V I TECHNOLOGIES INC, 10-K, 1999-04-02

V I TECHNOLOGIES INC
10-K, 1999-04-02
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 1999

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-24241

V.I. TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 11-3238476
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

155 Duryea Road, Melville, New York 11747
-----------------------------------------
(Address of principal executive offices)(Zip code)

Registrant's telephone number, including area code: (516) 752-7314

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 par value
----------------------------
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )

The aggregate market value of voting common stock held by non-affiliates of
the Registrant, based on the closing price of the common stock on March 26, 1999
as reported on the Nasdaq National Market, was approximately $21,548,000.
Shares of common stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded from this
computation in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. The Registrant does not have any non-voting common equity
outstanding.

12,412,820
(Number of shares of common stock outstanding as of March 26, 1999)

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's 1999 Annual Report to Stockholders are incorporated
by reference into Part II of this Report. Portions of the Registrant's
Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders (the
Definitive Proxy Statement), to be filed with the SEC within 120 days of January
2, 1999, are incorporated by reference into Part III of this Report.
<PAGE>

INDEX

<TABLE>
<CAPTION>
PART I
Item 1. Business
<S> <C> <C> <C>
The Company 1
Background 2
Products and Product Development 5
Strategic Collaborations 9
Manufacturing and Supply 11
Sales, Marketing and Distribution 12
Patents, Licenses and Proprietary Rights 13
Competition 14
Government Regulation 15
Health Care Reimbursement 17
Research and Development 17
Environmental Regulation; Use of Hazardous Substances 18
Customers 18
Employees 18

Item 2. Properties 18

Item 3. Legal Proceedings 18

Item 4. Submission of Matters to a Vote of Security Holders 19

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 20

Item 6. Selected Financial Data 21

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22

Item 8. Financial Statements and Supplementary Data 31

Item 9. Changes in and disagreements with Accountants on Accounting
and Financial Disclosure 31

PART III
Item 10. Directors and Executive Officers of the Registrant 31

Item 11. Executive Compensation 31

Item 12. Security Ownership of Certain Beneficial Owners and
Management 31

Item 13. Certain Relationships and Related Transactions 31

Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 32
8-K

Signatures 35
</TABLE>
<PAGE>

PART I

Item 1. BUSINESS

The Company

V.I. Technologies, Inc. (VITEX or the Company) is a leading developer of a
broad portfolio of blood products and systems which use its proprietary viral
inactivation technologies. The Company's technologies are intended to address
the risks of viral contamination in blood products, including plasma, plasma
derivatives, red blood cells and platelets. Viral inactivation processes have
the potential to eliminate viruses that are enveloped by lipid membranes such as
hepatitis B virus (HBV), hepatitis C virus (HCV) and HIV, the virus that causes
AIDS, and non-enveloped viruses such as hepatitis A virus (HAV) and parvovirus
and other known and unknown pathogens.

The Company currently manufactures two human therapeutic products:

. PLAS+SD. The Company has entered into a collaboration agreement with the
American National Red Cross (Red Cross), whereby the Red Cross is the exclusive
distributor of the Company's PLAS+SD in North America. PLAS+SD, the first of the
Company's virally inactivated products, received marketing clearance from the
FDA on May 6, 1998. Commercial scale production and sale of PLAS+SD, a pooled
transfusion plasma which utilizes the Company's solvent/detergent (SD) viral
inactivation technology to inactivate lipid enveloped viruses, began in June
1998. PLAS+SD was the first, and is the only FDA approved, virally inactivated
blood component available for use in the United States.

. VITEX Plasma Fractions. The Company supplies VITEX Plasma Fractions,
primarily to Bayer Corporation (Bayer), under a collaboration arrangement. The
Company utilizes a combination of fractionation procedures and chromatographic
techniques to separate and purify the protein components of plasma. The plasma
fractions are further processed by the Company's customers into virally
inactivated plasma derivatives for use in FDA-approved therapeutic applications.

The Company's other virally inactivated blood products are all under
development and include:

. Universal PLAS+SD. Universal PLAS+SD is a product which is intended to
provide the same benefits as PLAS+SD without the need for matching donor and
recipient blood types. Under the Company's collaboration agreement with the Red
Cross, the Red Cross has a right of first offer to distribute this product if it
is approved by the FDA.

. Universal PLAS+SD II. Universal PLAS+SD II is intended to improve upon
Universal PLAS+SD by adding a second method of viral inactivation to inactivate
both enveloped and non-enveloped viruses.

. VITEX Fibrin Sealant. VITEX Fibrin Sealant, which is currently in Phase III
clinical trials, is designed for use during surgical procedures to augment or
replace sutures or staples for wound closure. The Company has collaborated with
United States Surgical Corporation (U.S. Surgical) to develop and distribute
this product.

. VITEX RBCC Systems. The Company has entered into strategic collaboration
agreements with Pall Corporation (Pall) for the development and marketing of
VITEX RBCC Systems which employ the Company's technologies to broadly inactivate
viruses and other pathogens in red blood cell concentrates.

VITEX's mission is to enable the global availability of safe blood products
using the Company's proprietary viral inactivation systems. To achieve this
objective, the Company intends to: (i) expand its technological leadership; (ii)
build a broad product portfolio; and (iii) leverage existing manufacturing
capabilities and regulatory expertise. VITEX believes that the sales, marketing
and distribution agreements that have been established with its strategic
collaborators can accelerate the commercialization of the Company's products.

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primarily to produce plasma fractions and related operating and product licenses
and certain other specified tangible and intangible assets, as well as various
contracts and the assumption of certain obligations of the NYBC related to such
assets and contracts. As a result of its spin-off from the NYBC, the Company
became the licensee of a substantial portfolio of patents and patent
applications held by the NYBC, including those related to the use of the SD
viral inactivation technology. In exchange for these net assets, the NYBC
received all of the issued and outstanding Common Stock of the Company.

Background

Whole blood contains important therapeutic components, including red blood
cells, platelets and plasma. Each of these components can be transfused directly
into patients. Plasma may also be fractionated into plasma fractions, which in
turn can be purified into protein products, referred to as plasma derivatives.
The worldwide blood products market is comprised of the blood components market
and the plasma derivatives market, as illustrated by the following diagram:

-------------
Therapeutic

Blood

Products
-------------

-------------- --------------
Blood Plasma

Components Derivatives
-------------- --------------

- -------- --------- ----------- ------- -------- ---------
Red

Blood Platelets Transfusion Albumin Clotting Immuno-

Cells Plasma Factors globulins
- -------- --------- ----------- ------- -------- ---------

The Blood Components Market

Blood Components. Each of the components of blood serves specific functions.
Red blood cells, which transport oxygen and carbon dioxide throughout the body,
are frequently administered to patients who have anemia, trauma, surgical
bleeding or genetic disorders and account for the majority of transfusions.
Platelets, which initiate blood clotting and facilitate the repair of damaged
blood vessels, are often used to treat cancer patients following chemotherapy
and patients who lose large volumes of blood as a result of trauma or during
surgery. Plasma is the liquid part of the blood that contains a large number of
proteins, several of which have important therapeutic applications, including
mediating and controlling blood clotting, providing immune protection, and
treating several rare and life-threatening diseases such as thrombotic
thrombocytopenic purpura (TTP). White blood cells, an additional component of
blood, are comprised of many different types of cells that form part of the
body's immune system and are active in wound repair. White blood cells are
rarely transfused because of the potential for an adverse immune response by the
recipient.

Collection and Processing. The participants in the blood components market
collect and process whole blood from donors at either mobile or fixed collection
sites. Approximately 35 million whole blood donations occur in North America,
Western Europe and Japan annually. In the United States, approximately 45% of
donated blood is collected by the Red Cross, another 45% is collected by
independent community blood centers and the remaining 10% is collected by
hospitals.

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Whole blood is usually separated by blood banks into red blood cells,
platelets and plasma to optimize transfusion therapy and to efficiently allocate
the limited available blood supply. These blood components are then distributed
by blood collection centers to hospitals for storage and subsequent transfusion.
Red blood cells and platelets each have a very short shelf life, of 42 and 5
days, respectively. Plasma can be frozen and stored for up to one year after
being collected in the form of fresh frozen plasma (FFP).

Transfusions. The Company projects that approximately 30% to 40% of the United
States population will receive a transfusion at some point during their
lifetime. Transfusions containing one or more blood components are often
required to treat diseases or disorders and to replace blood loss resulting from
trauma or during surgery. In the United States, over 11.3 million units of red
blood cells are transfused annually, while annual platelet and plasma
transfusions account for approximately 8.0 million units and 2.8 million units,
respectively. The average unit price paid by hospitals for red blood cells,
platelets and plasma is estimated to be approximately $85, $50 and $50,
respectively, and varies depending on geographic and other factors.

The Plasma Derivatives Market

Plasma Derivatives. Plasma contains a large number of proteins, several of
which are well characterized and have FDA-approved therapeutic applications.
These proteins are separated and purified into plasma derivatives through a
combination of fractionation procedures and modern chromatographic techniques.

Collection and Processing. Approximately 80% of plasma used for fractionation
in North America is collected from paid donors by plasmapheresis. After plasma
is collected from donors, it is frozen and shipped to large processing
facilities where fractionators purify, virally inactivate, sterile fill and
package protein products. Plasma derivatives are then sold to hospitals where
they are administered to patients. Four plasma fractionators, Bayer, Centeon
L.L.C., Alpha Therapeutics, and Baxter Corporation, currently account for almost
50% of the worldwide plasma derivatives market. These plasma fractionators are
currently operating at or near manufacturing capacity. The large capital costs
involved in establishing fractionation capacity and the regulatory approvals
necessary to manufacture and sell fractionated products may tend to restrict the
entry of new participants into the market.

Applications. Plasma derivatives have widespread therapeutic applications.
Albumin is frequently used as a volume expander to treat high volume blood loss,
which occurs during surgical procedures. Factor VIII and Factor IX concentrates
are routinely administered to patients with hemophilia. Immunoglobulins,
including formulations for intravenous administration, have been embraced for
the prevention and treatment of viral infections in immunocompromised patients
and in treating certain autoimmune disorders. The market for plasma derivatives
delivered to hospitals in 1994 was approximately $1.1 billion in the United
States and approximately $4.6 billion worldwide.

Challenges Facing the Blood Products Market

The use of plasma and plasma derivatives has increased dramatically in the
United States over the past two decades. In its July 1998 issue, the periodical
"Transfusion" reported that fresh frozen plasma (FFP) usage increased by over
16% between 1992 and 1994. While plasma and its derivatives represent a valuable
and lifesaving resource, these products have transmitted infectious agents to
recipients, most notably HIV, HBV and HCV. The viral safety of transfused blood
products relies on the dual safeguards of careful donor screening and rigorous
viral testing of donations.

Safety of the Blood Supply. Despite the many benefits that blood products
provide, and recent improvements in testing and processing of blood, concerns
remain over the presence of viruses, bacteria and parasites in donated blood.
Viruses such as HBV, HCV, HIV, cytomegalovirus (CMV) and human T-cell
lymphotropic virus (HTLV) can present life-threatening risks. In addition,
bacteria and many other agents can transmit disease during transfusion,
including the bacteria which can cause sepsis or other systemic infections which
can result in serious illness or even death. The parasites that cause malaria
and Chagas' disease may also be transmitted by transfusions.

The risk of transmission of any of these pathogens from an infected donor is
compounded by a number of factors, including: (i) dividing a unit of infected
blood into its components which may expose several patients to the pathogen;
(ii) deriving therapeutic quantities of blood components from typically two to
eight donor units, any one of which may contain pathogens; and (iii)
administering frequent transfusions to certain patient populations, such as
patients with cancer, suppressed immune systems, congenital anemia and kidney
and liver disorders, resulting in a heightened risk of infection due to multiple

3
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transfusions. The following table illustrates the current risks of exposure to
the major, identified pathogenic viruses in transfused blood.

Risks of Viral Infection from Blood Transfusions

<TABLE>
<CAPTION>
Average Multiple
------- --------
SingleTransfusion(1) Transfusions(2)
--------------------- ---------------
Virus (5 donors) (100 donors)
- ----- ---------- ------------
<S> <C> <C>
HBV..................................................................... 1:12,600 1:630
HCV..................................................................... 1:20,600 1:1,030
HIV..................................................................... 1:98,600 1:4,930
HTLV (I&II)............................................................. 1:128,200 1:6,410

Aggregate Risk....................................................... 1:6,800 1:340
</TABLE>

(1) Such as patients who have had surgery or trauma.
(2) Such as patients who have cancer, liver disease and sickle cell anemia.

Emerging and unidentified pathogens also present a threat to the blood supply,
illustrated by the recent history of HIV contamination. It is estimated that HIV
was present in the blood supply for at least seven years before it was
identified as the causative agent of AIDS and at least eight years before a test
was commercially available to detect the presence of HIV antibodies in donated
blood. During those years, many transfusion recipients were infected with HIV,
including approximately 70% of patients with severe hemophilia. In addition,
approximately 4 million Americans are infected with HCV. 85% of those infected
develop chronic liver disease and approximately 10-20% develop cirrhosis of the
liver. Of these 4 million people, more than one million have received
potentially HCV infected blood or blood products. Moreover, most tests to detect
viruses are antibody tests, which detect an immune response to the virus, rather
than the virus itself. As a result, these tests fail to detect viruses when
performed during the "infectivity window" early in the course of an infection
before antibodies appear in detectable quantities.

