who is reasonably
acceptable to the Company, in its recommended slate for election to the Board of
Directors.

RPR is a global pharmaceutical company with reported 1995 sales of
approximately $5.3 billion (as adjusted to reflect acquisitions) and research
and development expenditures of over $826 million (as adjusted to reflect
acquisitions). In 1994, RPR formed a division, RPR Gencell, dedicated to the
discovery, development, manufacture and commercialization of cell and gene
therapy products. RPR Gencell is organized as a decentralized, interactive
network linking leading biotechnology companies and research organizations
worldwide with its own internal activities. Members of RPR Gencell's network
include Introgen, AASTROM Biosciences, Inc., the Centre National de Recherche
Scientifique, Darwin Molecular Corporation, Genetix Pharmaceuticals, Genopoietic
Genethon, the Institut Gustave Roussy, the Institut Pasteur Lille, IntraImmune
Therapies, Inc., the Lawrence Berkeley Laboratory/Human Genome Center, Pasteur
Merieux Connaught, St. Elizabeth's Medical Center, the University of British
Columbia and the Universite Louis Pasteur.

The University of Texas M.D. Anderson Cancer Center

Introgen's core technologies were developed by scientists at UTMDACC in
Houston. Introgen sponsors research performed by researchers at UTMDACC to
further the development of technologies being investigated by UTMDACC that could
have potential commercial viability. Through these sponsored research
agreements, Introgen has access to UTMDACC's resources and expertise for the
development of the Company's technology. In addition, the Company has the right
to include certain patentable inventions arising from these sponsored research
agreements under its exclusive license with UTMDACC. Introgen's strategy for
product development, which includes licensing of new technologies, is designed
to take advantage of the significant multidisciplinary resources available at
UTMDACC.

Introgen's research and development laboratories, manufacturing facilities,
and core clinical support laboratory are located in Houston in close proximity
to UTMDACC and the Texas Medical Center. UTMDACC has an annual budget of
approximately $900 million, over 700 basic scientists and clinicians on staff,
and an average of over 2,300 patient visits each day. Through its sponsored
research agreements, Introgen supports a group of approximately 25 clinicians
and researchers at UTMDACC investigating gene therapy products and clinical
applications.

National Cancer Institute

In April 1996, Introgen and its collaborative partner RPR signed a letter
of intent with NCI. The purpose of this letter of intent is to permit joint
research among the parties pending review of a formal CRADA by a CRADA
subcommittee of the NCI and approval of the CRADA by the Director of the NCI.
The goal of the CRADA is to evaluate the potential effectiveness and superiority
to other treatments of Introgen's Ad-p53

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<PAGE> 37

products against a range of designated cancers including breast cancer, ovarian
cancer, bladder cancer, liver cancer (hepatoma) and brain cancer (glioblastoma).
There can be no assurance that the CRADA will receive approval from the CRADA
subcommittee or the director of the NCI. If such approval is not obtained it
would have a material adverse effect on the Company's business, financial
condition and results of operations.

Sidney Kimmel Cancer Center

In March 1996, the Company entered into a licensing and sponsored research
agreement with SKCC, formerly known as the San Diego Regional Cancer Center.
SKCC is active in the field of gene therapy cancer research. Pursuant to the
terms of this agreement, the Company has agreed to advance funds to SKCC for the
performance of certain research by SKCC. In return for the funding of such
research, the Company will obtain the exclusive license rights to certain
inventions made during the course of such research. These activities focus on
combination therapies using p53 and other tumor suppressor genes in combination
with conventional cancer treatments. Introgen has also licensed certain
proprietary technology from SKCC.

MARKETING AND SALES

The Company's marketing strategy is to target well defined markets that can
be penetrated effectively and to pursue those efforts with resources provided by
collaborative arrangements. For example, under the RPR collaboration
arrangement, the Company may elect to form a marketing collaboration to market
collaboration products in North America and will receive a royalty on sales made
by RPR in Europe. The Company believes that pursuing this strategy will allow it
to capture the benefits of more substantial revenues associated with the
marketing function as well as to bring its products to market in a cost
efficient and competitive manner.

The Company has no experience in marketing or selling pharmaceutical
products and does not have a marketing and sales staff. In order to achieve
commercial success for any product candidate approved by the FDA, Introgen must
either develop a marketing and sales force or enter into arrangements with third
parties to market and sell its products. There can be no assurance that Introgen
will successfully develop such experience or that it will be able to enter into
marketing and sales agreements with others on acceptable terms, if at all. If
the Company develops its own marketing and sales capabilities as part of a
marketing collaboration with RPR to sell products in North America, it will
compete with other companies that have experienced and well-funded marketing and
sales operations. To the extent that RPR has exclusive marketing and sales
rights in Europe, and to the extent that the Company enters into a joint venture
with RPR, any revenues to be received by Introgen will be dependent on the
efforts of RPR. There can be no assurance that such efforts will be successful.

MANUFACTURING AND PROCESS DEVELOPMENT

The material used in the Company's preclinical testing and clinical trials
was produced by UTMDACC and by a third-party contract manufacturer. The Company
recently completed construction and validation of a pilot-scale manufacturing
facility with sufficient capacity to supply a portion of Ad-p53 for currently
planned clinical trials. This facility has already produced initial quantities
of Ad-p53 intended to be used in clinical trials.

The Company is considering the establishment of a commercial-scale cGMP
manufacturing facility to further support clinical trials and the possible
commercial sale of its potential products. For this purpose the Company has
retained cGMP facility consultants with experience in designing, overseeing
construction, commissioning equipment and completing validation for cGMP
manufacturing operations. The commercial-scale manufacturing facility is
currently in the design phase and the Company is investigating possible sites.
Commercial-scale manufacturing will require significant improvements in the
Company's current manufacturing techniques, as well as rigorous process
controls. Companies often encounter manufacturing difficulties, including
problems involving production yields, quality control and assurance or shortages
of qualified personnel, during the scale-up of manufacturing. Furthermore, the
Company will be required to register the facility with the FDA and will be
subject to inspections confirming compliance with cGMP regulations

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<PAGE> 38

established by the FDA. No assurance can be given that the Company will be able
to produce clinical or commercial quantities of its potential products in
compliance with applicable regulations or at an acceptable cost. Should the
Company elect to build this facility, the construction and validation of the
facility would take a minimum of approximately 24 to 30 months.

If the Company is unable to produce its potential products in the necessary
clinical or commercial quantities, then it will remain dependent on third-party
contract manufacturers for the production of such materials. There are only a
limited number of contract manufacturers who have the ability and capacity to
produce the Company's potential products. Failure by any such contract
manufacturer or the Company to deliver the Company's required quantities of
potential products on a timely basis and at commercially reasonable prices would
materially adversely affect the Company's business, financial condition and
results of operations.

LICENSED PATENT APPLICATIONS AND PROPRIETARY TECHNOLOGY

The Company's success will depend in part on its ability to develop and
maintain proprietary aspects of its technology. The Company has exclusively
licensed 21 United States and 25 foreign patent applications from UTMDACC. In
addition, the Company has licensed two United States patent applications and one
foreign patent application from SKCC. These licensed patent applications relate
to genes, viral and non-viral delivery systems, tissue-specific promoters and
diagnostics. Certain of these patent applications also pertain to the use of
tumor suppressor genes in combination with DNA-altering treatments such as
chemotherapy and radiation. In January 1996, USPTO granted a notice of allowance
of a licensed patent application covering certain recombinant p53 adenovirus
compositions. The Company has been licensed to make, have made, use and sell
products utilizing the technology described in the licensed patent applications
and is obligated to make royalty payments based on product sales. The Company is
also funding research at UTMDACC and SKCC and has the right to include certain
patentable inventions that arise from the research under an exclusive license
with the corresponding institution. The Company believes this will lead to
additional licensed patent applications in the future.

The Company's patent position like that of other biotechnology and
pharmaceutical companies is highly uncertain and involves complex legal and
factual questions. Claims made under patent applications may be denied or
significantly narrowed. There can be no assurance that any patents which may be
issued as a result of the Company's licensed United States and international
patent applications will provide any competitive advantage to the Company or
that they will not be successfully challenged, invalidated or circumvented in
the future. In addition, there can be no assurance that competitors, many of
which have substantial resources and have made significant investments in
competing technologies, will not seek to apply for and obtain patents that will
prevent, limit or interfere with the Company's ability to make, use and sell its
potential products either in the United States or in international markets.

The biotechnology and pharmaceutical industry has been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies have employed intellectual property litigation to gain a
competitive advantage. There are a number of filed and issued patents related to
gene therapy and the treatment of cancer by gene therapy. A series of patents
controlled by Enzo Biochem relating to antisense technology has recently been
found invalid by the United States District Court for the District of Delaware.
Introgen anticipates that Enzo Biochem will appeal this ruling. If the ruling is
overturned and this series of patents is held to be valid, Introgen's
RV-AS-K-ras product could be subject to an infringement claim.

Canji controls a pending United States patent application and its European
counterpart which involve p53 related therapeutic applications. The Company's
knowledge about the status of this United States patent application is limited
because this United States application has been maintained in secrecy. The
claims of the

37
<PAGE> 39

European counterpart of this application have been rejected but could later be
allowed based upon further prosecution. Another pending United States patent
application and its European counterpart involve a method of supplying normal
p53 function to a cell which has lost such function and associated delivery
systems. These patent applications are controlled by Pharmagenics. Accordingly,
since neither application has issued, the Company is unable to assess the
potential breadth and validity of these pending applications.

In addition, Canji controls an issued United States patent and its European
counterpart involving a method of treating mammalian cancer cells lacking normal
p53 protein by introducing into the cancer cell a normal p53 protein. While the
Company believes, after consultation with its patent counsel, that its potential
products do not infringe any valid claim of the Canji patent, there can be no
assurance that Canji will not assert a claim against the Company. Furthermore,
there can be no assurance that the Company will not become subject to any other
patent infringement claims or litigation arising out of pending applications,
should they issue, including the Canji and Pharmagenics applications described
above or interference proceedings declared by the USPTO to determine the
priority of inventions.

The defense and prosecution of intellectual property suits, USPTO
interference proceedings and related legal and administrative proceedings
involve complex legal and factual questions. As a result such proceedings are
costly and time-consuming to pursue and their outcome is uncertain. Litigation
may be necessary to enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings will result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. An adverse determination in litigation or interference proceedings to
which the Company may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties or could restrict or prevent the Company from selling its products in
certain markets. Although patent and intellectual property disputes are often
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that the necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could restrict or prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.

GOVERNMENT REGULATION

The production and marketing of the Company's proposed products and its
research and development activities are subject to regulation for safety,
effectiveness and quality by numerous governmental authorities in the United
States and other countries. In the United States, drugs are subject to rigorous
FDA regulations. The Federal Food, Drug, and Cosmetic Act, as amended, the
regulations promulgated thereunder, and other federal and state statutes and
regulations govern, among other things, the testing, manufacture, safety,
effectiveness, labeling, storage, record keeping, advertising and promotion of
the Company's products. Product development and approval within this regulatory
framework take a number of years and involve the expenditure of substantial
resources.

The steps required before the Company's proposed products may be marketed
in the United States include (i) preclinical laboratory tests, in vivo
preclinical studies and formulation studies, (ii) the submission to the FDA of
an IND application for human clinical testing, which must become effective
before human clinical trials commence, (iii) adequate and well-controlled human
clinical trials to establish the safety and effectiveness of the drug, (iv) the
submission to the FDA of a PLA and ELA (for a biologic) or an NDA (for a drug),
and (v) the FDA approval of the PLA/ELA or NDA prior to any commercial sale or
shipment of the

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<PAGE> 40

drug. In addition to obtaining FDA approval for each product and indication,
each domestic manufacturing establishment must be registered with, and approved
by, the FDA. Domestic manufacturing establishments are subject to biennial
inspections by the FDA and must comply with cGMP for both drugs and devices. To
supply products for use in the United States, foreign manufacturing
establishments, including third party facilities, must comply with cGMP and are
subject to periodic inspection by the FDA or by corresponding regulatory
agencies in such countries under reciprocal agreements with the FDA. In addition
to FDA regulation, the Company is also subject to a variety of additional
governmental regulations under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Energy
Reorganization Act of 1974, the Resource Conservation and Recovery Act and other
current and future federal, state and local regulations.

Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
effectiveness of the product. Compounds must be adequately manufactured and
preclinical safety tests must be conducted by laboratories that comply with FDA
Good Laboratory Practices ("GLP") regulations. The results of the preclinical
tests are submitted to the FDA as part of an IND and are reviewed by the FDA
prior to the commencement of human clinical trials. There can be no assurance
that submission of an IND will result in FDA authorization to commence clinical
trials.

Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients, under the supervision of qualified
principal investigators. Clinical trials must be conducted in accordance with
Good Clinical Practices under protocols that detail the objectives of the study,
the parameters to be used to monitor safety and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA for clearance as part of
the IND. Further, each clinical trial must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
trial will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects, informed consent and the possible
liability of the institution.

Clinical trials are typically conducted in three sequential phases, but the
phases often overlap. In Phase I, the initial introduction of the drug into
healthy subjects, the drug is tested for safety (adverse effects), dosage
tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics
(clinical pharmacology). Phase II involves studies in a limited patient
population to (i) determine the effectiveness of the drug for specific, targeted
indications, (ii) determine dosage tolerance and optional dosage and (iii)
identify possible adverse effects and safety risks. When a compound is found to
be effective and to have an acceptable safety profile in Phase II evaluations,
Phase III trials are undertaken to further evaluate clinical effectiveness and
to further test for safety within an expanded patient population at
geographically dispersed clinical study sites. There can be no assurance that
Phase I, Phase II or Phase III testing will be completed within any specific
time period, if at all, with respect to any of the Company's products subject to
such testing. Furthermore, the Company or the FDA may suspend clinical trials at
any time if it is believed that the patients are being exposed to an
unacceptable health risk.

Among other things, the results of the preclinical and clinical studies,
along with manufacturing information, are submitted to the FDA in the form of a
PLA/ELA or an NDA for approval of the marketing and commercial shipment of the
drug. Upon accepting a Company's marketing approval applications, the FDA
generally convenes an Advisory Committee to review clinical trial results and
make a non-binding recommendation concerning the drug's approval. After
considering the Advisory Committee recommendation and other information, the FDA
may or may not issue an approval letter. This letter sets out the specific terms
and conditions that the Company must satisfy in order to receive final approval
to market. The testing and approval process is likely to require substantial
time and effort and there can be no assurance that any approval will be granted
on a timely basis, if at all. The FDA may deny a PLA/ELA or an NDA if applicable
regulatory criteria are not satisfied, require additional testing or
information, or require postmarketing testing and surveillance to monitor the
safety of the Company's products if they do not view the PLA/ELA or the NDA as
containing adequate evidence of the safety and effectiveness of the drug.
Notwithstanding the submission of such data, the FDA may ultimately decide that
the application does not satisfy regulatory criteria for approval. Moreover, if
regulatory approval is granted, such approval will entail limitations on the

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<PAGE> 41

indicated uses for which it may be marketed. Finally, approvals may be withdrawn
if compliance with regulatory standards is not maintained or if problems occur
following initial marketing.

Under the Orphan Drug Act, the FDA may designate drug products as orphan
drugs if there is no reasonable expectation of recovery of the costs of research
and development from sales in the United States or if such drugs are intended to
treat a rare disease or condition, which is defined as a disease or condition
that affects less than 200,000 persons in the United States. If certain
conditions are met, designation as an orphan drug confers upon the sponsor
marketing exclusivity for seven years following FDA approval of the product,
meaning that the FDA cannot approve another version of the "same" product for
the same use during such seven-year period. The market exclusivity provision
does not, however, prevent the FDA from approving a different orphan drug for
the same use or the same orphan drug for a different use. The Company believes
that certain of its potential products may qualify for orphan drug designation.
There can be no assurance that any of the Company's potential products will
ultimately receive orphan drug designation, or that the benefits currently
provided by such a designation will not hereafter be amended or eliminated. The
Orphan Drug Act has been controversial, and many legislative proposals have from
time to time been introduced in Congress to modify various aspects of the Orphan
Drug Act, particularly the market exclusivity provisions. There can be no
assurance that new legislation will not be introduced in the future that may
adversely impact the availability or attractiveness of orphan drug status for
any of the Company's potential products.

Among the conditions for FDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to cGMP. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance. The FDA
stringently applies regulatory standards for manufacturing.

COMPETITION

There are many companies, both publicly and privately held, including
well-known pharmaceutical companies, as well as academic and other research
institutions, engaged in developing products for human therapeutic applications.
The Company is aware that Canji is currently conducting clinical trials with p53
related gene therapy products. Various small molecule drug and antisense
approaches are being investigated by other companies in earlier stages of
research and development. The Company is also aware that Onyx Pharmaceuticals,
Inc. has initiated a clinical study of a virus-based therapy which targets cells
that are mutant for p53. Certain companies, including Merck & Co. and Genentech,
Inc., are developing small molecule drugs to inhibit targets involving the ras
pathway. Other companies have or are developing small molecule drugs, gene
therapy and antisense approaches to treat ras related cancers. Many of these
companies and institutions have substantially greater financial resources and
larger research and development staffs than the Company. In addition, many of
these competitors have significantly greater experience than the Company in
developing products, in undertaking preclinical testing and human clinical
trials, in obtaining FDA and other regulatory approvals of products and in
manufacturing and marketing products. Accordingly, the Company's competitors may
succeed in obtaining patent protection, receiving FDA approval or
commercializing products more rapidly than the Company. If and when the Company
commences commercial sales of products, it will be competing against companies
with greater marketing capabilities and manufacturing experience, areas in which
it has limited or no experience. The Company also competes with universities and
other research institutions in the development of products, technologies and
processes. In many instances, the Company competes with other commercial
entities in acquiring products or technologies from universities.

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<PAGE> 42

The Company expects that competition among products approved for sale will
be based, among other things, on product efficacy, safety, reliability,
availability, price, patent position and sales, marketing and distribution
capabilities. The Company's competitive position also depends upon its ability
to attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources for the often substantial period between technological conception and
commercial sales.

HUMAN RESOURCES

As of September 27, 1996, Introgen employs approximately 52 persons engaged
in research and development, regulatory affairs, clinical affairs and
manufacturing activities. The Company's employees include 14 holders of the
Ph.D. or M.D. degree. Many of Introgen's employees have brought extensive prior
experience in the pharmaceutical and biotechnology industries to the Company.

In addition to its full-time staff, Introgen provides financial support
through sponsored research agreements for approximately 25 research scientists
and technicians at UTMDACC who serve as investigators for Introgen on clinical
and preclinical research projects. Introgen also has entered into part-time
consulting arrangements with several UTMDACC scientists and clinicians.
Introgen's sponsored research projects with UTMDACC involve investigators in a
wide range of specialties, including thoracic and cardiovascular surgery,
neurology, gynecology, urology, and gastrointestinal medicine. The human
resources devoted to development of Introgen technology and products is further
augmented by the Company's collaborators at SKCC.

None of the Company's employees is covered by collective bargaining
agreements, and the Company believes it enjoys mutually satisfactory relations
with its employees and consultants. The Company's success will depend in
significant part upon its ability to attract and retain qualified personnel. See
"Risk Factors -- Need to Attract and Retain Key Employees and Consultants."

FACILITIES

Introgen leases facilities in Houston, Texas of approximately 22,000 square
feet devoted to research and development laboratories, the Company's pilot-scale
cGMP manufacturing facility, core clinical support laboratory and administrative
offices. The Company's corporate offices are located in Austin, Texas. The
Company expects its current facilities, as they may be supplemented by the
commercial-scale cGMP manufacturing facility currently in the design phase, to
satisfy its requirements for at least the next two years.

SCIENTIFIC ADVISORY BOARD

Introgen receives guidance on a broad range of scientific, clinical and
technical issues from its Scientific Advisory Board. Members of the Scientific
Advisory Board are recognized experts in their respective fields of research and
clinical medicine related to molecular oncology. The members of the Board are:

Jack A. Roth, M.D., Chairman of the Scientific Advisory Board, is
Chairman, Department of Thoracic and Cardiovascular Surgery at UTMDACC. An
Introgen founder and the Company's Chief Medical Advisor, Dr. Roth has been
a widely recognized pioneer in the application of gene therapy to the
treatment of cancer. He is the primary inventor of the technology upon
which Introgen's gene therapy products are based.

George F. Vande Woude, Ph.D., is the Director of the ABL-Basic
Research Program of the National Cancer Institute and also directs the
Molecular Mechanisms of Carcinogenesis Laboratory and the Molecular
Oncology Section. He is the editor-in-chief of Cell Growth and
Differentiation, a co-editor of Advances in Cancer Research, and serves on
the editorial boards of three other prominent journals. He serves as a
scientific advisor to numerous prominent cancer centers. Dr. Vande Woude
received his Ph.D. in biochemistry/physical chemistry from Rutgers
University.

Carol L. Prives, Ph.D., is a Professor of Biology at Columbia
University. She is the Chair of the NIH Experimental Virology Study Section
and a member of the NCI Intramural Scientific Advisory Board, as well as
the Dana-Farber Cancer Center Advisory Board. She is an editor of the
Journal of Virology and

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<PAGE> 43

serves on the editorial boards of three other prominent journals. She
received her Ph.D. in biochemistry from McGill University.

Daniel Von Hoff, M.D., is the Director of the Institute for Drug
Development, Cancer Therapy and Research in San Antonio, Texas and a
Professor in the Departments of Medicine and Cellular and Structural
Biology at the University of Texas Health Science Center. Dr. Von Hoff is
certified in medical oncology by the American Board of Internal Medicine.

Elizabeth Grimm, Ph.D., is Biologist and Professor of Tumor Biology at
UTMDACC. A recipient of the Ph.D. degree in microbiology from the
University of California, Los Angeles School of Medicine, Dr. Grimm has
served as Cancer Expert, Surgical Branch of the NCI.

Michael J. Imperiale, Ph.D., is the Director of Cancer Biology
Training Programs at the University of Michigan Cancer Center and holds a
concurrent position in the Department of Microbiology and Immunology at the
University of Michigan. Dr. Imperiale earned his Ph.D. degree in biological
sciences from Columbia University and received postdoctoral training at the
Rockefeller University Laboratory of Molecular Cell Biology where he
studied the regulation of early adenovirus gene expression.

J. Carl Barrett, Ph.D., is the Scientific Director, Division of
Intramural Research, National Institute of Environmental Health Sciences.
Dr. Barrett received his doctoral degree in biophysical chemistry from the
Johns Hopkins University. Dr. Barrett has received numerous awards
including the NIH Merit Award in 1994 and the NIH Director's Award in 1995.

Peter Nowell, M.D., of the Department of Pathology and Laboratory
Medicine at the University of Pennsylvania School of Medicine, received his
medical training at the University of Pennsylvania School of Medicine. Dr.
Nowell is a past president of the American Society for Experimental
Pathology and past Director of the American Association for Cancer
Research.

LEGAL PROCEEDINGS

The Company is not a party to 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>
David G. Nance...................... 44 President, Chief Executive Officer and Director
Mahendra G. Shah, Ph.D.(2).......... 51 Vice President, Corporate and Business
Development and Director
James W. Albrecht, Jr............... 42 Chief Financial Officer
James A. Merritt, M.D............... 45 Vice President, Clinical Affairs
Mary E. Harper, Ph.D................ 43 Vice President, Research
J. David Enloe, Jr.................. 33 Vice President, Administration
Shawn L. Gallagher.................. 35 Vice President, Manufacturing
John N. Kapoor, Ph.D................ 53 Chairman of the Board
Thierry Soursac, M.D., Ph.D.(1)..... 39 Director
Austin M. Long, III(2).............. 51 Director
Mark B. Chandler, Ph.D.(1)(2)....... 43 Director
</TABLE>

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

(1) Member of Compensation Committee

(2) Member of Audit Committee

DAVID G. NANCE has been the President and Chief Executive Officer of the
Company since its inception in June 1993. From 1992 to 1996, Mr. Nance had been
Managing Partner of Texas Biomedical Development Partners, the investment group
that founded Introgen. From 1991 to 1993, he served as Chairman of LifeScience
Corporation, a private company that develops anticancer technologies. Mr. Nance
is a Director of the Texas Medical Research Foundation. See "Certain
Transactions."

MAHENDRA G. SHAH, PH.D., has been Vice President, Corporate and Business
Development of the Company since its inception in June 1993. From 1991 to the
present, he has been a Vice President of EJ Financial Enterprises, Inc. ("EJ")
and NeoPharm, Inc. From 1987 to 1991, he was the Senior Director of New Business
Development with Fujisawa USA, Inc. Prior to that time, he worked in various
positions with Schering Plough and Bristol Meyers-Squibb Company. Dr. Shah
received a Ph.D. in Industrial Pharmacy from St. John's University. Dr. Shah
serves as Vice President, Corporate and Business Development, pursuant to a
consulting agreement with EJ. See "Certain Transactions."

JAMES W. ALBRECHT, JR. joined the Company in November 1994 as its Vice
President, Operations and Administration and has been the Chief Financial
Officer of the Company since September 1995. From 1994 to 1996, he was also
Chief Financial Officer of Spertus Investments LLC and SDC Properties, Inc.,
real estate development and family asset management businesses. From 1993 to
1994, Mr. Albrecht was Chief Financial Officer of On-Demand Technologies, Inc.,
a software development company. From 1988 to 1995, he was the Controller and
Accounting Manager of CompuAdd Computer Corporation, a personal computer
manufacturing and sales company. Mr. Albrecht is a Certified Public Accountant.

JAMES A. MERRITT, M.D., has been Vice President, Clinical Affairs since
joining the Company in February 1996. From 1994 to 1995, he was Vice President
of Medical Affairs at Viagene, Inc. From 1990 to 1994, he held various positions
with IDEC Pharmaceuticals Corp., most recently as Senior Director, Clinical
Sciences. Dr. Merritt is board certified in internal medicine and medical
oncology and has served on the board of Anti-Cancer Drugs since 1990. He
received his M.D. from the University of Vermont.

MARY E. HARPER, PH.D., has been Vice President, Research since joining the
Company in January 1996. From 1990 to 1996, she held various positions at Genta,
Inc., most recently as Vice President of Biological Research. Dr. Harper
received her Ph.D. in molecular genetics from the University of Minnesota.

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<PAGE> 45

J. DAVID ENLOE, JR. joined the Company in March 1995 as its General
Business Manager and has been Vice President, Administration of the Company
since May, 1996. From 1989 to 1995, he held various positions at Centrilift, an
affiliate of Baker Hughes, Inc., most recently as Region General Manager,
Southeast Asia. Mr. Enloe is a Certified Public Accountant.

SHAWN L. GALLAGHER has been Vice President, Manufacturing, since joining
the Company in August 1996. From 1995 to 1996, he was Director of Operations at
Magenta Corporation. From 1991 to 1995, he held various manufacturing management
positions at ImmunoGen, Inc. Mr. Gallagher received an M.S. in chemical
engineering from the University of California at San Diego.

JOHN N. KAPOOR, PH.D., has been Chairman of the Board of the Company since
its inception in June 1993. In 1990, Dr. Kapoor founded EJ Financial
Enterprises, Inc. and is presently its President. He is also presently Chairman
of OptionCare, Inc., Unimed Pharmaceuticals, Inc. and NeoPharm, Inc., Chairman
and Chief Executive Officer of Akorn, Inc. and is a director of Bone Care, Inc.
Dr. Kapoor received his Ph.D. in medicinal chemistry from the State University
of New York.

THIERRY SOURSAC, M.D., PH.D., has been a director of the Company since
October 1994. Since 1987, he has held various positions at Rhone-Poulenc Rorer
Inc. and is currently a Senior Vice President of RPR and General Manager of RPR
Gencell. Dr. Soursac received his Doctorate in Medicine from Universite
d'Angers, his Ph.D. from Universite de Paris and his M.B.A. from INSEAD.

AUSTIN M. LONG, III has been a director of the Company since October 1994.
From 1987 to the present, he has been Vice President of Private Investments of
the University of Texas Investment Management Company. He is also a director of
Targeted Genetics Corporation. Mr. Long holds an M.P.A. from the University of
Texas, a J.D. from DePaul University Law School and is a Certified Public
Accountant.

MARK B. CHANDLER, PH.D., has been a director of the Company since October
1994. Dr. Chandler co-founded Inland Laboratories, Inc. in 1983 and is currently
its President. Dr. Chandler holds a Ph.D. in Immunology from the University of
Texas, Health Science Center.

All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board of Directors. There are no family relationships between
any of the directors or executive officers of the Company.

In connection with a personal real estate investment, Mr. Nance filed a
petition for bankruptcy under Chapter 13 of the United States Bankruptcy Code in
August 1992. Mr. Nance voluntarily moved to dismiss the filing later that month,
which motion was granted in October 1992.

On August 16, 1992, a lawsuit was filed against Dr. Kapoor in the United
States District Court for the Northern District of Illinois by Fujisawa
Pharmaceutical Co., Ltd. and Fujisawa USA, Inc. ("Fujisawa"). The complaint
alleged that Dr. Kapoor, while President and Chief Executive Officer of
Lyphomed, Inc., a company acquired by Fujisawa, violated provisions of the
Federal securities laws and the Racketeer Influenced and Corrupt Organizations
Act (RICO), and also asserted certain state law claims. On July 25, 1996, the
complaint was dismissed in part, and Dr. Kapoor was granted summary judgment on
the remaining claims. On August 22, 1996, Fujisawa filed a notice of appeal of
the dismissal and summary judgment decision. Dr. Kapoor vigorously denies the
allegations and filed a complaint against Fujisawa in Illinois state court on
August 27, 1996 claiming breach of contract, defamation of character and other
state law claims.

COMPENSATION OF DIRECTORS

Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses they incur in connection
with their attendance at meetings of the Board. The Company's Director Option
Plan provides for the grant of options to nonemployee directors ("Outside
Directors") pursuant to a nondiscretionary, automatic grant mechanism, whereby
each Outside Director is granted an option at fair market value to purchase
2,000 shares on the date of each Annual Meeting of Shareholders, provided such
director is reelected. Each new Outside Director that joins the Board will
automatically be granted an initial option at fair market value to purchase
10,000 shares of Common Stock upon the date on

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<PAGE> 46

which such person first becomes an Outside Director. The Company has reserved
200,000 shares of Common Stock for issuance under this plan. The initial options
vest at a rate of 25% per year following the date of grant so long as the
optionee remains a director of the Company. The re-election options vest at a
rate of 12.5% per month following the date of grant so long as the optionee
remains a director of the Company. In the event a director's status as a
director is terminated, the director may exercise any vested option within one
year after the date of such termination after which time all unexercised options
will be canceled. All unvested options will be canceled as of the date of the
director's termination. In the event of a merger, sale of substantially all of
the Company's assets or change in the ownership of the Company, all options
outstanding under the Director Option Plan shall be fully vested. Each such
vested option will remain exercisable in accordance with the terms under which
such option was granted. Prior to the adoption of the Company's Director Option
Plan as of June 30, 1996, Outside Directors held options exercisable for 90,000
shares of Common Stock at a weighted average exercise price of $0.63 under the
Incentive Stock Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Compensation Committee also administers various
incentive compensation and benefit plans. In fiscal year 1996, the Compensation
Committee consisted of Thierry Soursac and Mark B. Chandler.

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by the Company during
the fiscal year ended June 30, 1996 to the Chief Executive Officer and its four
other most highly compensated executive officers whose cash compensation
exceeded $100,000 (the Chief Executive Officer and such other executive officers
are hereinafter referred to as the "Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION ($) BONUS ($) ($)(2) OPTIONS (#) ($)
- ------------------------------ -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
David G. Nance $175,000(1) -- -- 60,000 --
President, Chief Executive
Officer
Mahendra G. Shah, Ph.D. 150,000(3) -- -- 48,000 --
Vice President, Corporate
and Business Development
James W. Albrecht, Jr. 109,500(4) -- -- 12,000 --
Chief Financial Officer
James A. Merritt, M.D. 56,827(5) -- -- 60,000 $ 15,000(6)
Vice President, Clinical
Affairs
Mary E. Harper, Ph.D. 63,077(7) -- -- 48,000 25,000(6)
Vice President, Research
</TABLE>

- ---------------
(1) Mr. Nance's compensation was paid to Domecq Technologies, Inc. ("Domecq") of
which he is the President.
(2) Other annual compensation in the form of perquisite and other personal
benefits, securities or property has been omitted in those cases where the
aggregate amount of such compensation is the lesser of either $50,000 or 10%
of the total of annual salary and bonus reported for the named executive
officer.
(3) Dr. Shah's compensation is paid to EJ by which he is employed.
(4) Includes compensation as a consultant prior to March 1, 1996 and salary
after that date as an employee. Mr. Albrecht's current annual compensation
is $150,000.
(5) Includes salary from February 14, 1996 upon commencement of employment. Dr.
Merritt's current annual compensation is $150,000.
(6) Relocation allowance.
(7) Includes salary from January 31, 1996 upon commencement of employment. Dr.
Harper's current annual compensation is $150,000.

45
<PAGE> 47

STOCK OPTION INFORMATION

The following table sets forth certain information for the year ended June
30, 1996, with respect to each grant of stock options to the Executive Officers:

OPTION GRANTS IN FISCAL YEAR 1996

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL
-------------------------------------------------- RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---------------------------------- ---------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
David G. Nance.................... 60,000 23% $0.63 9/29/05 $23,584 $59,765
Mahendra G. Shah, Ph.D............ 48,000 18% 0.63 9/29/05 18,867 47,812
James W. Albrecht, Jr............. 12,000 5% 0.63 1/12/06 4,717 11,953
James A. Merritt, M.D............. 60,000 23% 0.63 2/14/06 23,584 59,765
Mary E. Harper, Ph.D.............. 48,000 18% 0.63 1/12/06 18,867 47,812
</TABLE>

- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted over the full option term. These assumed annual compound
rates of stock price appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.

No stock options were exercised by the Executive Officers during the year
ended June 30, 1996. The following table sets forth certain information
concerning the value of unexercised stock options held by the Executive Officers
at the end of fiscal year 1996.

AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1996 JUNE 30, 1996 (1) THE IPO PRICE(2)
--------------------------- --------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David G. Nance............. 78,000 6,000 $ 7,800 $ 600 $ 419,250 $ 32,250
Mahendra G. Shah, Ph.D..... 66,000 6,000 6,600 600 354,750 32,250
James W. Albrecht, Jr...... 12,000 36,000 1,200 3,600 64,500 193,500
James A. Merritt, M.D...... -- 60,000 -- 6,000 -- 322,500
Mary E. Harper, Ph.D....... -- 48,000 -- 4,800 -- 258,000
</TABLE>

- ---------------
(1) Based upon an assumed fair market value of $0.725 per share as of June 30,
1996 less the exercise price per share.

(2) Based upon an assumed initial public offering price of $6.00 per share less
the exercise price per share.

STOCK PLANS

Incentive Stock Plan. A total of 1,750,000 shares of Common Stock have
been reserved for issuance under the Company's Incentive Stock Plan. Under the
Incentive Stock Plan, as of September 30, 1996, options to purchase an aggregate
746,354 shares were outstanding, no shares of Common Stock had been purchased
pursuant to the exercise of stock options and stock purchase rights and
1,003,646 shares were available for future grant.

The Incentive Stock Plan provides for the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonqualified stock options and stock purchase rights to
employees and consultants of the Company. Incentive stock options may be granted
only to employees. The Incentive Stock Plan is administered by the Board of
Directors or by a committee appointed by the Board of Directors, which
determines the terms of options granted, including the exercise price and the
number of shares subject to each option. The Board of Directors also determines
the schedule upon which

46
<PAGE> 48

options become exercisable. The exercise price of incentive stock options
granted under the Incentive Stock Plan must be at least equal to the fair market
value of the Company's Common Stock on the date of grant for employees
generally. However, for any employee holding more than 10% of the voting power
of all classes of the Company's stock, the exercise price will be no less than
110% of the fair market value. The exercise price of nonqualified stock options
is set by the administrator of the Incentive Stock Plan. The maximum term of
options granted under the Incentive Stock Plan is ten years. In the event of a
merger, reorganization or change in the ownership of the Company, all options
outstanding under the Plan shall be fully vested.

In the event a consultant or an employee is terminated, such employee or
consultant will have at least 90 days after such termination to exercise any
vested non-qualified option and three months to exercise vested incentive stock
options. After the applicable exercise period, all unexercised options will be
canceled. All unvested options will be canceled as of the date of the employee's
termination. In the event of a merger, sale of substantially all of the
Company's assets or change in the ownership of the Company, all options
outstanding under the Incentive Stock Plan shall be fully vested. Each such
vested option will remain exercisable in accordance with the terms under which
such option was granted.

Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Company's Board of Directors and
approved by the Company's stockholders in August 1996. The Purchase Plan is
intended to qualify under Section 423 of the Code. The Company has reserved
100,000 shares of Common Stock for issuance under the Purchase Plan. Under the
Purchase Plan, an eligible employee will be granted an option to purchase shares
of Common Stock from the Company through payroll deductions of up to 10% of his
or her compensation, at a price per share equal to 85% of the lower of (i) the
fair market value of the Company's Common Stock on the first day of an offering
period under the Purchase Plan or (ii) the fair market value of the Common Stock
on the last day of an offering period. Except for the first offering period,
each offering period will last for six months and will commence the first day on
which the national stock exchanges and the Nasdaq National Market System are
open for trading, on or after May 1 and November 1 of each year. The first
offering period will begin upon the effective date of this offering and will end
on October 31, 1997. On the last day of each offering period, the option to
purchase the shares will be exercised automatically, and the maximum number of
full shares subject to the option will be purchased for the employee with the
accumulated payroll deductions in his or her account. Any employee who is
customarily employed for at least 20 hours per week and more than five months
per calendar year and, who has been so employed for at least three consecutive
months on or before the commencement date of an offering period is eligible to
participate in the Purchase Plan. An employee may elect to withdraw from the
Purchase Plan by withdrawing all, but not less than all, payroll deductions from
his account prior to the exercise date, and a termination of employment will be
treated as a withdrawal from the Purchase Plan.

In the event of merger of the Company with or into another corporation, all
outstanding options will either be assumed or an equivalent option will be
substituted by the successor corporation, unless the Board in its discretion
accelerates the exercise date of such options or cancels the options and refunds
all payroll deductions collected from the employees. If the Board accelerates
the exercise date, it must give the employees ten days' notice of the new
exercise date.

EMPLOYMENT AND CONSULTING AGREEMENTS

Until August 1, 1996, the Company had a service agreement with Domecq
pursuant to which David G. Nance provided his services as President and Chief
Executive Officer of Introgen. Mr. Nance is the President of Domecq. Effective
August 1, 1996, the Company entered into an employment agreement with Mr. Nance,
under which he will continue to serve as President and Chief Executive Officer
and will be paid at the annual rate of $225,000. The Company also has a
consulting agreement with EJ pursuant to which Mahendra G. Shah provides his
services as Vice President, Corporate and Business Development. See "Management"
and "Certain Transactions."

47
<PAGE> 49

SECTION 401(K) PLAN

In May 1995, the Company adopted a retirement savings and investment plan
(the "401(k) Plan") covering the Company's employees who are located in the
United States. Pursuant to the 401(k) Plan, employees may elect to reduce their
current compensation by up to the statutorily prescribed annual amount ($9,240
in 1995 and $9,500 in 1996) and to have the amount of such reduction contributed
to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional
matching contributions by the Company on behalf of all participants in the
401(k) Plan. The Company has not made any matching contributions to the 401(k)
Plan. The 401(k) Plan is intended to qualify under Section 401(k) of the Code,
so that (i) contributions to the 401(k) Plan by employees or by the Company, and
the investment earnings thereon, are not taxable to employees until withdrawn
from the 401(k) Plan; and (ii) contributions by the Company, if any, will be
deductible by the Company when made.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Restated Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i)
breach of their duty of loyalty to the corporation or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal or state securities laws and does
not affect the availability of equitable remedies such as injunctive relief or
rescission.

The Company's Bylaws provide that the Company shall indemnify its
directors, officers, employees and other agents to the fullest extent permitted
by law. The Company believes that indemnification under its Bylaws covers at
least negligence and gross negligence on the part of indemnified parties. The
Company's Bylaws also permit it to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the Bylaws permit such
indemnification.

The Company has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Bylaws. These agreements, among other things, indemnify the Company's
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the Company
arising out of such person's services as a director, officer, employee, agent or
fiduciary of the Company, any subsidiary of the Company or any other company or
enterprise to which the person provides services at the request of the Company.
The Company believes that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.

At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.

48
<PAGE> 50

CERTAIN TRANSACTIONS

CONSULTING AND SERVICE AGREEMENTS

Dr. Jack A. Roth individually and as trustee of Roth 1994 Investment Trust
owns shares of Common Stock of Introgen. He is also Chairman of the Department
of Thoracic and Cardiovascular Surgery at UTMDACC with which Introgen has a
licensing agreement and several research agreements. Introgen entered into a
consulting agreement with Dr. Roth effective as of October 1, 1994. Pursuant to
this agreement, Dr. Roth provides his technical knowledge, expertise and
assistance in the development and commercialization of Introgen's products and
abides by confidentiality and noncompetition provisions. Dr. Roth received
$20,000 at the execution of the agreement. The agreement also provides the
following compensation formula: $30,000 per year starting October 1, 1994,
$75,000 per year starting October 1, 1995, $100,000 per year starting October 1,
1996, with the yearly compensation increasing to $200,000 starting October 1,
2003, subject to adjustment for inflation. While the term of this agreement is
15 years from October 1, 1994, upon one year's notice, the Company may terminate
this agreement effective October 1, 1997.

David G. Nance, President, Chief Executive Officer and director of
Introgen, is also President of Domecq. On July 1, 1994, Introgen entered into a
service agreement with Domecq pursuant to which Domecq provided the services of
Mr. Nance to serve the Company as President and Chief Executive Officer for
compensation of $175,000 per year through August 1, 1996. Effective August 1,
1996, the Company entered into an employment agreement with Mr. Nance, under
which he will serve in the same positions and will be paid at the annual rate of
$225,000. Mr. Nance is also a member of the board of directors of Pinnacle
Management & Trust Co., the current administrator of the Company's 401(k) plan.
See "Management -- Employment and Consulting Agreements."

Mahendra G. Shah, Vice President and director of Introgen, is also an
employee of EJ, a shareholder of the Company. On July 1, 1994, the Company and
EJ entered into a consulting agreement pursuant to which EJ provides the
services of Dr. Shah to Introgen. The agreement provides that Dr. Shah will
serve as Introgen's Vice President and assist with business development, license
negotiation, market analysis and general corporate development. Introgen is
obligated to pay EJ compensation of $150,000 per calendar year. The term of the
agreement is three years commencing July 1, 1994 unless terminated by the
Company on 30 days' notice. After the initial term, the agreement is
automatically renewed for additional one-year terms unless either party gives
notice of termination. Over the course of the term of the agreement and at
present, Dr. Shah devotes a substantial portion of his time to Introgen as Vice
President, Corporate and Business Development of the Company. Dr. Shah has
indicated that it is his intention to remain as Vice President, Corporate and
Business Development of the Company, subject to Introgen's right to terminate
the agreement.

OTHER ARRANGEMENTS

Thierry Soursac is a Senior Vice President of RPR and General Manager of
RPR Gencell. RPR is a stockholder of the Company and has several agreements with
the Company. Pursuant to the terms of a stock purchase agreement between the
Company and RPR, RPR has agreed to purchase $6.0 million of Common Stock
concurrent with this offering in a private placement at the price to public in
this offering, as well as to make an additional equity investment of $2.5
million in 1997 at the higher of the price to public in this offering or the
then current average trading price, and a potential future milestone payment of
approximately $2.5 million (provided that the collaboration agreements remain in
effect). At the assumed offering price of $6.00 per share, the private placement
will result in the issuance of 1,000,000 shares to RPR. Accordingly, RPR will
own approximately 18.9% of the outstanding capital stock of the Company after
the offering. If the 1997 equity investment occurs at the assumed offering price
of $6.00 per share, RPR will purchase an additional 416,667 shares of Common
Stock at that time. See "Business of Introgen -- Collaborative Arrangements and
Licensing Agreements -- Rhone-Poulenc Rorer."

49
<PAGE> 51

The Board of Regents of the University of Texas System is a stockholder of
the Company. The Board of Regents of the University of Texas System, UTMDACC and
Introgen are parties to the Patent and Technology License Agreement and several
sponsored research agreements. See "Business of Introgen -- Collaborative
Agreements and Licensing Agreements -- The University of Texas M.D. Anderson
Cancer Center."

Genesis Merchant Group Securities ("Genesis"), an underwriter in this
offering, is a stockholder and warrant holder of Introgen. As of the date of
this Prospectus, Genesis and certain related persons beneficially own an
aggregate of 40,863 shares of the Company's Series C Preferred Stock,
outstanding warrants exercisable for 14,951 shares of the Common Stock at an
exercise price of $7.929 per share and outstanding warrants exercisable for
37,377 shares of Common Stock at an exercise price equal to the price per share
in this offering. The Series C Preferred Stock will automatically be converted
to Common Stock upon the completion of this offering.

50
<PAGE> 52

PRINCIPAL STOCKHOLDERS

The following table sets forth as of September 30, 1996, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby and pursuant to
the private placement, certain information with respect to the beneficial
ownership of the Common Stock as to (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) each of the executive officers named in the
Summary Compensation Table, and (iv) all directors and executive officers of the
Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF OUTSTANDING
SHARES -----------------------------
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING(2)(5)
- ------------------------------------------------------ ------------ ---------- --------------
<S> <C> <C> <C>
John N. Kapoor, Ph.D.(3).............................. 2,331,731 30.35% 20.85%
225 Deerpath, #250
Lake Forest, IL 60045
David G. Nance(4)..................................... 2,139,077 27.63 19.03
c/o Introgen Therapeutics, Inc.
301 Congress, Suite 1850
Austin, TX 78701
Rhone-Poulenc Rorer International (Holdings) Inc. .... 1,111,764 14.51 18.92
Delaware Corporate Center I
Suite 114
1 Righter Parkway
Wilmington, DE 19803
The Board of Regents of the University of Texas 730,749 9.53 6.54
System(6)...........................................
201 West 7th Street
Austin, TX 78701
Jack A. Roth, M.D.(7)................................. 724,749 9.46 6.49
2324 Bolsover
Houston, TX 77005
Thierry Soursac, M.D., Ph.D.(8)....................... 6,000 * *
Mahendra G. Shah, Ph.D.(9)............................ 66,000 * *
James W. Albrecht, Jr.(10)............................ 12,000 * *
Mark B. Chandler, Ph.D.(11)........................... 6,000 * *
Austin M. Long, III(12)............................... -0- * *
James A. Merritt, M.D.(13)............................ -0- * *
Mary E. Harper, Ph.D.(14)............................. -0- * *
All directors and executive officers as a group
(10 persons)(3)(4)(7)(8)(9)(10)(11)(12)............. 4,570,909 58.14 40.25
</TABLE>

- ---------------
(*) Less than 1%.
(1) Applicable percentage ownership is based on 7,663,769 shares of Common
Stock as of September 30, 1996, together with applicable options for such
stockholder. Beneficial ownership is determined in accordance with the
rules of the Commission, based on factors including voting and investment
power with respect to shares. Shares of Common Stock subject to the options
currently exercisable, or exercisable within 60 days after September 30,
1996, are deemed outstanding for computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.

(2) After giving effect to the issuance of 2,500,000 shares of Common Stock
offered hereby and the 1,000,000 to be purchased by RPR concurrent with
this offering in a private placement.

(3) Consists of 1,156,865 shares held by EJ Financial Investments IV, L.P.,
925,492 shares held by EJ Financial Investments VI, L.P., 231,374 shares
held by EJ and 18,000 shares held by Dr. Kapoor subject to stock options
that are exercisable within 60 days of September 30, 1996. EJ Financial
Investments IV, L.P. and EJ Financial Investments, VI, L.P. are
partnerships controlled by their general partner, EJ. Dr. Kapoor, Chairman
of the Board of the Company, is President of EJ. Dr. Kapoor disclaims
beneficial ownership of the shares held by EJ, EJ Financial Investments IV,
L.P. and EJ Financial Investments VI, L.P.
(4) Consists of 521,883 shares held by David G. Nance, trustee, 927,862 shares
held by Developtech Resource Corporation, 11,332 shares held by Domecq,
600,000 shares held by Debouchment, Ltd. and 78,000 shares subject to stock
options that are exercisable

51
<PAGE> 53

within 60 days of September 30, 1996. Mr. Nance is President and Chief
Executive Officer of the Company of Developtech Resource Coporation, Domecq
and Debouchment, Ltd. Mr. Nance holds the right to vote for each entity and
has dispositive control over the shares of Common Stock.

(5) Includes 1,000,000 shares of Common Stock to be purchased by RPR concurrent
with this offering in a private placement.