Product Consistency. Unlike pharmaceutical products, blood components vary in
their consistency, creating uncertainty as to proper dosing. This occurs as a
result of: (i) the variability of component concentrations among donors; (ii)
the impracticality of selecting donors with the optimal blood component profile;
and (iii) the imprecision in the processes for collecting and separating red
blood cells, platelets and plasma. Large plasma fractionators achieve high
consistency by processing plasma from multiple donors in a single batch and
through processing under controlled conditions.

Approaches to the Safety of the Blood Supply

There are several approaches to improving blood safety currently available and
under development, including the following:

Screening. The screening of blood and blood components for known pathogens is
universally accepted. However, there are many reasons why screening cannot
ensure a safe blood supply, including the following: (i) failure of tests during
the infectivity window; (ii) limitations of test sensitivity where tests cannot
detect a small quantity of virus or antibody; (iii) limitations of test
specificity where tests fail to detect certain viral variants; (iv) the presence
of new viruses that have not been identified and for which no test exists; (v)
the presence of identified viruses for which no test is available; and (vi)
human error.

Donation Strategies. Autologous (self) donation avoids the risk of receiving
contaminated donor blood, but is impractical for most patients. Quarantining of
blood seeks to address the problems associated with the infectivity window by
storing a donor's blood for three to six months after which time the donor must
return for additional testing. However, quarantining depends on the donor's
timely return for additional testing, cannot be applied to red blood cells or
platelets because of their limited shelf life and is subject to limitations
associated with blood screening.

Blood Substitutes. Several companies are developing synthetic "blood
substitutes." However, blood substitutes may be less effective in certain
indications than the blood components they are intended to replace, and may be
missing important blood factors, including those utilized for blood clotting,
immune surveillance and wound healing.

4
<PAGE>

Viral Inactivation. Viral inactivation has been used successfully for plasma
derivatives worldwide since the mid-1980's and for the treatment of transfusion
plasma in Europe since the early 1990's. Viral inactivation has the potential to
inactivate both known and unknown viruses. Viral inactivation for cellular blood
components, such as red blood cells, is still under development.

Products and Product Development

VITEX has developed and is further developing a comprehensive portfolio of
blood products and systems using its proprietary viral inactivation
technologies. In addition to SD technology, which inactivates lipid-enveloped
viruses in protein solutions, the Company is developing several other viral
inactivation technologies. These additional technologies include an irradiation
technology that uses short wavelength ultraviolet light (UVC) to inactivate both
enveloped and non-enveloped viruses in protein solutions, photodynamic
technology that uses light-activated compounds (LAC) to inactivate viruses in
red blood cell concentrates, quencher (Quencher) technology that utilizes
antioxidants to prevent damage to the therapeutic proteins in blood derivatives
and to cells from use of UVC and LAC technologies. Additionally, the Company is
evaluating technologies including chemical compounds to inactivate both
enveloped and non-enveloped viruses in plasma. The following table identifies
the Company's principal products and product development programs:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Viral
VITEX Inactivation Therapeutic Development
Market Product Technology Indication Collaborator Status
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

Plasma Derivatives VITEX Plasma SD(1) Expanding blood Bayer Commercialization
Fractions volume, treating commenced
infections and November 1995
diseases

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

Transfusion Plasma PLAS+SD SD Controlling bleeding Red Cross PLA and ELA approved
by FDA on May 6, 1998.
Commercialization
commenced in June 1998

Universal PLAS+SD SD Controlling bleeding, Red Cross(2) Research and development;
with no need for IND filing anticipated
blood typing first half 1999

Universal PLAS+SD II SD; UVC; Controlling bleeding, Red Cross(2) Research and development
Chemical; with no need for
blood typing
- ------------------------------------------------------------------------------------------------------------------------------------

Wound Care VITEX SD; UVC; Tissue sealant, U.S.Surgical Phase III clinical trials;
Fibrin Sealant Quenchers controlling bleeding PLA filing anticipated
and wound care during 1999

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

Red Blood Cell VITEX RBCC LAC; Treatment for anemia Pall Pre-clinical studies. IDE
Concentrates Quenchers and genetic disorders filing anticipated during
1999.

- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) SD technology is used by the Company's customers under non-exclusive
licenses from the NYBC to virally inactivate certain plasma derivatives
manufactured from fractions supplied to them by the Company.
(2) The Red Cross has a right of first offer to distribute these products.

Plasma Derivatives

VITEX Plasma Fractions. VITEX is currently producing and selling commercial
quantities of its VITEX Plasma Fractions, principally to Bayer, one of the four
major providers of plasma derivatives worldwide. Bayer purifies and virally
inactivates

5
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certain of these fractions using SD technology and packages these plasma
fractions as final plasma derivatives products. Because most blood products
processors have been licensed by the NYBC to use SD technology in the
manufacture of virally inactivated plasma derivatives, the Company's strategy
has been to be a supplier to, rather than a competitor of, these plasma
fractionators. The Company's Processing Agreement with Bayer is structured as a
multi-year, "take-or-pay" supply agreement.

Plasma Derivatives Market. The principal products derived from plasma are
albumin, Factor VIII and Factor IX and immunoglobulins. The market for plasma
derivatives was estimated to be approximately $1.1 billion in the United States
and approximately $4.6 billion worldwide in 1994. The Company believes that
worldwide demand for plasma derivatives is increasing at a rate of 10-20%
annually, due primarily to an aging population requiring more medical care, the
discovery of new clinical applications for existing products derived from
plasma, and the development of new products such as fibrin sealants and other
bioadhesives. While the demand for plasma derivatives is increasing, each of the
four major fractionators, Bayer, Centeon, Alpha Therapeutics and Baxter, is
currently operating at or near manufacturing capacity. Because of the
substantial capital expenditures and time associated with the construction,
validation and licensing of fractionation facilities, the Company believes that
demand for its fractionation capacity will remain high for the foreseeable
future.

The NYBC processed plasma fractions and derivatives from 1970 through 1993.
Following its spin-off from the NYBC in 1995, the Company began processing
plasma fractions and has since expanded this business. The NYBC received an
Establishment License from the FDA for a new manufacturing facility in 1980. The
NYBC received product licenses from the FDA for the manufacture of albumin,
Factor VIII and immunoglobulins. All FDA approvals originally granted to the
NYBC were assigned to the Company at the time of its formation.

Transfusion Plasma

PLAS+SD. PLAS+SD, which serves as a virally inactivated substitute to FFP, was
approved for marketing by the FDA on May 6, 1998. While virally inactivated
plasma fractions have been commercially available since 1985, PLAS+SD was the
first and is currently the only virally inactivated blood component, as opposed
to virally inactivated plasma fractions, marketed in the United States. PLAS+SD
is a transfusion plasma treated with the SD viral inactivation process which
virtually eliminates the transmission of HIV, HBV, HCV and all other lipid-
enveloped viruses transmitted via plasma transfusions, which present the most
significant viral risks from blood transfusions. Its labeled uses are the same
as those for FFP and include the treatment of certain coagulation factor
deficits and thrombotic thrombocytopenic purpura, a disease characterized in
part by a low platelet count. VITEX holds an exclusive license in North America
and a non-exclusive license in the rest of the world excluding Europe from the
NYBC to apply the proprietary SD process to the viral inactivation of plasma.
The SD viral inactivation process used for PLAS+SD achieves rapid and complete
viral killing of lipid-enveloped viruses transmitted by transfusion, while
retaining the normal functional performance characteristics expected from FFP.
Since PLAS+SD is a pooled product, it offers the advantages of relatively
uniform composition from lot to lot (FFP is much more variable in its
coagulation factor content), and there is a wider variety of immunoglobulins
(antibodies) present that may protect against other diseases, such as HAV and
parvovirus B-19. Phase IV clinical studies are currently underway to support
the neutralizing or protective properties of the antibodies to HAV and B-19 in
PLAS+SD.

Under the agreement with the Red Cross, the Red Cross acts as the exclusive
distributor of PLAS+SD in North America, provided that the Red Cross purchases
from the Company certain stated minimum quantities of PLAS+SD.

Transfusion Plasma Market. FFP is the component of blood used primarily in the
treatment of certain coagulation factor deficits. FFP is a source of all blood
clotting factors except platelets and is used to control bleeding in patients
who require clotting factors, such as patients undergoing surgical transplant or
other extensive medical procedures and patients with chronic liver disease or
certain genetic clotting factor deficiencies. The production of FFP in 1995 is
estimated to have been 2.7 million units in North America, 2.7 million units in
Western Europe and 5.2 million units in Japan. The average unit selling price
for FFP in North America is currently estimated by the Company to be $50. The
FFP market is currently served by the Red Cross and by more than 100 independent
blood centers in the United States.

Regulatory Status. The Company received marketing approval from the FDA on May
6, 1998, and began commercialization of the product in June 1998. The Company's
filing for registration of PLAS+SD in Canada is currently pending regulatory
approval. The SD viral inactivation process does not inactivate non-enveloped
viruses. Two such non-enveloped viruses that have been reported to be
transmitted by blood products include HAV and human parvovirus B19. To date,
there have been no documented cases of HAV, parvovirus B-19 or any non-enveloped
viral infection as a result of

6
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treatment with PLAS+SD. Phase IV efficacy studies are currently underway to
support the neutralizing or protective properties of the antibodies to HAV and
parvovirus B-19 in PLAS+SD.

Universal PLAS+SD. Universal PLAS+SD is a product under development by the
Company which is intended to improve upon PLAS+SD. In addition to having the
same characteristics and benefits as PLAS+SD, Universal PLAS+SD would eliminate
the need for matching donor and recipient blood types. Universal PLAS+SD is
prepared using patented technology, exclusively licensed from the NYBC, which
binds and removes specific antibodies present in donor plasma that would
otherwise cause an immune response in the recipient. VITEX has established the
feasibility of this approach and has initiated pre-clinical studies. The Company
expects to file an amendment to its current IND application for Universal
PLAS+SD in the first half of 1999.

Universal PLAS+SD II. Universal PLAS+SD II adds a second method of viral
inactivation to Universal PLAS+SD. In addition to inactivating enveloped
viruses, the Company is evaluating alternative technologies, including UVC and
chemical compounds, which are intended to inactivate known non-enveloped viruses
and may offer added protection against other non-enveloped viruses that might
contaminate the blood supply in the future. Although the presence of antibodies
normally found in pooled plasma protects against known non-enveloped viruses, SD
and these second generation technologies used in combination provide a higher
margin of blood product safety than SD technology alone. Universal PLAS+SD II is
at an early stage of development and, consequently, there can be no assurance
that the Company will be able to successfully develop, secure approval for or
commercialize this product.

Wound Care Products

VITEX Fibrin Sealant. The Company is developing its VITEX Fibrin Sealant for
use during surgical procedures to augment or replace sutures or staples for
wound closure. Fibrin sealants-also known as fibrin glues-are created by
combining the two principal clotting factors found in blood, fibrinogen and
thrombin, whose natural function is to halt bleeding and seal tissues. Fibrin
sealants are biodegradable, and their use does not generally elicit an immune
response frequently associated with non-biological glues. The Company expects
that its fibrin sealant will be the first doubly virally inactivated fibrin
sealant available in the United States. The Company's approach to viral
inactivation of its VITEX Fibrin Sealant is based on the use of its proprietary
double viral inactivation system, utilizing the Company's SD and UVC
technologies.

Fibrin Sealant Market. In Europe and Japan where fibrin sealants have been in
use for many years, these products have been shown to reduce the loss of blood
or other important bodily fluids and to produce less scarring when used as a
tissue adhesive as compared to conventional sutures. The Company estimates that
the market for fibrin sealants in Europe and Japan was $150 million and $200
million, respectively, in 1997. The Company estimates that the U.S. market for
fibrin sealants will be in excess of $350 million within five years. The first
fibrin sealant was approved for use in the U.S. during 1998.

Regulatory Status. VITEX submitted an IND application and commenced clinical
trials for VITEX Fibrin Sealant in late 1995. Initial Phase II trials were
designed to evaluate the safety and efficacy of VITEX Fibrin Sealant in patients
who have undergone modified radical mastectomy or lumpectomy in the treatment of
breast cancer. Eighty patients at five clinical sites participated in the
mastectomy/lumpectomy trial which was completed in late 1996. VITEX, in
collaboration with U.S. Surgical, commenced two Phase III trials at more than 20
sites in late 1997, one of which was a continuation of the evaluation of VITEX
Fibrin Sealant following breast cancer surgery. The other evaluates VITEX Fibrin
Sealant's ability to reduce blood loss following carotid artery surgery. At the
end of September 1998, the Company completed patient enrollment of the breast
surgery study and is currently evaluating the results. Enrollment in the
carotid artery surgery study is continuing and the Company expects to submit a
PLA for VITEX Fibrin Sealant during 1999. An additional Phase II study,
designed to evaluate the safety and efficacy of VITEX Fibrin Sealant in patients
suffering from non-healing rectal fistula, was successfully completed during
1998. During 1998, the Company completed construction of a multi-use
manufacturing suite within its existing facility to permit the production,
subject to FDA approval, of commercial quantities of VITEX Fibrin Sealant.
Validation of the new manufacturing area is currently underway.

Red Blood Cell Concentrates

The majority of blood product transfusions involve red blood cells. Red blood
cells deliver oxygen to and remove carbon dioxide from tissues. Red blood cells
are used in the care of patients with trauma, anemia and certain genetic
disorders. The

7
<PAGE>

current worldwide market for red blood cell concentrates (RBCC) is estimated at
approximately $3.0 billion. In the United States alone, homologous (donation by
someone other than the recipient) RBCC transfusions exceed 11 million units
annually, with an estimated market value of $1.0 billion.

VITEX Red Blood Cell Concentrates The Company is developing virally
inactivated red RBCC based on the use of LAC that respond to specific
wavelengths of light. These viral inactivation procedures, which are performed
in combination with the Company's Quenchers, are designed to leave unaffected
the structure, function and circulatory persistence of the treated cells, thus
preserving the biological characteristics of these blood components. The
Company's lead light-activated compound, Pc4, has been shown to inactivate HIV
and the bovine virus used as a model for HCV, as well as the parasites that
cause Chagas' disease and malaria. In addition, Pc4-treated red blood cells have
exhibited an acceptable recovery and circulatory survival during pre-clinical
studies. The resulting product is expected to compare favorably to published
data on blood substitutes (e.g., hemoglobin solutions) whose functional
properties do not match those of intact red blood cells. VITEX expects to file
an IDE application for VITEX RBCC in 1999. The Company has entered into an
agreement with Pall regarding the development and distribution of systems for
the viral inactivation of RBCC.

Viral Inactivation Technology Platform

The Company's products are based on a portfolio of technologies which are
designed to be used either individually or in combination. Members of the
Company's scientific team developed the core VITEX viral inactivation
technologies while working at the NYBC. The NYBC subsequently licensed these
technologies to the Company. In addition, the Company continues to make
substantial investments in research and development to enhance the value of its
technology platform and has filed several patent applications as a result of
these activities. The technologies being developed by the Company are described
below:

The Solvent/Detergent (SD) Technology. Most pathogenic viruses found in blood,
including HBV, HCV and HIV, are protected by a lipid shell or envelope. The SD
process involves the addition of a chemical solvent (a di- or trialkyl
phosphate) and a detergent, which serves to enhance the contact between solvent
and virus, into pools of plasma or plasma fractions, which dissolves the lipid
shell of the virus, after which the virus can no longer bind to and infect
cells. The process is completed by removing the SD reagents, typically by
extraction with vegetable oil and hydrophobic chromatography, and sterile
filtering to remove bacteria, parasites and blood leukocytes and leukocyte
debris. In September 1998, the FDA's Blood Products Advisory Committee
recommended leukoreduction of blood components. This recommendation is now under
consideration by the FDA.

The SD process was first applied to plasma derivatives in 1985 for use in
patients with hemophilia. This process has become the most widely used method
for the inactivation of lipid enveloped viruses around the world and currently
is used, under license from the NYBC, by more than 50 plasma fractionators.
Since 1985, it is estimated that more than 15 million doses of SD-treated
Factors VIII and IX, and a total of over 35 million doses of all SD-treated
products, have been administered without a single reported case of HBV, HCV or
HIV transmission. Experience has demonstrated that plasma for transfusion, when
treated with the SD process, retains blood protein structure and function with
minimal loss of essential protein components and can be implemented cost-
effectively. In support of US Food and Drug Administration (FDA) licensure for
PLAS+SD in the United States, the Company conducted eight clinical studies in
over 31 medical centers. These studies were designed to evaluate the efficacy
and safety of PLAS+SD when used either to replace coagulation factors in
patients with a documented deficiency for which no specific coagulation factor
concentrate was available, or when used to treat patients with chronic or acute
thrombotic thrombocytopenic purpura (TTP). These trials demonstrated that with
PLAS+SD, coagulation factor recovery was normal following treatment, and
bleeding ceased where it was preexistent. Clotting times decreased in accord
with expectations when PLAS+SD was used to replace clotting factor deficiency.
In patients with TTP, clinical symptoms resolved. Side effects were
characteristics of those reported with FFP. Moreover, there was no evidence of
transmission of either lipid-enveloped or non-enveloped virus by the product.

Ultraviolet C Light (UVC) Technology. VITEX's proprietary short wavelength
ultraviolet light irradiation technology has been shown to inactivate both
enveloped and non-enveloped viruses in protein solutions. Viral inactivation
occurs because viral nucleic acids are modified directly when they absorb
ultraviolet light energy. Specificity results from differential absorption of
UVC by nucleic acids and proteins and the much larger target size presented by
nucleic acids. Quenchers added to plasma or plasma derivatives prior to
treatment serve as a source of antioxidant, preventing oxidative damage to
therapeutic proteins without interfering with viral inactivation.

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Initial research and development of the UVC technology was conducted by the
Company's scientists at the NYBC and is being continued at VITEX. The research
and development effort includes the development of an irradiator which controls
UVC intensity and provides a fluid path for the plasma or plasma derivative
being treated. The Company is currently conducting Phase III clinical trials of
its VITEX Fibrin Sealant which employs SD and UVC technologies. The Company
intends to file a BLA for this product during 1999.

Light-Activated Compound (LAC) Technology. VITEX is developing photodynamic
technology that uses light activated compounds to inactivate viruses in red
blood cell concentrates. LAC technology is based on the use of specific
wavelengths of light and photosensitizers to initiate a series of reactions
leading to the inactivation of viruses. In addition, LAC technology has been
shown to inactivate parasites and bacteria in pre-clinical studies.

VITEX researchers have shown that many factors regulate the degree of viral
inactivation and associated cellular damage using LAC technology. These factors
include the selection of the specific photosensitizer, the addition of specific
Quenchers, the selection of light at the appropriate wavelength, the intensity
of the light source and the formulation of the photosensitizer. The Company has
available to it a wide variety of light-activated compounds for the treatment of
RBCC. RBCC are generally able to repair oxidative damage that typically
accompanies the use of LAC. One such class of LACs, the Company's proprietary
phthalocyanines, is particularly suited to the treatment of RBCC since the
wavelengths of light used to activate these photosensitizers are not absorbed by
red blood cells.

Quencher Technology. Treatment with UVC or LAC generates reactive oxygen
species (ROS) which can damage proteins and cells. VITEX has shown in pre-
clinical studies that inclusion of chemical antioxidants (Quenchers) during
viral inactivation quench or react readily with ROS to reduce damage to
therapeutic proteins and cells without interfering with inactivation of viruses
and other pathogens. As examples, under equally virucidal conditions, with the
inclusion of Quenchers, the yield of biologically active UVC-treated Factor
VIII, the in vivo survival of LAC-treated red cells and the yield of
biologically active LAC-treated platelets each improved 2.5 times. The Company's
Quenchers include rutin (a naturally occurring flavonoid found in many fruits
and vegetables), mannitol (a sugar), cysteine (a naturally occurring amino
acid), and vitamin E.

Strategic Collaborations

VITEX believes that it can efficiently accelerate the commercialization of its
products by collaborating with sales, marketing, distribution, and technology
partners. The Company has entered into collaborations with Bayer, the Red Cross,
U.S. Surgical and Pall, for development, licensing and marketing of the
Company's products and systems. As part of these agreements, the Company is
collaborating with U.S. Surgical and Pall for the development of certain of the
Company's products and systems. VITEX may seek to establish additional
collaborations with partners in other areas of strategic focus. The terms of the
Company's strategic collaborations are described below:

Bayer Corporation. The Company, as one of many non-exclusive licensees of SD
technology for viral inactivation of plasma fractions, does not itself use the
SD technology to virally inactivate plasma fractions. Rather than competing with
existing suppliers of virally inactivated plasma fractions, the Company has
decided to participate in the market for virally-inactivated plasma fractions by
providing plasma fractions to other parties for viral inactivation by such other
parties. In February 1995, the Company entered into an Agreement for Custom
Processing (the Processing Agreement) with Bayer, one of the largest processors
of blood plasma, to supply VITEX Plasma Fractions to Bayer. This Processing
Agreement was amended in January 1996, December 1997 and December 1998 to, among
other things, extend the term through 2001 and increase the volume of plasma
fractionated under this agreement through 1999. The term of the agreement is
automatically extended for two additional one-year periods unless Bayer notifies
VITEX within certain specified periods that it does not desire to extend the
agreement for either one-year period. During the period from January 3, 1999
through the remainder of the term in December 2001, the contract provides for
revenues to VITEX of approximately $19 million per annum, subject to the Company
meeting certain performance obligations. Incremental revenue, assuming the
arrangement is extended as permitted by the contract will be approximately $19
million during each of the years ending December 31, 2002 and 2003,
respectively. The Company received $14.7 million in revenue from Bayer during
the year ended January 2, 1999 under this agreement. Under the agreement, Bayer
is obligated to provide the Company with a specified quantity of plasma annually
during the term of the agreement and the Company is obligated to return plasma
fractions to Bayer within certain specified periods. The agreement is structured
as a take-or-pay arrangement under which Bayer is obligated to pay VITEX a fixed
fee per liter of fractionated plasma whether or not Bayer fulfills its
obligation to supply plasma to the Company. Certain of the plasma fractions
supplied to Bayer are virally inactivated by Bayer using the SD technology
licensed to Bayer by the NYBC. In the event that VITEX does

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not provide fractions as required under the agreement, or upon the occurrence of
other events of default, Bayer has certain rights to take over and operate the
fractionation portion of the Company's production facility. As security for the
performance of the Company's obligations under the Bayer agreement, the Company
granted Bayer a mortgage on the Company's manufacturing facility, which Bayer
has subordinated to a subsequent mortgage granted by the Company to The Chase
Manhattan Bank, and a security interest in substantially all of the personal
property of the Company that is necessary or useful to the processing and
fractionation of Bayer supplied plasma. The Company may terminate the agreement
upon written notice of a material breach of the agreement and failure to cure by
Bayer. Bayer may terminate the agreement in certain circumstances including a
material breach of the agreement and failure to cure by the Company and an event
of default under the Company's credit agreement with its institutional lender.

American National Red Cross. In December 1997, the Company entered into a
supply, manufacturing and distribution agreement with the Red Cross (the Red
Cross Agreement) over a term of 57 months, for the Red Cross to become the
exclusive distributor of the Company's PLAS+SD in North America. Under the
agreement, the Red Cross, which is the largest supplier of transfusion plasma to
hospitals in the United States, providing about 45% of the transfusion plasma
used annually, is required to purchase stated minimum quantities of PLAS+SD to
maintain its exclusive rights. Once the Red Cross places its annual purchase
order with VITEX, it is obligated to supply VITEX with a sufficient quantity of
plasma to enable VITEX to fulfill the order. The Red Cross must pay for the
amount of PLAS+SD specified in the purchase order even if it is unable to supply
sufficient quantities of plasma. The Red Cross must purchase all of its virally-
inactivated plasma from the Company unless an FDA approved product has been
independently shown to be safer than PLAS+SD. The Company, in turn, is obligated
to offer any excess capacity that it has to produce PLAS+SD above the stated
minimum purchase requirements to the Red Cross before selling PLAS+SD to any
other party. Effective October 1, 1998, the Red Cross Agreement was amended to,
among other things, reduce the Red Cross's minimum annual purchase order
commitment required to maintain its exclusive marketing and distribution rights,
provide higher pricing during periods of lower volume purchases, and commit
increased marketing spending by both the Company and the Red Cross. Under the
amended agreement, the Red Cross is required to pay to the Company a fixed price
per unit of PLAS+SD, plus a royalty which is initially fixed. Beyond a specified
volume, the royalty becomes variable, based on equal sharing of the amount by
which the average selling price of the Red Cross exceeds a stated amount.
Anticipated revenue under the amended agreement is approximately $50 million
during the two year period ending September 30, 2000. The Company recorded
revenue of $16.3 million during the year ended January 2, 1999 under the
original and amended agreements. The Company has granted to the Red Cross a
right of first offer to acquire exclusive distribution rights to any subsequent
generation of virally inactivated transfusion plasma products that are developed
during the term of the agreement. The Company and the Red Cross have each
committed to spend minimum amounts for marketing PLAS+SD during the two year
period ending September 30, 2000. The Company's spending commitment is expected
to be satisfied, to a large extent, by the cost of its sales force.
Additionally, a joint marketing committee will coordinate all marketing
activities for PLAS+SD. The exclusive distribution agreement between the Company
and the Red Cross provides that the Red Cross will use its best efforts to
ensure availability of the Company's virally inactivated transfusion plasma
products to all potential customers, including Red Cross blood centers and non-
Red Cross blood centers.

Under a previous collaboration agreement, the Red Cross had made a total of
$3.0 million non-interest bearing, unsecured advances to the Company to be used
to fund improvements to the Company's manufacturing facility. Under this
previous agreement, the loan amortized at the rate of 15% per year following
receipt of marketing approval of PLAS+SD with a balloon payment due in year
five. In conjunction with the amended agreement, the repayment schedule was
modified to reflect repayment of 30% of the loan balance on the second
anniversary date of the approval of the PLAS+SD PLA and 15% of the balance on
each of the following two years, with the balance of the loan payable on the
fifth anniversary of the PLAS+SD PLA. Each of the Company and Red Cross has the
right to terminate the agreement upon written notice in certain circumstances,
including a material breach of the agreement which is not cured by the other
party.