(6) Consists of 724,749 shares held by the Board of Regents and 6,000 shares
subject to stock options that are exercisable within 60 days of September
30, 1996.
(7) Consists of 362,374 shares held by Roth 1994 Investment Trusts and 362,375
shares held by Dr. Roth. Dr. Roth holds the right to vote for each entity
and has dispositive control over the shares of Common Stock.
(8) All 6,000 shares subject to stock options that are exercisable within 60
days of September 30, 1996. Dr. Soursac and RPR have agreed that in the
event Dr. Soursac exercises the option he will assign all interest in the
shares to RPR.
(9) All 66,000 shares subject to stock options that are exercisable within 60
days of September 30, 1996.
(10) All 12,000 shares subject to stock options that are exercisable within 60
days of September 30, 1996.
(11) All 6,000 shares subject to stock options that are exercisable within 60
days of September 30, 1996.
(12) All 6,000 shares subject to stock options exercisable within 60 days of
September 30, 1996. These shares are held by the Board of Regents. Mr. Long
holds no right to vote these shares and disclaims beneficial ownership.
(13) Dr. Merritt has been granted options to purchase 60,000 shares of Common
Stock, none of which are exercisable within 60 days of September 30, 1996.
(14) Dr. Harper has been granted options to purchase 48,000 shares of Common
Stock, none of which are exercisable within 60 days of September 30, 1996.

52
<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company has 50,000,000 shares of Common Stock, $0.001 par value per
share, authorized. The Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of
5,000,000 shares of Preferred Stock, $0.001 par value per share ("Preferred
Stock"), the rights and preferences of which may be established from time to
time by the Company's Board of Directors. The following summary of certain
provisions of the Company's capital stock describes the material provisions of,
but does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Restated Certificate of Incorporation and the
Company's Bylaws, which are included as exhibits to the Registration Statement
of which this Prospectus forms a part and by the provisions of applicable law.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share in the Company's assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted the
holders of any outstanding shares of Preferred Stock. Holders of Common Stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in this offering, when issued and paid for, will be, fully paid
and nonassessable. The rights, preferences and privileges of the holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate in the future.

PREFERRED STOCK

Effective upon the closing of this offering, the Board of Directors is
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 5,000,000 shares of
Preferred Stock, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board of Directors. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. Issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, 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, a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

The holders of 3,318,918 shares of Common Stock (the "Registrable
Securities") or their transferees are entitled to certain registration rights
with respect to the registration of such shares under the Securities Act of
1933, as amended (the "Securities Act"). These rights are provided under the
terms of the Series B Preferred Stock Purchase Agreement and the Series C
Preferred Stock Purchase Agreement (collectively, the "Stock Purchase
Agreements") between the Company and the holders of the Registrable Securities.
The holders of at least 50% of the Registrable Securities or RPR may require,
respectively, subject to certain limitations in the Stock Purchase Agreements,
on one or two occasions, after December 31, 1998, that the Company use its best
efforts to register the Registrable Securities for public resale. In addition,
if the Company registers any of its Common Stock either for its own account or
for the account of other security holders, the holders of Registrable Securities
are entitled to include their shares of Common Stock in the registration. These
shares will not form a part of the shares of the Common Stock registered in this
offering. A holder's right to include

53
<PAGE> 55

shares in an underwritten registration statement is subject to the ability of
the underwriters to limit the number of shares included in the offering. The
holders of Registrable Securities may also require the Company to register all
or a portion of their Registrable Securities on Form S-3 when use of such form
becomes available to the Company, provided, among other limitations, that the
proposed aggregate selling price, net of underwriting discounts and commissions,
is at least $1,000,000. All registration expenses must be borne by the Company
and all selling expenses relating to Registrable Securities must be borne by the
holders of the securities being requested. If such holders, by exercising their
demand registration rights, cause a large number of securities to be registered
and sold in the public market, such sales could have an adverse effect on the
market price for the Company's Common Stock. If the Company were to initiate a
registration and include Registrable Securities pursuant to the exercise of
piggyback registration rights, the sale of such Registrable Securities may have
an adverse effect on the Company's ability to raise capital.

CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE

Certain provisions of the Restated Certificate of Incorporation and the
Company's Bylaws may 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 Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders and eliminate the right of
stockholders to act by written consent without a meeting. 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, the Company is subject to Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (1) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, or (2) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding of those shares owned (i) by
persons who are directors and also officers and (ii) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (3) on or subsequent to such time the business combination is approved
by the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A.

54
<PAGE> 56

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
11,163,769 shares of Common Stock, assuming no exercise of options after
September 30, 1996. Of these shares, the 2,500,000 shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 of the Securities Act ("Rule 144"). The remaining 8,663,769
shares outstanding upon completion of this offering will be "restricted
securities" as that term is defined under Rule 144 (the "Restricted Shares").
Each of the Company's officers, directors and stockholders has agreed with the
Underwriters not to sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of this Prospectus (the "Lock-up Period")
without the prior written consent of PaineWebber Incorporated. PaineWebber
Incorporated, in its sole discretion at any time and without notice, may release
any or all shares from the lock-up agreements and permit holders of the shares
to resell all or any portion of their shares at any time prior to the expiration
of the Lock-up Period. See "Underwriting." The number of shares of Common Stock
available for sale in the public market is further limited by restrictions under
the Securities Act.

Because of the restrictions noted above, on the date of this Prospectus, no
shares other than the 2,500,000 shares offered hereby will be eligible for sale.
Beginning 180 days after the date of this Prospectus (or earlier with the prior
written consent of PaineWebber Incorporated), 8,154,788 shares, including
393,600 shares issuable upon exercise of currently outstanding vested options,
will be eligible for sale in the public market subject to Rule 144 and Rule 701
of the Securities Act. In addition, 902,581 shares held by existing stockholders
will become eligible for sales from time to time upon the expiration of the
minimum holding period prescribed by Rule 144.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least two years from the later of the date such
Restricted Shares are acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
in the Nasdaq National Market System during the four calendar weeks preceding
the filing of a Form 144 with respect to such sale. Sales under Rule 144 are
also subject to certain requirements as to the manner and notice of sales and
the availability of public information concerning the Company. All shares,
including Restricted Shares, held by affiliates of the Company eligible for sale
in the public market under Rule 144 are subject to the foregoing volume
limitations and other restrictions. In addition, an individual that 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 for at least three years the
shares proposed to be sold, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above.

The Commission has proposed an amendment to Rule 144 and Rule 144(k) that
would reduce the applicable requisite holding periods to one year and two years,
respectively. If this proposal is adopted, as of the expected closing of this
offering an additional 902,581 shares of Common Stock will become eligible for
sale by the first anniversary of the expected closing of this offering.

In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts commencing 90 days after the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirements,
contained in Rule 144. Prior to the expiration of the Lock-up Period, the
Company intends to register on a registration statement on Form S-8, (i) a total
of 100,000 shares of Common Stock reserved for issuance under the Purchase Plan,
(ii) a total of 200,000 shares of Common Stock reserved for issuance under the
Director Plan and (iii) assuming no exercise of options after June 30, 1996,
746,354 shares of Common Stock subject to outstanding options under the
Incentive Stock Plan and 1,003,646 shares reserved for future issuance pursuant
to such plan. Such registration will permit the resale of shares so registered
by non-affiliates in the public market without restriction under the Securities
Act.

Prior to this offering, there has been no public market for the Common
Stock of the Company, 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. See "Risk Factors -- Potential Adverse Effect of Shares Eligible for
Future Sale."

55
<PAGE> 57

UNDERWRITING

The Underwriters named below, acting through their Representatives, have
severally agreed with the Company, subject to the terms and conditions of the
Underwriting Agreement among the Company and the Representatives (the
"Underwriting Agreement"), to purchase the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
PaineWebber Incorporated..................................................
Genesis Merchant Group Securities.........................................
------
Total........................................................... 2,500,000
======
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public 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, of which
$ may be reallowed to other dealers. After this offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, under which the
Underwriters may purchase up to an additional 375,000 shares of Common Stock
from the Company at the public offering price set forth on the cover page of
this Prospectus, less underwriting discounts and commissions. The Underwriters
may exercise the option only to cover over-allotments, if any. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as it was obligated to purchase pursuant to the Underwriting
Agreement.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

The Company and each of its officers, directors and stockholders, have
agreed with the Representatives for the Lock-up Period, subject to certain
exceptions, without the prior written consent of PaineWebber Incorporated, not
to offer to sell, contract to sell, grant an option to sell, or otherwise
dispose of or file, or require the Company to file, with the Commission a
registration statement under the Securities Act to register any shares of Common
Stock or securities convertible into or exchangeable for Common Stock or
warrants or other rights to acquire shares of Common Stock. See "Shares Eligible
for Future Sale." A total of 8,154,788 shares, including 393,600 shares issuable
upon exercise of currently outstanding vested options, will be eligible for
immediate public sale following expiration of the Lock-up Period, subject to the
provisions of Rule 144 and Rule 701 of the Securities Act.

As of the date of this Prospectus, Genesis and certain related persons
beneficially own an aggregate of 40,863 shares of the Company's Series C
Preferred Stock (not including 52,328 shares subject to outstanding warrants
exercisable for the Common Stock). See "Certain Transactions -- Other
Arrangements."

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
offered hereby will be determined through negotiations among the Company and the
Representatives. The material factors to be considered in such negotiations will
be prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and the current
state of the economy as a whole.

56
<PAGE> 58

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, P.C. Certain legal matters relating
to patents in connection with this offering will be passed on by Arnold, White &
Durkee. Shearman & Sterling is acting as legal counsel for the Underwriters in
connection with certain legal matters relating to the shares of Common Stock
offered hereby. As of the date of this Prospectus, members of Wilson Sonsini
Goodrich & Rosati, P.C., and investment partnerships of which members of such
firm are partners, beneficially own approximately 30,000 shares of Common Stock.
As of the date of this Prospectus, a partner at Arnold, White & Durkee holds a
warrant exercisable for 12,000 shares of the Common Stock.

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 report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.

The statements in this Prospectus under the caption "Risk Factors -- Patent
Applications and Proprietary Technology" and "Business -- Licensed Patent
Applications and Proprietary Technology" have been reviewed and approved by
Arnold, White & Durkee, patent counsel for the Company, as experts in such
matters and are included herein in reliance upon such review and approval.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of any documents are not necessarily an
exhaustive description of such documents, and reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Registration
Statement, including exhibits filed therewith, may be inspected without charge
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1034,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, at prescribed
rates. In addition, the Commission maintains a World Wide Web site that contains
reports, proxy and information statements that are filed electronically with the
Commission. The address of the site is http://www.sec.gov.

57
<PAGE> 59

GLOSSARY OF TERMS AND ACRONYMS

Ad-C-CAM...................... Tumor suppressor gene (C-CAM) carried by an
adenoviral vector.

Adenoviral Vector............. A noninfectious DNA virus that is able to enter
human cells and transmit a recombinant gene
to those cells.

Ad-p53........................ An adenoviral vector containing a functional
copy of the p53 tumor suppressor gene.

Ad-scFv-ras................... Gene for a single chain antibody to ras
proteins carried by an adenoviral vector.

Anti-proliferative (Bystander)
Effector.................... A molecule(s) produced by a cell transduced
with a gene for p53 that has an
anti-proliferative effect on a
non-transduced, neighboring cell.

Antisense..................... The strand of DNA or RNA (Ribonucleic Acid)
that is able to hybridize to its
complementary sense-strand. In the case of
the antisense K-ras vector, it is an RNA
strand that is produced by the vector inside
the infected cell that is complementary
(forms Watson-Crick base pairing) with the
RNA for the K-ras RNA expressed from the
endogenous gene.

Apoptosis..................... Programmed cell death (fragmentation of a cell
into membrane-bound particles that are then
eliminated by phagocytosis).

C-CAM......................... Cell Adhesion Molecule. A transmembrane
protein with both cellular adhesion and tumor
suppressor activities. Mutations or
inappropriate regulation of C-CAM are
postulated to be involved in prostate cancer.

Cell Cycle.................... The period from one cell division to the other.
It includes periods for duplication of the
cell's DNA ("S" phase), and segregation of
the duplicated DNA into the progeny cells
("M" phase).

cGMP.......................... Current Good Manufacturing Practices
(promulgated by the FDA).

Cisplatin..................... A conventional therapeutic agent.

CRADA......................... Cooperative Research and Development Agreement
(with the U.S. Government).