United States Surgical Corporation. In September 1996, the Company and U.S.
Surgical entered into an exclusive worldwide distribution agreement, which was
amended in October 1996, regarding VITEX Fibrin Sealant for an initial period of
15 years. Upon entering into the agreement, U.S. Surgical paid a $3.0 million up
front fee to the Company. U.S. Surgical has agreed to fund all direct clinical
and regulatory costs associated with the development and regulatory approval of
VITEX Fibrin Sealant after the initial Phase II trial conducted by the Company.
In addition, in return for exclusive rights, U.S. Surgical has agreed, subject
to termination upon notice, to pay a substantial portion of agreed upon research
and development costs associated with any improvements or, enhancements to VITEX
Fibrin Sealant. Pursuant to this agreement, the Company granted U.S. Surgical
the mutually exclusive worldwide right, until October 2011, to seek, in its own
name as permitted by law, necessary government approvals for and to use, market,
distribute and sell fibrin sealants, and any improvements thereto which improve
the storage or reconstitution time of such products, for use in in vivo human
and veterinary medical applications. This

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mutually exclusive distribution agreement further provides U.S. Surgical with a
first option to obtain exclusive distribution rights on any enhanced products
developed by the Company as well as certain other wound care products developed
in the future. U.S. Surgical must achieve certain minimum sales of the products
to maintain its exclusive rights under the agreement. Under the agreement, the
Company agrees to supply U.S. Surgical's forecasted demand for the products and
if it is unable to supply an agreed upon level in excess of such forecasted
demand, for a stated period, U.S. Surgical has an option to make arrangements to
have the excess demand for such products produced by third-party manufacturers.
Either the Company or U.S. Surgical may terminate the agreement upon written
notice in certain circumstances, including a breach of the agreement by the
other party which is not cured. U.S. Surgical may also terminate the agreement
for any reason upon nine months' notice to the Company. In January 1999, the
agreement was amended to reflect modified pricing terms for sale of the product
by the Company to U.S. Surgical. During 1998, the Company completed construction
of a multi-use manufacturing suite, within its existing facility, to permit the
production, subject to FDA approval, of commercial quantities of VITEX Fibrin
Sealant. Validation of the new manufacturing area is currently underway. U.S.
Surgical was recently acquired by Tyco Corporation. The effects, if any, of this
acquisition on the development programs and the eventual success of the product
cannot be assessed at this time.

Pall Corporation. In February 1998, the Company and Pall entered into a series
of agreements (the "Pall Agreements") providing for, among other things, a
collaboration on the development and marketing of systems employing the
Company's LAC and Quencher viral inactivation technologies for red blood cell
and platelet concentrates. Pall is a leading manufacturer and supplier of
filtration products, including those relating to the collection, preservation,
processing, manipulation, storage and treatment of blood and blood components.
VITEX will continue to develop its proprietary LAC and Quencher viral
inactivation technologies in collaboration with Pall's proprietary filtration
and processing technologies for pathogen removal in the treatment of red blood
cell concentrates. Under the Pall Agreements, Pall receives exclusive worldwide
distribution rights to any system incorporating any VITEX viral inactivation
technology for red blood cells and platelets. The parties have also agreed to
share research, development, clinical and regulatory responsibilities and will
equally share profits and joint expenses from operations after each party is
reimbursed for its cost of goods. Upon execution of the Pall Agreements in
February 1998, Pall acquired 477,042 shares of the Common Stock for $4.0 million
or $8.39 per share. Pursuant to the terms of the Pall Agreements, Pall acquired
$5 million of the Company's Common Stock in a private placement, which closed
contemporaneously with, and at the same price, terms, and conditions as the IPO.
In addition, the Pall Agreements provide that Pall will purchase up to $17
million of VITEX Common Stock in installments tied to the achievement of
specified development milestones in the development of VITEX RBCC and such
equity investments by Pall will be made at the prevailing market price per
share. Pursuant to the Pall Agreements, certain existing stockholders of the
Company have agreed to vote their shares to elect to the Board of Directors of
the Company a nominee designated by Pall. Certain of the Pall Agreements may be
terminated in certain circumstances including an event of default by either
party which, in the case of VITEX, includes the termination for any reason of
Dr. Bernard Horowitz's employment with the Company.

Manufacturing and Supply

The Company currently produces all of its VITEX Plasma Fractions and PLAS+SD
in its 92,000 square foot facility. In May 1998, the FDA approved the Company's
Establishment License Application for the manufacture of PLAS+SD at the
Company's manufacturing facility. The existing manufacturing facility has
sufficient capacity to meet the minimum purchase requirements for PLAS+SD under
its agreement with the Red Cross. In December 1998, the Company completed
construction of a $2.5 million multi-use manufacturing suite, within its
existing facility, to permit the production, subject to FDA approval, of
commercial quantities of fibrinogen and thrombin for production of VITEX Fibrin
Sealant. The manufacturing suite utilizes a design which provides operational
flexibility, and allows for multi-purpose production within the suite.
Validation of the new manufacturing suite is currently underway. The Company is
currently utilizing all of its existing fractionating plasma capacity. Due to
an industry-wide shortage of fractionation capacity, in conjunction with
solicitations from Bayer and others, the Company is planning to expand its
fractionation capacity by 15% in 1999 and is currently evaluating the
cost/benefit of further expansion in subsequent years. Through its
collaboration with Pall, the Company will cooperate in the development of red
blood cell concentrate viral inactivation systems and intends to contract with
third parties for the manufacture of these systems.

The Company's manufacturing processes are subject to extensive regulation by
the FDA, including the FDA's current Good Manufacturing Practice (cGMP)
requirements. Failure to comply with such requirements would materially impair
the Company's ability to maintain commercial-scale production of its plasma
fractions and PLAS+SD or achieve and maintain commercial-scale production of any
future products. If the Company is unable to achieve full scale production
capability for any product,

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acceptance by the market of such product would be impaired and any such
impairment in market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company purchases certain key components for the manufacture of its
products from a limited number of outside suppliers and intends to continue
purchasing components from outside suppliers for its future products. The
Company currently obtains from a single supplier the customized bags for the
packaging of its PLAS+SD product. However, the Company has entered into an
agreement with an additional supplier of these bags which provides that the
additional supplier will provide such bags if the existing supplier is unable to
do so. Further, while the Company has identified several sources for a key
component of one of its proposed wound care products, it is currently
negotiating an agreement with only a single supplier of this component.
Establishing or utilizing additional or replacement suppliers for any such
components, if required, may not be accomplished quickly and could involve
significant additional costs. Any failure by the Company to obtain any
components used to manufacture its products from alternative suppliers, if
required, could limit the Company's ability to manufacture its products and
could have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, the inclusion of components
manufactured by others could require the Company to seek approvals from
government regulatory authorities, which could result in delays in product
delivery. There can be no assurance that the Company would receive any such
regulatory approvals. Any such delay would have a material adverse effect on the
Company's business, financial condition, results of operations and cash flows.

Sales, Marketing and Distribution

As referred to in "Strategic Collaborations," the Company has entered into
agreements with Bayer, Red Cross, U.S. Surgical and Pall, for the development,
licensing and marketing of the Company's products and systems. In December 1998,
the Company established its own national sales force, consisting of a sales
director and ten regional sales representatives, to support the efforts of the
Red Cross by increasing product awareness and accelerating market penetration.
As part of these agreements, the Company is also collaborating with U.S.
Surgical and Pall for the development of certain of the Company's products and
systems. VITEX may seek to establish additional collaborations in other areas of
strategic focus.

In December 1997, and as subsequently amended effective October 1998, the
Company contracted with the Red Cross for the Red Cross to become the exclusive
distributor of the Company's PLAS+SD in North America. The Company and the Red
Cross have each committed to spend certain minimums for marketing PLAS+SD in
1999. Additionally, a joint marketing committee will coordinate all marketing
activities for PLAS+SD. The Company has entered into a distribution agreement
with U.S. Surgical pursuant to which the Company has granted U.S. Surgical the
exclusive worldwide rights to market and distribute its VITEX Fibrin Sealant,
subject to U.S. Surgical achieving stated minimum sales requirements for such
products. Under the terms of the Pall Agreements, Pall agreed to, among other
things, collaborate on the development and marketing of systems employing the
Company's viral inactivation technologies for RBCC. Under the Pall Agreements,
among other things, Pall receives exclusive worldwide distribution rights to any
systems incorporating any VITEX viral inactivation technology for red blood
cells.

The Company believes that market acceptance of the Company's products and
systems will depend, in part, on the Company's ability to provide acceptable
evidence of the safety, efficacy and cost-effectiveness of its products and
systems, as well as the ability of blood centers and hospitals to obtain
adequate reimbursement for such products. The Company believes that market
acceptance of its products and systems will also depend upon the extent to which
physicians, patients and health care payers perceive that the benefits of using
the Company's products and systems justify the additional costs and processing
requirements. There can be no assurance that the Company's products and systems
will gain any significant degree of market acceptance among blood centers,
physicians, patients and health care payers, even if clinical trials demonstrate
safety and efficacy and necessary regulatory approvals and health care
reimbursement approvals are obtained. There can be no assurance that the
Company's strategic collaborators will market the Company's products
successfully or that any third-party collaboration will be on terms favorable to
the Company. If a collaborator with the Company does not market a product
successfully, the Company's business would be materially adversely affected.
There can be no assurance that the Company's collaborators will be successful in
gaining market acceptance for any products that the Company may develop and a
failure to do so would result in a material adverse affect on the Company's
business, results of operations and financial condition.

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Patents, Licenses and Proprietary Rights

The Company's success depends in part on its ability to maintain licensed
patent rights, obtain patents, protect trade secrets, operate without infringing
upon the proprietary rights of others and prevent others from infringing on the
proprietary rights of the Company. The Company's policy is to seek to protect
its proprietary position by, among other methods, filing United States and
foreign patent applications related to its proprietary technology, inventions
and improvements that are important to the development of its business. The
Company believes that the protection of its proprietary technologies may create
competitive barriers to entry into the viral inactivation market. The Company
intends to continue to pursue its patent filing strategy and to vigorously
defend its intellectual property position against infringement.

In connection with its spin-off from the NYBC, the Company became the licensee
of a substantial portfolio of patents and patent applications held by the NYBC.
The Company is a nonexclusive worldwide licensee under 12 issued United States
patents which expire at various times from 2000 to 2009, 28 issued foreign
counterpart patents and three pending foreign counterpart patent applications
held by the NYBC for use of the SD process in treating plasma derivatives. The
Company is a nonexclusive worldwide licensee under two issued United States
patents which expire in 2010 and 2014, four pending United States patent
applications, five issued foreign counterpart patents and 19 pending foreign
counterpart patent applications held by the NYBC for use of UVC technology in
treating plasma derivatives. The Company is the exclusive licensee for the U.S.,
Canada and Mexico and a non-exclusive licensee outside of the United States,
Canada, Mexico and Europe under 16 issued United States patents which expire at
various times from 2000 to 2014, four pending United States patent applications,
19 issued foreign counterpart patents and 14 pending foreign counterpart patent
applications held by the NYBC for use of the SD process and UVC technology in
treating transfusion plasma products. The Company is the exclusive worldwide
licensee under 10 issued United States patents which expire in 2010 and 2014,
five pending United States patent applications, five issued foreign counterpart
patents and 28 pending foreign counterpart patent applications held by the NYBC
for use of UVC technology in treating fibrin sealant/thrombin products and for
the manufacture and use of fibrin sealant, fibrinogen and thrombin and the
nonexclusive worldwide licensee under 12 issued United States patents which
expire at various times from 2000 to 2009, 28 issued foreign counterpart patents
and three pending foreign counterpart patent applications held by the NYBC for
use of the S/D process in treating fibrin sealant/thrombin products. Finally,
the Company is the exclusive worldwide licensee under six issued United States
patents which expire at various times from 2010 to 2015, eleven pending United
States patent applications, six issued foreign counterpart patents and 43
pending foreign counterpart patent applications held by the NYBC for use of
light and certain compounds in virally inactivating cellular products. The
rights referred to above are granted to the Company by five license agreements
between the Company and the NYBC. The NYBC has the right to terminate any of
these licenses if the Company breaches the respective license and fails to cure
such breach, fails to produce and market the relevant products within specified
time frames or fails to conform to government regulations in the production of
the relevant products. For exclusive licenses, the NYBC has the right to
terminate the license if certain minimum payments and/or minimum royalties are
not paid by the Company. If any of the licenses between the Company and the NYBC
were terminated it would have an adverse effect upon the Company's business,
results of operations and financial condition.

During the year ended January 2, 1999, the Company incurred royalty and
milestone related expenses amounting to $1,037,000 for use of technology
licensed by the NYBC.

In addition to being a licensee to patents and patent applications held by the
NYBC, the Company has three additional exclusive licenses for patents relating
to its red cell program, and is developing its own technologies and products and
pursuing patent protection for such technologies and products. The Company has
four pending United States patent application and is the co-owner of one issued
United States patent.

Proprietary rights relating to the Company's planned and potential products
will be protected from unauthorized use by third parties only to the extent that
they are covered by valid and enforceable patents or are effectively maintained
as trade secrets. There can be no assurance that any patents owned by, or
licensed to, the Company will afford protection against competitors or that any
pending patent applications now or hereafter filed by, or licensed, to the
Company will result in patents being issued. In addition, the laws of certain
foreign countries do not protect the Company's intellectual property rights to
the same extent as do the laws of the United States. The patent positions of
biopharmaceutical companies involve complex legal and factual questions and,
therefore, their enforceability cannot be predicted with certainty. There can be
no assurance that any of the Company's owned or licensed patents or patent
applications, if issued, will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection or
competitive advantages to the Company against competitors with similar
technology. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by the Company.

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Because patent applications in the United States are maintained in secrecy
until patents issue, and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it or its licensors were the first to make the inventions covered
by each of its issued, licensed or pending patent applications or that it or its
licensors were the first to file for protection of inventions set forth in such
patent applications. There can be no assurance that the Company's planned or
potential products will not be covered by third-party patents or other
intellectual property rights, in which case continued development and marketing
of such products would require a license under such patents or other
intellectual property rights. There can be no assurance that such required
licenses will be available to the Company on acceptable terms, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents or could find that
the development, manufacture or sale of products requiring such licenses is
foreclosed.

The Company may rely, in certain circumstances, on trade secrets to protect
its technology. However, trade secrets are difficult to protect. The Company
seeks to protect its proprietary technology and processes, in part, by
confidentiality agreements with its employees and certain contractors. There can
be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.

Competition

The Company's products and products under development will compete with
current approaches to enhance blood safety, as well as with future products
under development by others, including medical technology, biotechnology,
pharmaceutical and hospital supply companies, national and regional blood
centers, governmental organizations and agencies, academic institutions and
other agencies. The industries in which the Company competes are characterized
by rapid and significant technological changes. Accordingly, the Company's
success will depend in part on its ability to respond quickly to medical and
technological changes through the development and introduction of new products.
Many companies and organizations that may be competitors or potential
competitors of the Company have substantially greater financial and other
resources than the Company and may have greater experience in pre-clinical
studies, clinical trials and other regulatory approval procedures. In addition,
other technologies or products may be developed that have an entirely different
approach or means of accomplishing the intended purposes of the Company's
products, or that might render the Company's technology and products obsolete.
Furthermore, there can be no assurance that the Company's competitors will not
obtain patent protection or other intellectual property rights that would limit
the Company's ability to use the Company's technology or commercialize products
that may be developed.

VITEX Plasma Fractions face competition from other large plasma fractionators.
Additional competition in the market for plasma derivatives may come from
producers of recombinant blood products. Competition in this area may have a
material adverse effect on the Company's business, financial condition and
results of operations.

Competition with PLAS+SD and the Company's products under development may come
from alternative approaches to the problem of improving the safety of blood and
blood products and from alternative viral inactivation technologies. The
alternative approaches to achieving safer blood component products include donor
retesting, apheresis blood collection systems, the use of blood substitutes,
blood salvage systems, blood cell stimulants, leukocyte filters and reduction
systems and improved blood testing. All of these approaches are currently
available, and each has gained some degree of market acceptance.

In the area of viral inactivation of blood and blood components, several
companies are developing technologies which are, or in the future may be, the
basis for products that will directly compete with or reduce the market
opportunity for PLAS+SD and the Company's viral inactivation products which are
under development. In the plasma market, treatment with methylene blue is used
commercially in Europe for pathogen inactivation. Because the Company's SD
process involves pooling plasma, there may be an increased risk of transmission
of pathogens not inactivated by the process, as compared with processes, such as
treatment with methylene blue, which do not require pooling. In addition to
methylene blue, other viral inactivation methods which may compete with the
Company's Solvent/Detergent (SD), Ultraviolet C Light (UVC), and Light Activated
Compound (LAC) technologies include patented viral inactivation compounds,
including psoralens, developed by Cerus Corporation. Additionally, ozone
sterinetics technology under development may compete with the Company's viral
inactivation technology. The Company believes that the primary competitive
factors in the market for viral inactivation systems will include the breadth
and effectiveness of viral inactivation processes, ease of use, the scope and
enforceability of patent or other proprietary rights,

14
<PAGE>

product price, product supply and marketing and sales capability. In addition,
the length of time required for products to be developed and to receive
regulatory and, in some cases, reimbursement approval is an important
competitive factor. The Company believes it competes favorably with respect to
these factors, although there can be no assurance that it will be able to
continue to do so. Any failure by the Company to compete effectively with these
alternative products and technologies would have a material adverse effect on
the Company's business, financial condition, results of operations and cash
flows.

The Company's wound care products will compete with existing wound care
techniques, such as sutures and synthetic glues, which do not carry the risk of
viral contamination. The Company may face competition from many other companies
seeking to develop and market fibrin sealants. The Company believes several
other companies are developing competitive wound care products, including
synthetic glues and other alternatives to sutures. There can be no assurance
that any of these alternative viral inactivation systems or wound care products
will not achieve widespread acceptance. For the Company's products to gain
market acceptance, the Company may need to demonstrate that its products are
superior in performance, safer or more cost-effective than other existing or
future technologies or products.

Government Regulation

The Company and its products are comprehensively regulated by the FDA and, in
some instances, by state and local governments, and by foreign regulatory
authorities. The FDA regulates drugs, medical devices and biologics under the
Federal Food, Drug and Cosmetic Act and other laws, including, in the case of
biologics, the Public Health Service Act. These laws and implementing
regulations govern, among other things, the development, testing, manufacturing,
record keeping, storage, labeling, advertising, promotion and pre-market
approval of such products.

The PLA for the Company's VITEX Plasma Fractions was approved initially by the
FDA in 1970 and amended from time to time thereafter. The first of the Company's
virally inactivated products, PLAS+SD, received marketing approval by the FDA on
May 6, 1998. The Company believes that its VITEX Fibrin Sealant, like VITEX
Plasma Fractions and PLAS+SD, will be regulated by the FDA as a biologic, while
its RBCC system may be regulated as a medical device. However, despite the
Company's expectations of how a given product will be regulated, it is possible
that the FDA will decide to regulate any one or more of the Company's products
as biologics, as medical devices, as "combination products," including drugs or
biologics and one or more medical devices, or as drugs or biologics with one or
more medical devices requiring separate approval or clearance. Whether the FDA
regulates the Company's products as biologics or as one or more of the other
alternatives, it is likely that the FDA's Center for Biologics Evaluation and
Review will be principally responsible for regulating the Company's products.

Before a new drug may be marketed in the United States, the FDA must approve
an NDA for the product. Before a biologic may be marketed in the United States,
the FDA must approve either a Biologics License Application (BLA) covering both
the product and the facility or a PLA for the product and an Establishment
License Application (ELA) for the facility at which the product is manufactured.
Before a medical device may be marketed in the United States, the FDA must clear
a pre-market notification (a 510(k)) or approve a pre-market application (PMA)
for the product. Before a combination product may be marketed in the United
States, it must have an approved NDA, BLA (or PLA/ELA) or PMA, depending on
which statutory authority the FDA elects to use.

Despite the multiplicity of statutory and regulatory possibilities, the steps
required before approval are essentially the same whether the product is
ultimately regulated as a drug, a biologic, a medical device, a combination
product or some combination thereof. The steps required before a drug, biologic
or medical device may be approved for marketing in the United States pursuant to
an NDA, BLA (or PLA/ELA) or PMA, respectively, generally include: (i) pre-
clinical laboratory and animal tests; (ii) submission to the FDA of an
Investigational New Drug Exemption (IND), for drugs or biologics, or an
investigational device exemption (IDE), for medical devices, for clinical
trials, which must become effective before human clinical trials may begin;
(iii) appropriate tests to show the product's safety; (iv) adequate and well-
controlled human clinical trials to establish the product's efficacy for its
intended indications; (v) submission to the FDA of an NDA, BLA (or PLA/ELA) or
PMA, as appropriate and (vi) FDA review of the NDA, BLA (or PLA/ELA) or PMA in
order to determine, among other things, whether the product is safe and
effective for its intended uses. In addition, the FDA inspects the facilities at
which the product is manufactured and will not approve the product unless
compliance with cGMP requirements is satisfactory. The steps required before a
medical device may be cleared for marketing in the United States pursuant to a
510(k) are generally the same, except that instead of conducting tests to
demonstrate safety and efficacy, data, including clinical data if necessary,
must be obtained to

15
<PAGE>

show that the product is substantially equivalent to a legally marketed device,
and the FDA must make a determination of substantial equivalence rather than a
determination that the product is safe and effective.

The Company believes that, in deciding whether a viral inactivation system is
safe and effective, the FDA is likely to take into account whether it adversely
affects the therapeutic efficacy of blood components as compared to the
therapeutic efficacy of blood components not treated with the system, and that
the FDA will evaluate the system's safety and other risks against the benefits
of using the system in a blood supply that has become safer in recent years.

There can be no assurance that the means employed by the Company of
demonstrating safety and efficacy will ultimately be acceptable to the FDA.
Moreover, even if the FDA considers these means of demonstrating safety and
efficacy to be acceptable in principle, there can be no assurance that the FDA
will find the data submitted sufficient to demonstrate safety and efficacy.

Even if regulatory approval or clearance is granted, it could include
significant limitations on the indicated use for which a product could be
marketed. The testing and approval/clearance process requires substantial time,
effort and financial resources, and is generally lengthy, expensive and
uncertain. The approval process is affected by a number of factors, including
the availability of alternative treatments and the risks and benefits
demonstrated in clinical trials. Additional animal studies or clinical trials
may be requested during the FDA review period and may delay marketing approval.
After FDA approval for the initial indications, further clinical trials may be
necessary to obtain approval for the use of the product for additional
indications. The FDA may also require post-marketing testing to monitor for
adverse effects which can involve significant expense. Later discovery of
previously unknown problems with a product may result in labeling changes and
other restrictions on the product, including withdrawal of the product from the
market. In addition, the policies of the FDA may change, and additional
regulations may be promulgated which could prevent or delay regulatory approval
of the Company's planned products. There can be no assurance that any approval
or clearance will be granted on a timely basis, if at all. Any failure to obtain
or delay in obtaining such approvals or clearances, and any significant
limitation on their indicated uses, could have a material adverse effect on the
Company's business, financial condition and results of operations.

A drug, biologic or medical device, its manufacturer, and the holder of the
NDA, BLA (or PLA/ELA), PMA or 510(k) for a product are subject to comprehensive
regulatory oversight, both before and after approval or clearance is obtained.
Violations of regulatory requirements at any stage, including during the
preclinical and clinical trial process, during the approval/clearance process or
after the product is approved/cleared for marketing, could result in various
adverse consequences, including the FDA's requiring that a clinical trial be
suspended or halted, the FDA's delay in approving/clearing or refusing to
approve/clear a product, withdrawal of an approved/cleared product from the
market and the imposition of criminal penalties. For example, the holder of an
NDA, BLA (or PLA/ELA), PMA or 510(k) is required to report certain adverse
reactions to the FDA, and must comply with certain requirements concerning
advertising and promotional labeling for the product. Also, quality control and
manufacturing procedures must continue to conform to cGMP regulations after
approval or clearance, and the FDA periodically inspects manufacturing
facilities to assess compliance with cGMP. In particular, until the Company
achieves commercial production levels of its PLAS+SD product, the test results
for each lot of this product will be subject to FDA review prior to release for
its intended use. Accordingly, manufacturers must continue to expend time,
monies and efforts on regulatory compliance, including cGMP compliance. In
addition, new government requirements may be established that could delay or
prevent regulatory approval or clearance of the Company's products under
development or otherwise alter the applicable law. There can be no assurance
that the FDA will determine that the facilities and manufacturing procedures of
the Company or any other third-party manufacturer of the Company's planned
products will conform to cGMP requirements.

In addition to the regulatory requirements applicable to the Company and its
products, there are also regulatory requirements applicable to the Company's
prospective customers, which are primarily entities that ship blood and blood
products in interstate commerce. Such entities are regulated by the FDA pursuant
to the Food, Drug and Cosmetic Act and the Public Health Service Act and
implementing regulations. Blood centers and others that ship blood and blood
products interstate will likely be required to obtain approved license
supplements from the FDA before shipping products processed with the Company's
viral inactivation systems. This requirement and/or FDA delays in approving such
supplements may deter some blood centers from using the Company's products, and
blood centers that do submit supplements may face disapproval or delays in
approval that could provide further disincentives to use of the systems. The
regulatory impact on potential customers could have a material adverse effect on
the Company's business, financial condition and results of operations.

16
<PAGE>

authorities to increase the associated volume of permitted discharge. Although
the Company has submitted an application to obtain this permit amendment and is
actively pursuing it, there can be no assurance that such permit amendment will
be obtained in a timely manner, if at all. There can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental and health and safety regulations in the future. The Company's
research and development involves the controlled use of hazardous materials,
including certain hazardous chemicals, viruses and radioactive materials.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standard prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be 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.

Health Care Reimbursement

The Company's ability to successfully commercialize its products is dependent
in part on the extent to which appropriate levels of reimbursement for the
Company's products and related treatments are obtained from government
authorities, private health insurers and other organizations, such as managed
care organizations (MCOs). Failure by doctors, hospitals and other users of the
Company's products or systems to obtain appropriate levels of product cost
reimbursement could adversely affect the Company's ability to sell its products
and systems. There are widespread public and private efforts to control health
care costs, and it is unlikely that these efforts will be abandoned in the near
future. Third-party payers are increasingly challenging the pricing of medical
products and services. The trend toward managed care health in the U.S., the
growth of MCOs and legislative proposals to reform health care and government
insurance programs could significantly influence the purchase of medical
products and services, resulting in lower prices and reduced demand for the
Company's products. Such cost containment measures and health care reform could
affect the Company's ability to sell its products, which the Company expects
will be priced at a premium to corresponding widely used blood products that are
not virally inactivated, and may have a material adverse effect on the Company.
Significant uncertainty exists about the reimbursement status of newly approved
medical products and services. There can be no assurance that reimbursement in
the United States or foreign countries will be available for any of the
Company's products, that any reimbursement granted will be maintained or that
limits on reimbursement available from third-party payers will not reduce the
demand for, or negatively affect the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.