Cytoplasm..................... The protoplasm of a cell exclusive of that of
the nucleus; it consists of a continuous
aqueous solution and the organelles and
inclusions suspended in it, and is the site
of most of the chemical activities of the
cell.

DNA........................... Deoxyribonucleic Acid is the basic molecule
that encodes genetic information, made up of
a double chain of the linked bases
(subunits), adenine, guanine, cytosine, and
thymine).

ELA........................... Establishment License Application (filed with
the FDA).

Expression.................... Referencing gene expression. The quantifiable
process by which a gene's encoded information
creates the structures present and operating
in the cell (i.e., the RNA and resulting
protein).

FDA........................... Food and Drug Administration (U.S.).

58
<PAGE> 60

Gene.......................... The fundamental physical and functional unit of
heredity, which carries information from one
generation to the next. A segment of DNA
involved in producing an RNA product (which
is usually involved in the subsequent
production of a polypeptide or protein
chain), including both coding and non-coding
sequences.

Gene blocking................. A gene therapy that seeks to restore or correct
missing or aberrant gene functions by
neutralizing the activity of defective genes.

Gene replacement.............. A gene therapy strategy that seeks to restore
or correct missing or aberrant gene functions
by addition of normal genes.

Gene Therapy.................. A medical intervention based on the
modification of the genetic material of
living cells. Cells may be modified ex vivo
for subsequent administration or may be
altered in vivo by gene therapy products
given directly to the subject.

Genetic lesions............... Changes in the nucleotide sequence of a gene or
genes that result in functional changes in
the products of those genes.

Genomic plasticity............ The ability of an organism's genome to
accumulate non-harmful or beneficial
mutations or changes.

GLP........................... Good Laboratory Practices (promulgated by the
FDA).

In Vitro/Ex Vivo.............. Phenomena that take place outside the body.

In vivo....................... Within the living body.

IND........................... Investigational New Drug application (filed
with the FDA).

Inoperable.................... Non-resectable or not suitable to be operated
on.

Intra-arterial................ Within an artery or arteries.

IRB........................... Institutional Review Board responsible for
ethical oversight of clinical trials.

K-ras......................... An oncogene of the guanosine triphosphate
binding protein family (originally identified
in the Kirsten murine sarcoma virus).

"Later Stage Product"......... A product being developed under the RPR
collaboration that has entered a Phase II,
Phase II/III or Phase III clinical trial.

Mutation...................... A change in the genetic material of an
organism; a gene or chromosome set that
differs from the standard, or wild-type.

NCI........................... National Cancer Institute.

NDA........................... New Drug Application (filed with the FDA).

NIH........................... National Institutes of Health.

NSC........................... Non Small Cell (general classification for
approximately 75-80% of all lung cancers).

Oncogene...................... A gene capable under certain conditions (i.e.
when "activated") of causing the initial and
continuing conversion of normal cells into
cancer cells.

Orphan Drug................... A drug developed and marketed for a rare
disease or condition. The Orphan Drug Act
(P.L. 97-414) provides for incentives to drug

59
<PAGE> 61

manufacturers to develop products ("orphan
drugs") for these indications.

p53........................... Common reference for the protein encoded by the
p53 tumor suppressor gene, which is believed
to be a central vital regulator of cellular
activities.

Percutaneous.................. Through the skin.

PLA........................... Product License Application (filed with the
FDA).

Ras........................... General term for oncogenes of the guanosine
triphosphate binding protein family including
K-ras, H-ras, and N-ras.

Receptor...................... A molecular structure within or on the surface
of a cell characterized by (1) selective
binding of a specific substance and (2) a
specific physiologic effect that accompanies
the binding (e.g. cell-surface receptors for
peptide hormones, antigens,
neurotransmitters, etc.).

Retroviral Vector............. A noninfectious RNA virus that is able to enter
human cells and transmit a recombinant gene
to those cells.

RPR........................... Rhone-Poulenc Rorer Inc. and its wholly-owned
subsidiaries.

RPR Gencell................... A division of RPR that collaborates with a
number of other companies and academic
institutions to discover, develop, and
commercialize drugs based on gene and cell
therapies.

RV-AS-K-ras................... Partial antisense K-ras gene carried by a
retroviral vector.

RV-p53........................ A retroviral vector containing a functional
copy of the p53 tumor suppressor gene.

SEER.......................... Surveillance, Epidemiology and End Results.

SKCC.......................... Sidney Kimmel Cancer Center.

Transduction.................. The transfer of DNA from one organism to
another by an intermediate agent.

Tumor necrosis................ Cell death within a tumor, marked by the
morphological changes caused by the
progressive degradation action of enzymes.

Tumor progression............. An increase in size of tumor mass.

Tumor regression.............. Reduction in size of tumor mass.

Tumor stabilization........... Halt in growth of tumor mass.

Tumor suppressor genes........ General term for a family of genes that block
cancerous growth of cells.

USPTO......................... United States Patent and Trademark Office.

UTMDACC....................... The University of Texas M.D. Anderson Cancer
Center.

Vector(s)..................... General term for any of the variety of vehicles
used to transfer a gene into a target cell, a
modified virus (viral vector).

Viral......................... Pertaining to, caused by, or of the nature of
virus.

60
<PAGE> 62

INTROGEN THERAPEUTICS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants............................................... F-2
Balance Sheets as of September 30, 1996 (unaudited) and June 30, 1996 and 1995......... F-3
Statements of Operations for the three months ended September 30, 1996 and 1995
(unaudited) and for the Years Ended June 30, 1996 and 1995, and the Period from
Inception (June 17, 1993) through June 30, 1994...................................... F-4
Statements of Stockholders' Equity for the three months ended September 30, 1996
(unaudited) and for the Years Ended June 30, 1996 and 1995, and the Period
from Inception (June 17, 1993) through June 30, 1994................................. F-5
Statements of Cash Flows for the three months ended September 30, 1996 and 1995
(unaudited) and for the Years Ended June 30, 1996 and 1995, and the Period from
Inception (June 17, 1993) through June 30, 1994...................................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>

F-1
<PAGE> 63

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Introgen Therapeutics, Inc.:

We have audited the accompanying balance sheets of Introgen Therapeutics,
Inc. (a Delaware corporation), as of June 30, 1996 and 1995, and the related
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1996 and 1995, and the period from inception (June 17, 1993)
through June 30, 1994. 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 Introgen Therapeutics, Inc.,
as of June 30, 1996 and 1995, and the results of its operations and its cash
flows for the years ended June 30, 1996 and 1995, and the period from inception
(June 17, 1993) through June 30, 1994, in conformity with generally accepted
accounting principles.

Arthur Andersen LLP

Houston, Texas
July 19, 1996 (except with respect to the
matters discussed in Note 8, as to
which the date is August 26, 1996)

F-2
<PAGE> 64

INTROGEN THERAPEUTICS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1996 1995
SEPTEMBER ----------- -----------
30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash................................................ $ 7,009,453 $ 7,024,347 $ 2,799,015
Collaborative research payments receivable from
affiliate......................................... -- 138,547 128,745
Prepaid sponsored research.......................... -- 296,000 --
Other current assets................................ 8,125 69,407 35,527
----------- -----------
Total current assets...................... 7,017,578 7,528,301 2,963,287
Property and equipment, net of accumulated
depreciation of $599,123, $333,157 and $46,620,
respectively...................................... 1,272,547 1,388,476 465,516
Deferred offering costs............................. 590,390 -- --
Deposits and other assets........................... 49,098 48,215 49,418
----------- -----------
Total assets.............................. $ 8,929,613 $ 8,964,992 $ 3,478,221
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.................................. $ 639,466 $ 918,492 $ --
Accrued liabilities............................... 520,101 100,822 102,647
Deferred revenue from affiliate................... 480,624 321,668 800,341
Current portion of capital lease obligations...... 701,834 574,252 --
----------- -----------
Total current liabilities................. 2,342,025 1,915,234 902,988
----------- -----------
Capital lease obligations, net of current
portion........................................ -- 130,089 --
----------- -----------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.001 par
value; liquidation preference of $1.00 per
share; 3,011,423 shares authorized; 3,011,423
shares issued and outstanding at September 30,
1996, June 30, 1996 and 1995, respectively..... 3,011 3,011 3,011
Series B convertible preferred stock, $.001 par
value; liquidation preference of $5.75 per
share; 2,114,100 shares authorized; 787,500,
787,500 and 616,875 shares issued and
outstanding at September 30, 1996, June 30,
1996 and 1995, respectively.................... 788 788 617
Series C convertible preferred stock, $.001 par
value; liquidation preference of $8.65 per
share; 1,183,000 shares authorized, 551,410,
551,410 shares and none issued and outstanding
at September 30, 1996, June 30, 1996 and 1995,
respectively................................... 551 551 --
Common stock, $.001 par value; 50,000,000 shares
authorized; 2,443,360 shares issued and
outstanding at September 30, 1996, June 30,
1996 and 1995, respectively.................... 2,443 2,443 2,443
Additional paid-in capital........................ 11,753,184 10,743,332 4,480,540
Deferred compensation............................. (1,379,051) (586,883) --
Accumulated deficit............................... (3,793,338) (3,243,573) (1,911,378)
----------- -----------
Total stockholders' equity................ 6,587,588 6,919,669 2,575,233
----------- -----------
Total liabilities and stockholders'
equity.................................. $ 8,929,613 $ 8,964,992 $ 3,478,221
=========== ===========
</TABLE>

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

F-3
<PAGE> 65

INTROGEN THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED JUNE 30, INCEPTION
SEPTEMBER 30, 1996 (JUNE 17, 1993)
------------------------- --------------------------- THROUGH JUNE 30,
1996 1995 1996 1995 1994
---------- ---------- ----------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Collaborative research
and development
revenues from
affiliate............. $2,588,031 $1,573,663 $10,449,154 $ 2,664,192 $ --
Operating expenses:
Research and
development........ 3,026,510 1,639,843 11,020,491 3,371,652 571,302
General and
administrative..... 191,939 177,507 971,770 624,090 115,466
----------- ----------- ----------- ----------- ---------
Loss from
operations....... (630,418) (243,687) (1,543,107) (1,331,550) (686,768)
Interest income......... 101,966 50,226 239,571 106,614 326
Interest expense........ (21,313) -- (28,659) -- --
----------- ----------- ----------- ----------- ---------
Net loss................ $ (549,765) $ (193,461) $(1,332,195) $(1,224,936) $ (686,442)
=========== =========== =========== =========== =========
Pro forma net loss per
share................. $ (.07) $ (0.19)
=========== ===========
Shares used in computing
pro forma net loss per
share................. 7,760,508 7,125,685
=========== ===========
</TABLE>

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

F-4
<PAGE> 66

INTROGEN THERAPEUTICS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE COMMON
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
------------------- ----------------- ----------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- ------ ------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception (June 17, 1993)......... -- $ -- -- $ -- -- $ -- --
Capital contributed in payment of Company
obligations................................. -- -- -- -- -- -- --
Cash received in June 1994 in connection with
letter of intent............................ -- -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- -- --
--------- ------ ------- ---- ------- ---- --------
Balance, June 30, 1994....................... -- -- -- -- -- -- --
Issuance of common stock in July 1994 in
consideration for patent and technology
license agreement ($.0625 per share)........ -- -- -- -- -- -- 2,413,360
Issuance of Series A preferred stock in
August 1994 in consideration for capital
contributed in payment of Company
obligations ($.175 per share)............... 3,011,423 3,011 -- -- -- -- --
Issuance of common stock in September 1994
($.0417 per share).......................... -- -- -- -- -- -- 30,000
Issuance of Series B preferred stock in
October 1994 for cash received in connection
with June 1994 letter of intent ($5.72 per
share)...................................... -- -- 87,422 87 -- -- --
Issuance of Series B preferred stock in
October 1994 in accordance with stock
purchase agreement with affiliate ($5.72 per
share), net of offering costs of $19,659.... -- -- 358,828 359 -- -- --
Issuance of Series B preferred stock in
February 1995 in accordance with stock
purchase agreement with affiliate ($7.47 per
share)...................................... -- -- 170,625 171 -- -- --
Net loss..................................... -- -- -- -- -- -- --
--------- ------ ------- ---- ------- ---- --------
Balance, June 30, 1995....................... 3,011,423 3,011 616,875 617 -- -- 2,443,360
Issuance of Series B preferred stock in
January 1996 in accordance with stock
purchase agreement with affiliate ($7.47 per
share)...................................... -- -- 170,625 171 -- -- --
Issuance of Series C preferred stock in March
and May 1996 in connection with private
placement ($8.65 per share), net of offering
costs of $380,645........................... -- -- -- -- 551,410 551 --
Deferred compensation relating to issuance of
certain stock options....................... -- -- -- -- -- -- --
Amortization of deferred compensation........ -- -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- -- --
--------- ------ ------- ---- ------- ---- --------
Balance, June 30, 1996....................... 3,011,423 3,011 787,500 788 551,410 551 2,443,360
Issuance of warrants in July 1996, to
purchase 102,251 shares of common stock
(unaudited)................................. -- -- -- -- -- -- --
Issuance of warrants for services rendered in
August 1996 to purchase 12,000 shares of
common stock (unaudited).................... -- -- -- -- -- -- --
Deferred compensation relating to issuance of
certain stock options (unaudited)........... -- -- -- -- -- -- --
Amortization of deferred compensation
(unaudited)................................. -- -- -- -- -- -- --
Net loss (unaudited)......................... -- -- -- -- -- -- --
--------- ------ ------- ---- ------- ---- --------
Balance, September 30, 1996 (unaudited)...... 3,011,423 $3,011 787,500 $788 551,410 $551 2,443,360
========= ====== ======= ==== ======= ==== ========