Research and Development

The Company believes that continued and timely development of new products and
enhancements to existing products are necessary to maintain its competitive
position. To this end, the Company relies on a combination of its own internal
expertise and strategic alliances with its collaborators and other companies to
enhance its research and development efforts. In addition to new product
candidates generated by internal research and development activities, the
Company actively monitors external research and development programs in search
of complementary and advanced technology for potential acquisition or license
arrangement.

Research and development expense, which includes technology license fees paid
to third parties, amounted to $7.5 million, $5.9 million and $4.4 million for
the years ended January 2, 1999 and December 31, 1997 and 1996, respectively.
Such amounts are net of collaborator reimbursement in the amount of $2.3
million, $1.2 million and $1 million for the years ended January 2, 1999 and
December 31, 1997 and 1996, respectively.

The field of transfusion medicine and therapeutic use of blood products is
characterized by rapid technological change. Product development involves a
high degree of risk, and there can be no assurance that the Company's product
development efforts will result in any commercial success.

17
<PAGE>

Environmental Regulation; Use of Hazardous Substances

The Company is subject to federal, state and local laws, rules, regulations
and policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials, biological
specimens, and wastes. The Company has made, and will continue to make, the
necessary expenditures for environmental compliance and protection.
Expenditures for compliance with environmental laws have not had, and are not
expected to have, a material effect on the Company's financial position,
results of operations or cash flows. The Company's research and development
activities involve the controlled use of hazardous materials. Although the
Company believes that its safety procedures for handling and disposing of such
materials comply with the standards proscribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
eliminated. In the event of such and accident, the Company could be held liable
for any damages that result and such liability could exceed the resources of the
Company.

Customers

The Company's revenues are derived from the sale of plasma fractions,
principally to Bayer, and transfusion plasma to the Red Cross. During the year
ended January 2, 1999, revenue from sales to Bayer and the Red Cross comprised
43.4% and 48.4%, respectively of the Company's total revenues during such
period.

Employees

As of January 2, 1999, the Company had 265 employees of which 42 were engaged
in research and development, 189 were engaged in manufacturing, 14 were engaged
in sales and marketing and 20 were engaged in other activities. The Company's
competitive position in the blood products industry depends, in part, on its
continued ability to recruit and retain qualified scientists, managerial and
technical employees who are in considerable demand. There can be no assurance
that the Company will be able to continue to attract and retain qualified
personnel in sufficient numbers to meet its needs. None of the Company's
employees is represented by a labor union and the Company has never experienced
a work stoppage, slowdown, or strike. The Company considers its employee
relations to be good.

Item 2. PROPERTIES

The Company's primary executive offices and manufacturing facility are
contained within a 92,000 square foot Company-owned building in Melville, New
York. The Company has made, and is continuing to make improvements to this
facility to accommodate VITEX Plasma Fractions and PLAS+SD production
requirements, and to produce sufficient quantities of VITEX Fibrin Sealant to
meet regulatory filing requirements and to support initial product demand. The
Company currently leases 12,000 square feet of space in New York, New York to
accommodate its research and development activities, and 7,500 square feet of
office space in Melville, New York, for certain of the Company's administrative
functions.

The Company believes that its current facilities, combined with anticipated
additions and improvements currently under construction, are adequate for all
present and foreseeable future uses.

Item 3. LEGAL PROCEEDINGS

The Company is a party to certain legal proceedings which are discussed
below. While it is impossible to predict accurately or to determine the eventual
outcome of these matters, the Company believes that the outcome of these
proceedings will not have a material adverse effect on the annual financial
statements of the Company.

18
<PAGE>

responsibility for pre-existing contract liabilities. However, there can be no
assurance that the third party will not assert claims against the Company under
that contract which are similar in nature to the claims being asserted against
the NYBC. No such claims have been asserted to date. The Company believes that
it would have meritorious defenses against any such claims.

On March 23, 1998, the Company received a Civil Investigative Demand ("CID")
from the Antitrust Division of the U.S. Department of Justice (the "Justice
Department") as part of the Justice Department's investigation into possible
antitrust violations in the sale, marketing and distribution of blood products.
A CID is a formal request for information and a customary initial step of any
Justice Department investigation. The Justice Department is permitted to issue
a CID to anyone whom the Justice Department believes may have information
relevant to an investigation. Therefore, the receipt of a CID does not mean
that the recipient is the target of an investigation, nor does it presuppose
that there is a probable cause to believe that a violation of the antitrust laws
has occurred or that any formal complaint ultimately will be filed. The Company
believes that the primary focus of the CID relates to the Company's PLAS+SD
product and to the Supply, Manufacturing and Distribution Collaboration
Agreement between VITEX and the American National Red Cross. Following the
Company's response to the CID there has been no further activity with respect to
this matter.

On August 27, 1998, the Appellate Division of the Supreme Court of New York
awarded the Company a summary judgement against its insurance carrier, reversing
a lower court decision which denied the Company's previous claim for recovery of
costs incurred in 1996 as a result of a plasma processing loss. The Company had
recorded a special charge in 1996 to recognize reimbursement due to Bayer
Corporation for the plasma loss ($4.1 million) and to write off processing costs
($1.0 million). The Company has filed a claim with the insurer to recover these
and related costs. On October 27, 1998, the insurance carrier filed a motion to
appeal the decision of the Appellate Court. Such appeal was subsequently
rejected. The insurance carrier has since stated its intention to take the
appeal to a higher court. The ultimate outcome of this matter can not be
determined at the present time.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended January 2, 1999.

19
<PAGE>

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) The Company's common stock trades on The NASDAQ Stock Market under the
symbol "VITX." The following table sets forth the reported high and low sale
prices of the Company's common stock for each fiscal quarter during the period
from June 11, 1998, the date of the Company's IPO, through January 2, 1999.
These prices do not include retail mark-up, mark-down or commissions and may not
represent actual transactions.

<TABLE>
<CAPTION>
High Low
-------------- ---------------

<S> <C> <C>
June 11, 1998 - July 4, 1998........................................................ $12-1/8 $10-1/2

July 5, 1998 October 3, 1998....................................................... 17-5/8 4-17/32

October 4, 1998 January 2, 1999.................................................... 11-5/8 3-1/8

January 3, 1999 March 26, 1999..................................................... 11-3/4 8
</TABLE>

As of March 26, 1999, the Company had approximately 40 shareholders of record.

The Company has not paid any dividends on its common stock to date. The
Company intends to retain future earnings for use in the development of its
business and does not anticipate paying dividends in the foreseeable future.
The payment of any dividends will be at the discretion of the Company's Board of
Directors and will depend on, among other things, future earnings, business
outlook, capital requirements, contractual restrictions, and the general health
of the Company. The ability of the Company to pay dividends is currently
restricted by covenants contained in its Credit Agreement with its bank.

Under the Company's 1998 Equity Incentive and 1998 Director Stock Option
Plans, during the year ended January 2, 1999, the Company granted options to
purchase 642,000 shares of the Company's Common Stock, exercisable at a weighted
average price of $10.09 per share. At January 2, 1999, there were 1,703,000
options outstanding, of which 484,000 were exercisable. The shares of the
Company's common stock issuable upon exercise of options granted under the 1998
Equity Incentive Plan and 1998 Director Stock Option Plan have been registered
pursuant to registration statements on Form S-8.

(b) In its initial public offering, including a second overallotment, the
Company sold an aggregate of 3,325,000 shares, with an aggregate offering price
to the public of $39,900,000. After expenses, the Company's net proceeds from
the offering were $35,868,000. The Company has utilized these proceeds to: (i)
fund capital investments, primarily for improvements and expansion of its
manufacturing facility ($4,100,000), (ii) fund operations ($3,500,000),
including research and development costs of approximately $2,000,000, and (iii)
for the repayment of debt ($400,000). The Company will continue to use the
remaining net proceeds to fund costs associated with the marketing and
distribution of PLAS+SD, clinical trials, research and development and capital
investments, including the expansion of the manufacturing facility and other
general corporate purposes. Unused proceeds of the offering are invested in
money market funds with portfolios of investment grade corporate and U.S.
government securities.

20
<PAGE>

Item 6. SELECTED FINANCIAL DATA (in thousands, except per share data).

<TABLE>
<CAPTION>
Year Ended Years Ended December 31,
January 2, --------------------------------------------------
1999 (2) (3) 1997 1996 (1) 1995
------------ ---- -------- ----

Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C>
Product sales..................................... $ 33,755 $ 15,843 $ 14,899 $ 438
Licensing fee..................................... -- -- 3,000 --
----------- ---------- --------- ----------
Total revenues................................... 33,755 15,843 17,899 438
Costs and expenses (4):
Cost of sales..................................... 23,860 16,326 10,588 7,024
Research and development, net..................... 7,507 5,912 4,367 2,777
Selling, general and administrative............... 6,951 4,353 2,478 1,330
Special charge related to products................ -- -- 4,100 --
Charge related to research collaboration.......... 2,202 -- -- --
----------- ---------- --------- ----------
Total costs and expenses......................... 40,520 26,591 21,533 11,131
----------- ---------- --------- ----------
Loss from operations............................... (6,765) (10,748) (3,634) (10,693)

Interest expense, net.............................. (279) (952) (491) (146)
Discount on customer advance, net.................. 644 -- -- --
----------- ---------- --------- ----------
Total interest, net.............................. 365 (952) (491) (146)
----------- ---------- --------- ----------

Net loss........................................... ($ 6,400) ($ 11,700) ($ 4,125) ($ 10,839)
=========== ========== ========= ==========

Basic and diluted net loss per share............... ($0.61) ($1.62) ($0.84) ($3.64)

Weighted average common shares used in computing
basic and diluted net loss per share 10,454 7,241 4,897 2,982
</TABLE>

<TABLE>
<CAPTION>
January 2, December 31,
1999 (2) 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......................... $35,264 $ 5,250 $ 4,752 $ 3,310
Working capital (deficit).......................... 33,102 (2,775) (4,314) (1,594)
Total assets....................................... 75,225 38,167 37,626 23,242
Long-term obligations, less current portion........ 11,055 15,318 12,681 8,488
Stockholders' equity............................... 53,635 11,678 8,905 8,632
</TABLE>

(1) During 1996, the Company entered into an exclusive distribution agreement
with U.S. Surgical regarding VITEX Fibrin Sealant for a period of 15 years.
The Company was paid a non-refundable fee of $3 million for such
exclusivity (see note 11 to the financial statements). The Company also
agreed to pay damages of $4.1 million to compensate Bayer for its loss of
plasma caused by an equipment malfunction which occurred while the Company
was processing plasma for Bayer (see note 11 to the financial statements).

(2) During the year ended January 2, 1999, the Company completed an IPO of
3,325,000 shares of the Company's common stock at a price of $12.00 per
share, raising net proceeds of $35.9 million (see note 8 to financial
statements). In conjunction with the collaboration agreement between the
Company and Pall, Pall acquired $9 million of the Company's common stock in
two private placements, the second of which closed contemporaneously with,
and at the same price terms and conditions as the IPO. The Company recorded
a charge to operations of $2.2 million representing the difference between
the purchase price paid by Pall and the estimated fair value of the common
stock on the date of purchase (see note 11 to the financial statements).

(3) In May 1998, the Company received FDA approval of PLAS+SD and commenced
product sale to the Red Cross in June 1998 (see note 11 to the financial
statements).

(4) Research and development is net of collaborator reimbursement in the
amounts of $2.3 million, $1.2 million and $1 million for the years ended
January 2, 1999 and December 31, 1997 and 1996, respectively. Included in
such collaborator reimbursement is amounts received from related parties in
the amounts of $0.8 million, $0.1 million and $0.7 million for the years
ended January 2, 1999 and December 31, 1997 and 1996. Cost of sales
includes royalties and materials used in the production of PLAS+SD which
were paid or owed to related parties in the amounts of $2.3 million, $0.8
million and $0.8 million for the years ended January 2, 1999 and December
31, 1997 and 1996.

21
<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Overview

VITEX is a leading developer of a broad portfolio of blood products and
systems which use its proprietary viral inactivation technologies. The Company's
technologies are intended to address the risks of viral contamination in blood
products, including plasma, plasma derivatives, red blood cells and platelets.
Viral inactivation processes have the potential to eliminate viruses that are
enveloped by lipid membranes such as hepatitis B virus (HBV), hepatitis C virus
(HCV) and HIV, the virus that causes AIDS, and non-enveloped viruses such as
hepatitis A virus (HAV) and parvovirus and other known and unknown pathogens.

The Company currently manufactures two human therapeutic products:

The Company's other virally inactivated blood products are all under
development and include:

. Universal PLAS+SD II. Universal PLAS+SD II is intended to improve upon
Universal PLAS+SD by adding a second method of viral inactivation to inactivate
both enveloped and non-enveloped viruses.

On August 10, 1998, the Company changed from a calendar year to a 52-53 week
fiscal year ending on the Saturday closest to December 31, beginning with the
fiscal year ending January 2, 1999.

The Company reported net income of $0.5 million and $1.0 million, during the
third and fourth quarters, respectively, of the year ended January 2, 1999, and
a net loss of $6.4 million for the year. The Company's accumulated deficit at
January 2, 1999 was $33.1 million. Operating results will vary from period to
period and, net income for periods during the year ended January 2, 1999 may not
necessarily be indicative of results that may be expected in future periods.

22
<PAGE>

Results of Operations

Year Ended January 2, 1999 as Compared to Year Ended December 31, 1997

Revenue

Revenue increased $18 million during the year ended January 2, 1999 to $33.8
million compared to $15.8 million during fiscal1997. The increase was primarily
due to sales of PLAS+SD which received marketing clearance from the FDA on May
6, 1998. Commercial scale production and sale of PLAS+SD began in June 1998.
Also contributing to the increase in revenue was an increase in sales of plasma
fractions as a result of higher processing volume, partially offset by a
decrease in unit pricing in accordance with the Company's processing agreement
with Bayer. The processing agreement also specifies a price increase, effective
January 1, 1999, in an amount equal to the increase in the consumer price index.

Cost of Sales

Cost of sales increased $7.6 million during the year ended January 2, 1999 to
$23.9 million, compared to $16.3 million during fiscal 1997. The increase was
primarily due to processing and start-up costs related to the production of
PLAS+SD.

Product gross margin was approximately 29.3% for the year ended January 2,
1999. This was a significant improvement from fiscal 1997, which did not
contain revenue from the sale of PLAS+SD. As a result of manufacturing cost
reductions, product yield improvements and higher pricing negotiated under the
amended collaboration agreement with the Red Cross agreement, product gross
margin was approximately 40.8% during the thirteen weeks ended January 2, 1999.
In fiscal 1999, product gross margins are expected to be similar to those
achieved during the last quarter of the year.

Research and Development

Research and development costs increased $1.6 million during the year ended
January 2, 1999 to $7.5 million, compared to $5.9 million during fiscal 1997.
The increase in research and development costs is primarily due to the expanded
activities in the Company's red blood cell program, advanced stage development
spending for its fibrin sealant program and additional new product research
activities. Further increases in research and development expenditures are
expected to continue during fiscal 1999. Research and development costs are
recorded net of collaborator reimbursement which amounted to $2.3 and $1.2
million for the years ended January 2, 1999 and December 31, 1997, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $2.6 million during
the year ended January 2, 1999 to $7 million, compared to $4.4 million during
fiscal 1997. The increase is principally due to administrative costs associated
with the hiring of new personnel, including the national sales force which was
hired in December 1998, marketing costs associated with PLAS+SD, legal expenses
associated with collaborator agreements and a response to a Civil Investigative
Demand from the U.S. Department of Justice. The Company and the Red Cross have
each committed to spend certain minimum amounts for marketing PLAS+SD during the
two year period ending September 30, 2000. The Company's spending commitment is
expected to be satisfied, to a large extent, by the cost of its sales force. The
Company expects that its selling, general and administrative expenses will
increase during fiscal 1999 as a result of this increased level of sales and
marketing commitment.

Charge Related to Research Collaboration

During the year ended January 2, 1999, the Company recorded a one-time charge
of $2.2 million in connection with its research collaboration with Pall
Corporation. The charge occurred in connection with an equity investment in the
Company made by Pall under the collaboration agreement and reflects the
difference between the amount paid for the shares issued to Pall and the fair
market value of the common stock at that date.

Net Interest Expense

During the years ended January 2, 1999 and December 31, 1997, the Company
incurred net interest expense of $0.3 million and $1 million, respectively,
reflecting the levels of debt outstanding during such periods, offset by
interest earned on cash balances, including the proceeds from the Company's
initial public offering. During the quarter ended January 2, 1999, the

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Company recorded a non-cash gain of $0.6 million relating to the discounting of
the $3 million non-interest bearing advance from the Red Cross. The advance was
discounted upon finalization of the repayment terms contained in the amended Red
Cross Agreement.

Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996

Total revenues decreased from $17.9 million in 1996 to $15.8 million in 1997,
a decrease of $2.1 million. This decrease was due principally to the receipt by
the Company in 1996 of a one-time licensing fee of $3.0 million which was
partially offset by increases in processing and product revenues of $0.9 million
in 1997. The increase in processing and product revenues reflects an increase in
processing volume partially offset by a decrease in unit pricing under the
Company's processing agreement with Bayer.

Cost of Sales

Cost of sales increased from $10.6 million in 1996 to $16.3 million in 1997,
an increase of $5.7 million. Cost of sales includes costs related to processing
fractionated products and those costs formerly classified as facility costs
which amounted to $1.4 and $6 million in 1996 and 1997, respectively.
Fractionation production gross margin, excluding facility costs relating to
PLAS+SD ramp-up costs, decreased from 38.7% in 1996 to 34.7% in 1997. The gross
margin in 1996 reflects unrecovered processing costs of $1.0 million incurred by
the Company in processing Bayer's plasma during an equipment malfunction.
Exclusive of this $1.0 million charge, the gross margin was 45.4% in 1996. The
decrease in gross margin in 1997 was due to a decrease in unit pricing under the
Processing Agreement with Bayer, increased maintenance costs related to
scheduled servicing of the Company's plasma fractionation assets and increased
materials costs.

Research and Development

Research and development costs increased from $4.4 million in 1996 to $5.9
million in 1997, an increase of $1.5 million. The increase is due principally to
the expanded activities in the Company's VITEX RBCC programs, expanded clinical
trials for VITEX Fibrin Sealant and additional development activities.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased from $2.5 million in
1996 to $4.4 million in 1997, an increase of $1.9 million. The increase
represents costs associated with the initiation of market research activities,
education and other pre-marketing activities in connection with the anticipated
commercial introduction of PLAS+SD. In addition, during 1997, the Company
incurred $0.7 million of non-recurring severance costs and $0.2 million of debt
refinancing costs.

Net Interest Expense

Net interest expense increased from $0.5 million in 1996 to $1 million in 1997
due to additional debt financing.

Liquidity and Capital Resources

The Company has historically financed its operations primarily through sales
of common stock, issuance of long-term debt and capital lease financing
arrangements. In addition, the Company generates cash from the sale of VITEX
Plasma Fractions which are sold primarily to Bayer, and PLAS+SD which is sold to
the Red Cross. The Company also receives research and development funding under
a collaboration agreement from U.S. Surgical for the direct costs of the fibrin
sealant program clinical and regulatory activities and from Pall Corporation
under its red blood cells research collaboration agreement.

On June 15, 1998, the Company completed an initial public offering ("IPO") of
3,000,000 shares of the Company's common stock, raising net proceeds of
approximately $32.2 million. On July 10, 1998, the underwriters of the
Company's IPO partially exercised their over-allotment option for an additional
325,000 shares, raising net proceeds of $3.6 million. In conjunction with the
collaboration agreement between the Company and Pall, Pall purchased $9 million
of the Company's common stock in two private placements which occurred during
1998. The first placement, which occurred in February 1998,

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amounted to $4 million, and the second amounted to $5 million and closed
contemporaneously with, and at the same price, terms and conditions as the IPO.

At January 2, 1999, the Company had working capital of $33.1 million,
including cash and cash equivalents of $35.3 million. At December 31, 1997,
there was a working capital deficit of $2.8 million, including cash and cash
equivalents of $5.3 million. The increase in cash balances was primarily due
to the Company's financing activities, which provided cash of $41.9 million. The
primary objectives for the Company's investment of cash balances are safety of
principal and liquidity. Available cash balances are invested in money market
funds with portfolios of investment grade corporate and U.S. government
securities.

In order to maintain its exclusive marketing and distribution rights for
PLAS+SD, the Red Cross is required to purchase stated minimum quantities
amounting to approximately $50 million during the two year period ending
September 30, 2000. The Company and the Red Cross have each committed to spend
minimum amounts for marketing PLAS+SD during the two-year period ending
September 30, 2000. The Company's spending commitment is expected to be largely
satisfied by the cost of its sales force established in December 1998 to support
the Red Cross in promoting product awareness and accelerating market
penetration.

U.S. Surgical has agreed to fund all future direct clinical and regulatory
costs associated with the development and regulatory approval of VITEX Fibrin
Sealant. In addition, U.S. Surgical has agreed to pay a portion of agreed upon
research and development costs for improvements and enhancements to VITEX Fibrin
Sealant.

Under its collaboration with Pall, the Company and Pall have agreed to equally
share research, development, clinical and regulatory costs. Profits will be
shared equally after each party is reimbursed for its cost of goods. The
agreements provide that Pall will purchase up to $17.0 million of VITEX Common
Stock in installments tied to the achievement of specified development
milestones. These equity investments will be made at the prevailing market
price.

Under the Company's license agreements with the NYBC, the Company is required
to pay aggregate minimum royalties of $1,500,000 in 1999, $2,200,000 in 2000,
$2,400,000 in 2001 and $2,800,000 in each year thereafter in order to maintain
its exclusive licenses. The Company is also required to make specified payments
to the NYBC to maintain its exclusive licenses if certain research and
development milestones are not met by the Company.

In December 1997, the Company entered into a credit agreement with a bank
providing for a term loan in the principal amount of $10.8 million. The proceeds
under this term loan were used to repay the outstanding balance of existing term
loans aggregating $10.5 million. This loan bears interest at the Company's
option at LIBOR plus 2.75% to 1.75%, or the base rate of the bank, as defined,
plus margins of up to 0.5% as determined based on defined earnings ratios. As of
January 2, 1999, the Company was using one-month LIBOR (5.1%) plus 2.75%. Under
this loan, interest is payable monthly and the principal balance is payable in
16 equal consecutive quarterly installments of $0.7 million commencing March 31,
1998 and continuing until maturity on December 31, 2001. The credit agreement
contains default provisions, including financial covenants which provide
restrictions on capital investments, the payment of cash dividends and, among
other things, requires the Company to maintain minimum cash balances of $2.0
million and leverage and coverage ratios as defined. The Company is in
compliance with such covenants.

Under the Company's capital and operating leases, annual minimum rental
payments and related interest expense over the next five years is $7.6 million.

Prior to 1995, the Red Cross made to the Company's predecessor, a total of
$3.0 million of non-interest bearing, unsecured advances to be used to fund
improvements to the manufacturing facility. In conjunction with the amended Red
Cross Agreement, the repayment schedule was modified to reflect repayment of 30%
of the loan balance on the second anniversary date of the approval of the
PLAS+SD PLA and 15% of the balance on each of the following two years, with the
balance of the loan payable on the fifth anniversary of the PLAS+SD PLA. During
the quarter ended January 2, 1999, the Company recorded a non-cash gain of $0.6
million to discount the advance to its net present value.

At January 2, 1999, the Company had net operating loss carryforwards for
federal and state income tax reporting purposes of approximately $28 million and
has available research and development credit carryforwards for federal income
tax reporting purposes of approximately $0.5 million, which are available to
offset future taxable income, if any. These carryforwards expire beginning in
2010. The Company's ability to use such net operating loss and research and
development credit carryforwards is

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limited by change in control provisions under Section 382 of the Internal
Revenue Code. See note 10 to the Company's Financial Statements.

Although the Company's cash requirements will fluctuate based on the timing
and extent of the above factors, management believes that cash generated from
operations, together with the liquidity provided by existing cash balances, will
be sufficient to meet the Company's working capital requirements through January
1, 2000.

Risk Factors that May Affect Future Results

Dependence on New Products and Systems in Development Stage

The success of the Company's business will depend on the development and
commercialization of its virally inactivated products and viral inactivation
systems. On May 6, 1998, the Company received FDA approval to market its pooled
virally inactivated transfusion plasma product, PLAS+SD. The Company's other
virally inactivated blood products are under development and have not been
approved by the FDA for marketing in the United States or by regulatory
authorities in other countries. There can be no assurance that these products
and systems will be successfully developed and, if developed, that they will
generate revenues and profits. Successful commercialization of the Company's
products and systems under development depends, in significant part, on the
Company's ability to: (i) complete their development in a timely fashion; (ii)
obtain and maintain patents or other proprietary protections; (iii) obtain
required regulatory approvals; (iv) implement efficient, commercial-scale
manufacturing processes; (v) gain early entry into relevant markets; (vi) obtain
reimbursement for sales of its products; (vii) establish sales, marketing,
distribution and development collaborations; and (viii) demonstrate the
competitiveness of the Company's products and systems.

Market Acceptance

Although end customer sales of PLAS+SD by the Red Cross have risen since the
product was introduced, end-user market penetration has increased at a slower
rate than anticipated. Successful market acceptance of the Company's products
and systems will largely depend on the Company's ability to demonstrate their
safety, efficacy and cost-effectiveness. The Company will need to convince
patients, doctors, health care providers, blood centers and other participants
in the blood products market to pay for the incremental cost of the Company's
virally inactivated plasma and, if successfully developed and approved for
marketing, the Company's other virally inactivated blood products, as compared
to widely used, lower priced, corresponding blood products that have not been
virally inactivated.