ADDITIONAL DEFERRED ACCUMULATED
AMOUNT PAID-IN CAPITAL COMPENSATION DEFICIT TOTAL
---------- --------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at Inception (June 17, 1993)......... $ -- $ -- $ -- $ -- $ --
Capital contributed in payment of Company
obligations................................. -- 527,330 -- -- 527,330
Cash received in June 1994 in connection with
letter of intent............................ -- 500,000 -- -- 500,000
Net loss..................................... -- -- -- (686,442 ) (686,442)
------ ----------- --------- ----------- ----------
Balance, June 30, 1994....................... -- 1,027,330 -- (686,442 ) 340,888
Issuance of common stock in July 1994 in
consideration for patent and technology
license agreement ($.0625 per share)........ 2,413 148,159 -- -- 150,572
Issuance of Series A preferred stock in
August 1994 in consideration for capital
contributed in payment of Company
obligations ($.175 per share)............... -- (3,011) -- -- --
Issuance of common stock in September 1994
($.0417 per share).......................... 30 1,220 -- -- 1,250
Issuance of Series B preferred stock in
October 1994 for cash received in connection
with June 1994 letter of intent ($5.72 per
share)...................................... -- (87) -- -- --
Issuance of Series B preferred stock in
October 1994 in accordance with stock
purchase agreement with affiliate ($5.72 per
share), net of offering costs of $19,659.... -- 2,032,533 -- -- 2,032,892
Issuance of Series B preferred stock in
February 1995 in accordance with stock
purchase agreement with affiliate ($7.47 per
share)...................................... -- 1,274,396 -- -- 1,274,567
Net loss..................................... -- -- -- (1,224,936 ) (1,224,936)
------ ----------- --------- ----------- ----------
Balance, June 30, 1995....................... 2,443 4,480,540 -- (1,911,378 ) 2,575,233
Issuance of Series B preferred stock in
January 1996 in accordance with stock
purchase agreement with affiliate ($7.47 per
share)...................................... -- 1,274,397 -- -- 1,274,568
Issuance of Series C preferred stock in March
and May 1996 in connection with private
placement ($8.65 per share), net of offering
costs of $380,645........................... -- 4,295,020 -- -- 4,295,571
Deferred compensation relating to issuance of
certain stock options....................... -- 693,375 (693,375 ) -- --
Amortization of deferred compensation........ -- -- 106,492 -- 106,492
Net loss..................................... -- -- -- (1,332,195 ) (1,332,195)
------ ----------- --------- ----------- ----------
Balance, June 30, 1996....................... 2,443 10,743,332 (586,883 ) (3,243,573 ) 6,919,669
Issuance of warrants in July 1996, to
purchase 102,251 shares of common stock
(unaudited)................................. -- 54,926 -- -- 54,926
Issuance of warrants for services rendered in
August 1996 to purchase 12,000 shares of
common stock (unaudited).................... -- 63,300 -- -- 63,300
Deferred compensation relating to issuance of
certain stock options (unaudited)........... -- 891,626 (891,626 ) -- --
Amortization of deferred compensation
(unaudited)................................. -- -- 99,458 -- 99,458
Net loss (unaudited)......................... -- -- -- (549,765 ) (549,765)
------ ----------- --------- ----------- ----------
Balance, September 30, 1996 (unaudited)...... $ 2,443 $11,753,184 $(1,379,051 ) $(3,793,338) $6,587,588
====== =========== ========= =========== ==========
</TABLE>

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

F-5
<PAGE> 67

INTROGEN THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED INCEPTION
SEPTEMBER 30, YEAR ENDED JUNE 30, (JUNE 17, 1993)
----------------------- ------------------------- THROUGH JUNE 30,
1996 1995 1996 1995 1994
---------- ---------- ----------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss.............................. $ (549,765) $ (193,461) $(1,332,195) $(1,224,936) $ (686,442)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation........................ 265,966 18,256 286,537 46,620 --
Amortization of deferred
compensation related to certain
stock options..................... 99,458 -- 106,492 -- --
Issuance of warrants for services
rendered.......................... 63,300 -- -- -- --
Research and development expense
related to issuance of common
stock for patent and technology
license agreement................. -- -- -- 150,572 --
Changes in assets and liabilities:
(Increase) decrease in receivable
from affiliate................. 138,547 (152,374) (9,802) (128,745) --
(Increase) decrease in prepaid
sponsored research............. 296,000 -- (296,000) -- --
Increase in deferred offering
costs.......................... (590,390) -- -- -- --
(Increase) decrease in deposits
and other assets............... 60,399 (38,059) (32,677) (64,860) (20,085)
Increase (decrease) in accounts
payable........................ (279,026) 117,066 918,492 -- --
Increase (decrease) in accrued
liabilities.................... 419,279 118,333 (1,825) (77,455) 180,102
Increase (decrease) in deferred
revenue from affiliate......... 158,956 (38,576) (478,673) 800,341 --
------------ ------------ ----------- ---------- ----------
Net cash provided (used) by
operating activities......... 82,724 (168,815) (839,651) (498,463) (526,425)
------------ ------------ ----------- ---------- ----------
Cash flows used by investing activities:
Purchases of property and equipment... -- (129,433) (298,904) (512,136) --
------------ ------------ ----------- ---------- ----------
Net cash used by investing
activities................... -- (129,433) (298,904) (512,136) --
------------ ------------ ----------- ---------- ----------
Cash flows from financing activities:
Net proceeds from sale of preferred
stock and warrants.................. 54,926 -- 5,570,139 3,307,459 500,000
Proceeds from sale of common stock.... -- -- -- 1,250 --
Capital contributed in payment of
Company obligations................. -- -- -- -- 527,330
Payments under capital lease
obligations......................... (152,544) -- (206,252) -- --
------------ ------------ ----------- ---------- ----------
Net cash provided by (used in)
financing activities......... (97,618) -- 5,363,887 3,308,709 1,027,330
------------ ------------ ----------- ---------- ----------
Net increase (decrease) in cash......... (14,894) (298,248) 4,225,332 2,298,110 500,905
Cash, beginning of period............... 7,024,347 2,799,015 2,799,015 500,905 --
------------ ------------ ----------- ---------- ----------
Cash, end of period..................... $7,009,453 $2,500,767 $ 7,024,347 $ 2,799,015 $ 500,905
============ ============ =========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for interest................ $ 21,313 $ -- $ 28,659 $ -- $ --
============ ============ =========== ========== ==========
Supplemental disclosure of noncash
financing activity:
Purchases of equipment under capital
lease obligations................... $ 150,037 $ -- $ 910,593 $ -- $ --
============ ============ =========== ========== ==========
</TABLE>

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

F-6
<PAGE> 68

INTROGEN THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996

(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS

Introgen Therapeutics, Inc., a Delaware corporation ("Introgen" or the
"Company"), was incorporated on June 17, 1993, and commenced operations in
September 1993. The Company is developing gene therapy products to deliver genes
that may provide unique clinical benefits in the treatment of cancer. The
Company's initial research and drug discovery programs are based primarily on
inventions by scientists at the University of Texas M.D. Anderson Cancer Center
("UTMDACC"), the rights to which are covered by a patent and technology license
agreement with the Board of Regents of the University of Texas System (see Note
5). Prior to 1996, the Company was in the development stage.

Introgen has not yet generated any revenues from the sale of products, nor
is there any assurance of future product revenues. The Company's research and
development activities involve a high degree of risk and uncertainty. The
ability of the Company to successfully develop, manufacture and market its
products is dependent upon many factors. These factors include, but are not
limited to, the need for additional financings, the reliance on collaborative
research and development arrangements with corporate and academic affiliates and
the ability to develop manufacturing, sales and marketing experience. Additional
factors include uncertainties as to patents and proprietary technologies,
technological change and risk of obsolescence, development of products,
competition, government regulations and regulatory approval, and product
liability exposure. As a result of the aforementioned factors and the related
uncertainties, there can be no assurance of the Company's future success. See
"Risk Factors" elsewhere in the Prospectus.

The Company has stock purchase and research collaboration agreements with
Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPR"). Under the terms of the stock
purchase agreement, RPR has purchased approximately $6.0 million of preferred
stock through June 30, 1996. RPR has the right to purchase additional preferred
stock upon the occurrence of certain future events, including, but not limited
to, the Company's attainment of certain milestones.

Development and commercialization of certain products are being pursued in
conjunction with RPR pursuant to a collaboration arrangement which provides that
Introgen is primarily responsible for completing the early stage research and
development of products, which RPR is primarily obligated to fund until October
1997. Introgen must pay at least $2,000,000 of the costs for such activities
using its own funds by June 1997, of which $1,000,000 had been paid as of June
30, 1996, and of which $500,000 must be paid by August 1996 and $500,000 must be
paid by June 1997. If RPR elects, it shall be primarily responsible for the
later stage development of the products. In North America, Introgen retains
exclusive manufacturing rights and may elect to form a marketing collaboration
with RPR to market collaboration products. RPR can terminate this agreement upon
six months' notice, subject to certain wind-down provisions. Introgen is
entitled to royalties on product sales arising from RPR's exclusive marketing
and manufacturing rights in Europe. Both parties may, at their own expense,
develop and market products in Japan, Korea, China, Taiwan and India. Introgen
and RPR have agreed that they will not market or license, and RPR will not
develop any of the gene therapy products covered by their collaboration
arrangement prior to October 2004 except under the terms of the collaboration
arrangement. RPR will be allowed to recover certain later stage research and
development costs from proceeds of future product sales, if any.

F-7
<PAGE> 69

INTROGEN THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996

2. SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information

The interim financial information as of September 30, 1996 and for the
three months ended September 30, 1996 and 1995 are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principals, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial position
with respect to the interim financial statements, and of the results of
operations and cash flows for the interim periods then ended, have been
included. The results of operations for the interim periods are not necessarily
indicative of the results for the entire fiscal year.

Revenue Recognition

The Company receives quarterly advances from RPR for estimated costs
directly related to early stage development under the collaboration agreements.
Such payments are recognized as revenue as the Company performs its obligations
related to such agreements. Deferred revenue is recorded for cash received from
RPR for which the related expenses have not yet been incurred.

Property and Equipment

Property and equipment are carried at cost, less accumulated depreciation.
Maintenance, repairs and minor replacements are charged to expense as incurred.
Significant renewals and betterments are capitalized. Depreciation is computed
using the straight-line basis over the estimated useful economic lives of the
assets involved (generally two years) or, in the case of leasehold improvements,
over the remaining term of the lease.

Property and equipment consisted of the following as of June 30, 1996 and
1995:

<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Laboratory equipment......................................... $1,158,472 $233,190
Leasehold improvements....................................... 483,678 278,946
Construction in process...................................... 79,483 --
---------- --------
Total property and equipment....................... 1,721,633 512,136
Less-Accumulated depreciation................................ (333,157) (46,620)
---------- --------
Net property and equipment......................... $1,388,476 $465,516
========== ========
</TABLE>

Approximately $911,000 of the above equipment as of June 30, 1996, is held
under capital leases and is being depreciated over the applicable lease terms
(see Note 6). Construction in process at June 30, 1996, relates to the planning
and design of manufacturing facilities.

Research and Development Costs

Research and development costs include the costs of conducting basic
research, developing product applications, conducting preclinical investigations
and performing clinical trials to obtain data for regulatory filings for product
approvals. Research and development costs are expensed as incurred.

Pro Forma Net Loss Per Share

The Company's pro forma net loss per share is based on the weighted-average
number of shares of common stock outstanding assuming the conversion of
convertible preferred stock into common stock on the respective dates of
original issuance. Pursuant to Securities and Exchange Commission Staff
Accounting

F-8
<PAGE> 70

INTROGEN THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996

Bulletins, all common, preferred and common equivalent shares issued during the
12 months preceding or in contemplation of the Company's initial public offering
(using the treasury stock method and an assumed initial public offering price of
$6.00 per share) have been included in the calculation of common and common
equivalent shares outstanding as if they were outstanding for all periods prior
to completion of the Company's initial public offering. Options and warrants
granted by the Company prior to June 30, 1995, and not in contemplation of an
offering have been excluded from the calculation of common and common equivalent
shares outstanding because such options and warrants are antidilutive.

Use of Estimates

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, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.

3. CAPITAL STOCK

Series A Convertible Preferred Stock

In August 1994, the Company issued 3,011,423 shares of Series A preferred
stock in consideration for the payment by Texas Biomedical Development Partners
("TBDP") of $527,330 of research and administrative costs incurred during the
period from December 1992 through June 1994, all of which were expensed by the
Company and recorded as a capital contribution.

Holders of Series A preferred stock may receive dividends of $.10 per share
per annum, noncumulative, at the discretion of the Company's board of directors.
The holders of Series A preferred stock have preference in declaration and
payment of any dividend over the holders of Series B preferred stock and Series
C preferred stock and common stock. To date, no dividends have been declared.

In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A preferred stock are entitled to receive preference over
any distribution to the holders of Series B and Series C preferred and common
stock in the amount of $1.00 per share. The holders of Series A preferred stock
have registration rights as described in the stock purchase agreement.

Series A preferred stock is convertible at the option of the holder into
common stock on a 1.2 for 1 basis, as adjusted for certain events. Series A
preferred stock shall automatically be converted into common stock upon the
closing of a public offering with total proceeds of at least $10,000,000. The
holders of Series A preferred stock have the right to vote on all stockholder
matters on an as-if-converted basis. In addition, the holders of Series A
preferred stock, voting as a separate class, are entitled to elect one director
of the Company.

Series B Convertible Preferred Stock

In October 1994, the Company entered into a stock purchase agreement with
RPR. This agreement requires that RPR purchase preferred stock of the Company in
multiple closings upon the occurrence of certain milestones and events.

The first closing occurred in October 1994. At that time, RPR purchased
446,250 shares of Series B preferred stock from the Company for $2,552,550 (of
which $500,000 was previously received in June 1994 and recorded as additional
paid-in capital at that time) and 78,750 shares of Series A preferred stock from
TBDP for $450,450.

F-9
<PAGE> 71

INTROGEN THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996

A second and third closing occurred in February 1995 and January 1996,
respectively. At each of these closings, RPR purchased 170,625 shares of Series
B preferred stock from the Company for $1,274,567 and 30,110 shares of Series A
preferred stock from TBDP for $224,923.

RPR may purchase additional shares of Series B preferred stock pursuant to
the stock purchase agreement. RPR's purchase of certain additional stock is
accelerated in the event of a public offering of common stock by the Company of
at least $10,000,000 and provided there is reasonable evidence of local efficacy
of a Company product in Phase I or later-stage clinical trials. In this event,
the stock purchase agreement provides that the required shares and dollar amount
purchased can range, at RPR's discretion, from all remaining unpurchased shares
under the stock purchase agreement to a lesser amount computed based on RPR
owning an amount of shares after a public offering that does not exceed 19.9% of
total outstanding stock of the Company. However, the dollar amount by which the
shares actually purchased by RPR is less than the dollar amount of RPR's
remaining obligation for the unpurchased shares must subsequently be paid to the
Company at the time there would have otherwise been closings under the stock
purchase agreement. In this later event, no equity securities are required to be
issued to RPR in consideration for these payments.

Absent the events described in the preceding paragraph, the remaining
shares of Series B preferred stock will be purchased by RPR in stages provided
the collaboration agreements between Introgen and RPR remain in effect and upon
the occurrence of certain events related to Phase I, II or III clinical trials
for a product and/or products. The purchase price per share set forth in the
agreement will be adjusted upward (but not downward) to equal the price per
share received by the Company in the most recent equity financing of the Company
if such financing raises $2,000,000 or more. In this event, the gross proceeds
received at each issuance will remain the same and the number of shares issued
will be reduced to yield the applicable purchase price per share. Up to 15
percent of all shares purchased by RPR, including those purchased in connection
with a public offering, are subject to purchase directly from the Series A
preferred stock holdings of TBDP or its successors upon the election of such by
TBDP or its successors.

Holders of Series B preferred stock may receive dividends of $0.575 per
share per annum, noncumulative, at the discretion of the Company's board of
directors. The holders of Series B preferred stock have preference in
declaration and payment of any dividend over the holders of Series C preferred
stock and common stock. To date, no dividends have been declared.

In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series B preferred stock are entitled to receive preference over
any distribution to the holders of Series C preferred stock and common stock in
the amount of $5.75 per share. The holders of Series B preferred stock have
registration rights as defined in the stock purchase agreement and as described
in the Prospectus.

Shares of Series B preferred stock are convertible at the option of the
holder into common stock on a 1.2 for 1 basis, as adjusted for certain events.
Series B preferred stock shall automatically be converted into common stock upon
the closing of a public offering with total proceeds of at least $10,000,000.
The holders of Series B preferred stock have the right to vote on all
stockholder matters on an as-if-converted basis. In addition, the holders of
Series B preferred stock, voting as a separate class, are entitled to elect one
director of the Company.

Series C Convertible Preferred Stock

The Series C preferred stock was issued to third parties in connection with
the Company's private placement of securities during the year ended June 30,
1996. Series C preferred stock carries the same rights as the Series B preferred
stock except (a) the dividend rate is $0.865 per share per annum, noncumulative
and the distribution amount in the event of liquidation, dissolution or winding
up of the Company is $8.65 per share, both of which are preferential only to the
holders of common stock, and (b) the holders of Series C

F-10
<PAGE> 72

INTROGEN THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996

preferred stock are not entitled to elect any directors voting as a separate
class. No dividends have been declared through June 30, 1996.

Incentive Stock Plan

The Incentive Stock Plan (the "Plan") provides for the granting of options,
either incentive or nonstatutory, or Stock purchase rights to employees and
consultants of the Company. As of June 30, 1996, 1,250,000 shares of common
stock have been reserved for issuance upon exercise of stock options or stock
purchase rights under the Plan. The exercise price shall be no less than the
fair value at the date of the grant for incentive stock options and no less than
85% of the fair market value at date of the grant for nonstatutory options.
Options granted generally vest annually over four years from the date of a
recipient's commencement of services to the Company. In the event of a merger,
reorganization or change in controlling ownership of the Company, all options
outstanding under the Plan shall be fully vested.

The following is a summary of option activity under the Plan:

<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE PER
OUTSTANDING COMMON SHARE
----------- ------------
<S> <C> <C>
Balance, June 30, 1994...................................... -- $ --
Granted................................................... 339,000 0.625
-------
Balance, June 30, 1995...................................... 339,000 0.625
Granted................................................... 261,000 0.625
Canceled.................................................. (24,000) 0.625
-------
Balance, June 30, 1996...................................... 576,000 0.625
=======
Exercisable at June 30, 1996................................ 268,500 0.625
=======
</TABLE>

As of June 30, 1996, there were 674,000 options available for grant under
the Plan.

For options granted during the year ended June 30, 1996, the Company
recognized compensation expense for the excess of the deemed fair market value
of the common stock on the date the options were granted ($6.00 per share) over
the $0.625 exercise price per share of such options. Aggregate deferred
compensation of $693,375 resulted from the issuance of these options, and
compensation expense will be recognized ratably over the vesting period of each
option, generally four years. The Company recognized $106,492 of this amount as
compensation expense during the year ended June 30, 1996.

The Financial Accounting Standards Board has adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which is effective for the Company's
year ended June 30, 1997. SFAS No. 123 allows the Company to adopt one of two
methods of accounting for stock options. The Company currently intends to adopt
the method that approximates its current accounting treatment. SFAS No. 123 will
require the Company to disclose for the year ended June 30, 1997, the effect of
adoption of the alternative method, which would generally require the Company to
record compensation expense equal to the valuation of a stock option on the
grant date.

Warrants

In connection with the issuance of the Series C preferred stock, the
Company issued warrants, at a nominal fee, to purchase 102,251 shares of common
stock for $7.929 per share, subject to certain adjustments, to the investment
banking firms that assisted in the sale of the Series C preferred stock. These
warrants expire in 2001. The value of these warrants on the date issued was not
significant.

F-11
<PAGE> 73

INTROGEN THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996

4. FEDERAL INCOME TAXES

The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized differently in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement carrying amounts and tax bases of liabilities and assets using enacted
tax rates and laws in effect in the years in which the differences are expected
to reverse. Deferred tax assets are evaluated for realization based on a
more-likely-than-not criteria in determining if a valuation should be provided.

The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate for the years ended June 30, 1996 and 1995,
is as follows:

<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Statutory rate..................................................... (34.0)% (34.0)%
Increase in deferred tax valuation allowance....................... 30.8 33.4
Stock option compensation not deductible........................... 2.2 --
Disallowance of business meals and entertainment................... 0.6 0.4
Other.............................................................. 0.4 0.2
----- -----
--% --%
===== =====
</TABLE>

The components of the Company's deferred tax assets at June 30, 1996 and
1995, are as follows:

<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Net operating loss carryforwards........................... $ 530,400 $ 391,500
Capitalized start-up costs................................. 115,800 140,400
Research and development tax credits....................... 12,500 20,000
Technology license......................................... 51,200 51,200
Tax basis of property and equipment in excess of book
basis.................................................... 229,300 29,200
Prepaid sponsored research................................. 45,800 --
Capital leases............................................. 55,100 --
Other...................................................... 18,900 25,500
---------- --------
Total deferred tax assets.................................. 1,059,000 657,800
Less valuation allowance................................... (1,059,000) (657,800)
---------- --------
Net deferred tax assets.................................... $ -- $ --
========== ========
</TABLE>

As of June 30, 1996, the Company has generated net operating loss ("NOL")
carryforwards of approximately $1.6 million and research and development credits
of approximately $12,500 available to reduce future income taxes. These
carryforwards begin to expire in 2008. A change in ownership, as defined by
federal income tax regulations, could significantly limit the Company's ability
to utilize its carryforwards. The Company's ability to utilize its current and
future NOLs to reduce future taxable income and tax liabilities may be limited.
Additionally, because Federal tax laws limit the time during which these
carryforwards may be applied against future taxes, the Company may not be able
to take full advantage of these attributes for federal income tax purposes. As
the Company has had cumulative losses and there is no assurance of future
taxable income, a valuation allowance has been established to fully offset the
deferred tax asset at June 30, 1996 and 1995. The valuation allowance increased
$401,200 and $413,300 for the years ended June 30, 1996 and 1995, respectively,
primarily due to the Company's losses.

F-12
<PAGE> 74

INTROGEN THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996

5. LICENSE AND RESEARCH AGREEMENTS

Patent and Technology License Agreement With the University of Texas System

In July 1994, the Company entered into a patent and technology license
agreement with the Board of Regents of The University of Texas System (the
"System") and UTMDACC, a component institution of the System, whereby the
Company has an exclusive, worldwide license to use certain technology. In
exchange for the grant of this exclusive license, the Company issued 1,449,498
and 963,862 shares of common stock to the System and Technology Capital
Corporation, respectively, pursuant to an agreement with the System. The shares
issued to the System were recorded at their fair value at the date issued as
estimated by the Company's management. The fair value of the license was charged
to expense upon issuance of the shares. Beginning with the first commercial sale
of a product incorporating the licensed technologies, the Company will pay
UTMDACC, for the longer of 15 years or the life of the patent, a royalty based
on net sales by the Company or its affiliates or by sublicense agreement of
products incorporating any of such technologies. The Company is obligated by the
agreement to reimburse any of UTMDACC's costs that may be incurred in connection
with obtaining patents related to the licensed technologies.