Government Regulation

All of the Company's products are subject to extensive regulations by the
federal government, principally the FDA, and state, local and non-U.S.
governments. Such regulations govern, among other things, the development,
testing, manufacturing, labeling, storage, pre-market clearance or approval,
advertising, promotion, sale and distribution of such products. The process of
obtaining regulatory approvals is generally lengthy, expensive and uncertain.
Satisfaction of pre-market approval or other regulatory requirements of the FDA,
or similar requirements of non-U.S. regulatory agencies, typically takes several
years, depending upon the type, complexity, novelty and intended purpose of the
product.

The regulatory process includes pre-clinical studies and clinical trials of
each product to establish its safety and efficacy, and may include post-
marketing studies requiring expenditure of substantial resources. The results
from pre-clinical studies and early clinical trials conducted by the Company 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 marketing approvals. The
rate of completion of the Company's clinical trials may be delayed by many
factors, including slower than anticipated patient enrollment or adverse events
occurring during the clinical trials. Data obtained from pre-clinical and
clinical activities are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. In addition, delays or rejections
may be encountered based upon many factors, including changes in regulatory
policy during the period of product development. The Company's clinical
development plan for its cellular products assumes that only data from in vitro
studies, not from clinical trials, will be required to demonstrate efficacy in
inactivating viruses and that clinical trials for these products will instead
focus on demonstrating therapeutic efficacy, safety and tolerability of blood
components treated with the system. Although the Company has had discussions
with the FDA concerning the Company's proposed clinical plan for these products,
there can be no assurance that this plan of demonstrating safety and efficacy
will ultimately be acceptable to the FDA or

26
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that the FDA will continue to believe that this clinical plan is appropriate. No
assurance can be given that any of the Company's development programs will be
successfully completed or that any further investigational new drug (IND) or
investigational device exemption (IDE) applications will become effective, that
clinical trials will commence as planned, that required United States or non-
U.S. regulatory approvals will be obtained on a timely basis, if at all, or that
any products for which approval is obtained will be commercially successful. As
a result of FDA reviews or complications that may arise in any phase of the
clinical trial program, there can be no assurance that the proposed schedules
for IND, IDE and clinical protocol submissions to the FDA, initiations of
studies and completions of clinical trials can be maintained.

Risk of Reliance on Manufacturing Facility and Equipment

The Company has a single manufacturing facility. Any catastrophic event that
interrupts production at this facility would have a material adverse effect on
the Company's business, financial condition and results of operations. In August
1996, the Company experienced a malfunction in its fractionation equipment that
resulted in the Company incurring expenses of $5.1 million, consisting of $4.1
million in replacement costs of Bayer's plasma and $1.0 million of unrecoverable
processing costs. There can be no assurance that the Company's fractionation
equipment will not malfunction in the future, resulting in additional
unanticipated costs. In addition, to achieve the level of production of PLAS+SD
required under the Company's agreement with the Red Cross, the Company will have
to operate its single, highly customized filling machine for extended periods
without interruption. Any significant damage to, or malfunction of, this filling
machine that cannot be repaired would require the Company to replace the
machine. The construction of a replacement machine could take as long as 18
months. While the Company has casualty insurance which it believes to be
consistent with industry standards, any extended interruption in the production
of plasma fractions or PLAS+SD would have a material adverse effect on the
Company's business, financial condition, results of operations and cash flows.

Reliance on Strategic Collaborators and Distribution Agreements

The Company is dependent on strategic collaborators for sales, marketing and
distribution support and for the development of certain products and product
candidates. The Company has entered into: (i) an agreement with Bayer to process
plasma fractions from plasma supplied by Bayer; (ii) an agreement with the Red
Cross for the distribution of the Company's virally inactivated plasma; (iii) an
agreement with U.S. Surgical for the sale, marketing and distribution of the
Company's virally inactivated fibrin sealant, if and when approved for
marketing; and (iv) an agreement with Pall for the development, sale, marketing
and distribution of any system incorporating the Company's viral inactivation
technology for red blood cell concentrates. Although the Company established its
own national sales force in December of 1998 to support the efforts of its
partners, the success of the Company depends, to a large extent, upon its
ability to develop and deliver products to Bayer, the Red Cross, U.S. Surgical,
Pall and, potentially other strategic collaborators. The Company's collaborators
may be unable to satisfy minimum purchase requirements or achieve projected
sales levels under the Company's collaborative agreements which could result in
the termination of such agreements, causing a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company may need to seek new collaborators or alliances to sell and
distribute future products or to establish its own direct commercialization
capabilities. Securing new corporate collaborators is a time-consuming process,
and there is no guarantee that the negotiations with new collaborators will
yield positive results. There can be no assurance that if the Company finds
additional corporate collaborators to assist in the commercialization of
existing or new product candidates, the terms of the arrangements will be
favorable to the Company. In addition, there can be no assurance that the
Company's strategic collaborators will not decide to distribute other products
that compete directly with the Company's products or new products developed by
competitors that may prove to be more effective, cost-efficient alternatives to
the Company's products. Each of the Company's collaborative agreements require
the Company to meet certain research and development and commercialization
milestones. In the case of each of these agreements, failure of the Company to
achieve one or more of these milestones on a timely basis, could have a material
adverse effect on the Company's receipt of funding and revenues under the
agreement and the continuation of the agreement. The failure to maintain
existing strategic alliances for whatever reason and to secure new alliances
would delay the commercialization of existing and future products.

Competing Technologies and Rapid Technological Change

The fields of transfusion medicine and therapeutic use of blood products are
characterized by rapid technological change. Accordingly, the Company's success
will depend, in part, on its ability to respond quickly to such change through
the development and introduction of new products and systems. Product and system
development involves a high degree of risk, and there can be no assurance that
the Company's product and system development efforts will result in any
commercial successes.

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<PAGE>

Technological developments by others may result in the Company's products
becoming obsolete or non-competitive before the Company is able to generate any
significant revenue.

The Company expects that all of its products and systems will encounter
significant competition. Any such product or system, once approved for
marketing, would compete with current approaches to blood safety, including
screening, donor retesting and autologous (i.e., self) donations, as well as
with future products and systems developed by medical technology,
biopharmaceutical and hospital supply companies, national and regional blood
centers, or certain governmental organizations and agencies. Many companies and
organizations that may be competitors or potential competitors have
substantially greater financial and other resources than the Company and may
have more experience in conducting pre-clinical studies and clinical trials and
other regulatory approval procedures.

Product Liability

The Company's operations will expose it to the risk of product liability
claims. There can be no assurance that the Company will not experience losses
due to any such claims. The Company maintains product liability insurance
coverage, but there can be no assurance that the Company's product liability
insurance will continue to be available to the Company on a cost-effective basis
and that such insurance will be adequate to cover any or all potential claims.
In the event that a claim is brought against the Company, liability for damages
beyond the extent of coverage under the insurance policy combined with the
expense of litigating such claim could have a material adverse effect upon the
Company's business, financial condition and results of operations.

Dependence on Key Employees

The Company's success is dependent upon its ability to retain its scientific
staff and, in particular, Dr. Bernard Horowitz, Executive Vice President and
Chief Scientific Officer of the Company. Dr. Horowitz, a leader in the field of
viral inactivation, leads the group of scientists who were inventors of most of
the Company's core technologies. Although the Company maintains key man
insurance on Dr. Horowitz, the loss of Dr. Horowitz could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's competitive position in the blood products industry
depends on its continued ability to recruit and retain qualified scientific,
managerial and technical employees.

Uncertainty of Proprietary Technologies and Patents

The Company's success depends, in part, on its ability to obtain and maintain
patents, to protect its trade secrets, to operate without infringing upon the
proprietary rights of others and to prevent others from infringing on the
proprietary rights of the Company. The Company has exclusive licenses to patents
and patent applications covering critical components of its viral inactivation
technologies. There can be no assurance that any patents owned by or licensed to
the Company will afford protection against competitors or that any pending
patent applications now or hereafter filed by or licensed to the Company will
result in patents being issued. In addition, the laws of certain non-U.S.
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States. Medical technology patents involve
complex legal and factual questions and, therefore, their enforceability cannot
be predicted with certainty. There can be no assurance that any of the Company's
patents or patent applications, if issued, will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide proprietary
protection or competitive advantages to the Company against competitors with
similar technology. Furthermore, there can be no assurance that the Company's
competitors will not obtain patent protection or other intellectual property
rights that would limit the Company's ability to use its technology or
commercialize products that may be developed. There can be no assurance that the
Company's planned or potential products will not be covered by third-party
patents or other intellectual property rights, in which case continued
development and marketing of such products would require a license under such
patents or other intellectual property rights. There can be no assurance that
such required licenses will be available to the Company on acceptable terms, if
at all. Litigation may be necessary to defend against or assert such claims of
infringement, to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company or to determine the scope and validity of the
proprietary rights of others. Litigation or interference proceedings could
result in substantial costs and diversion of management focus.

Uncertainty Relating to Third-Party Reimbursement; Cost Containment

Successful commercialization of the Company's products is, in part, dependent
on the reimbursement policies of third-party payers for the costs of the
Company's products. Failure by doctors, hospitals and other users of the
Company's products or

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systems to obtain reimbursement from managed care organizations (MCOs), private
health insurers, government authorities and other medical cost reimbursement
channels could adversely affect the Company's ability to sell its products and
systems.

Control by Existing Stockholders

The Company's current Directors and executive officers and their respective
affiliates control a majority of the outstanding Common Stock of the Company. As
a result, these stockholders are able to exercise significant influence over all
matters requiring stockholder approval, including the election of Directors and
approval of significant corporate transactions. Such concentration of ownership
may also have the effect of delaying, preventing or deterring a change in
control of the Company.

Stock Price Volatility

The Company's stock price, like that of other companies in its industry, is
subject to significant volatility. The stock price may be affected by, among
other things, clinical trial results and other product development related
announcements by the Company or its competitors, regulatory matters,
announcements in the scientific and research community, intellectual property
and legal matters, changes in reimbursement policies or medical practices or
broader industry and market trends unrelated to the Company's performance. In
addition, if revenues or earnings in any period fail to meet the investment
community's expectations, there could be an immediate adverse impact on the
Company's stock price.

Year 2000

Some of the Company's older computer software programs were written using two
digit fields rather than four digit fields to define the applicable year (i.e.,
"98" in the computer code refers to the year "1998"). As a result, time-
sensitive functions of those software programs may misinterpret dates after
January 1, 2000, to refer to the twentieth century rather than the twenty-first
century (i.e., "02" could be interpreted as "1902" rather than "2002" (the Year
2000 Issue)). This could cause system failures or miscalculations resulting in
inaccuracies in computer output or disruptions of operations, including, among
other things, inaccurate processing of financial information and/or temporary
inability to process transactions, manufacture products, or engage in similar
normal business activities.

Based on recent assessments, the Company determined that it will be required
to modify or replace limited portions of hardware and software so that those
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with modifications and replacement of existing hardware
and software, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.

The Company's plan to resolve the Year 2000 issue involves the following four
phases: assessment, remediation, testing, and implementation. To date the
Company has fully completed its assessment of all systems that could be
significantly affected by the Year 2000 Issue. The completed assessment
indicated that most of the Company's significant information technology systems
could be affected. That assessment also indicated that software and hardware
(embedded chips) used in production and manufacturing systems (hereafter also
referred to as operating equipment) also are at risk. Affected systems include
program logic controllers used in various aspects of the manufacturing process.
The Company is in the process of gathering information about the Year 2000
compliance status of its significant suppliers and subcontractors and continues
to monitor their compliance.

The Company has fully remediated and tested all information technology systems
for Year 2000 Issues. The remediation of operating equipment is significantly
more difficult that the remediation of the information technology systems
because some of the manufacturers of the equipment are no longer in business.
The Company plans to complete remediation and testing of its operating equipment
by the end of July 1999. By June 1999, the Company is expected to have
contingency plans in place for its critical applications, which primarily
involve manual workarounds.

The Company has no systems which directly interface with either customers or
vendors. The Company has queried, and is in the process of collecting responses
from its important suppliers and contractors that do not share information
systems with the Company (external agents). To date, the Company is not aware of
any external agent Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the Company has
no means of ensuring that external agents will be Year 2000 ready. The inability
of external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by
external agents is not determinable.

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<PAGE>

The Company will utilize both internal and external resources to reprogram,
replace, test, and implement the operating equipment and related software for
Year 2000 modifications. The total cost of the Year 2000 project is estimated at
$375,000 and is being funded through operating cash flows. Through the year
ended January 2, 1999, the Company had incurred approximately $50,000 (all of
which has been expensed), relating to all phases of the Year 2000 project. Of
the total remaining project costs, approximately $250,000 is attributable to the
purchase of new software and operating equipment, which will be capitalized. The
remaining $75,000 relates to continued Year 2000 compliance monitoring and
repair of hardware and software and will be expensed as incurred.

The Company's plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources, and
other factors. There can be no guarantee that these estimates will be achieved
and actual results could differ materially.

The information above contains forward-looking statements, including without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, and adequate resources that are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that forward-looking statements about the Year 2000
should be read in conjunction with the Company's disclosures under the heading:
"Forward Looking Statements."

Legal Proceedings

The Company is a party to various legal proceedings which arose during the
normal course of business. See Commitments and Contingencies note in the Notes
to the Financial Statements for further information.

Forward Looking Statements

Certain of the matters and subject areas discussed in this report on Form 10-K
include "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934 (the "Exchange Act"). All statements other than statements of historical
information provided herein are forward-looking statements and may contain
information about financial results, economic conditions, trends and known
uncertainties. These forward-looking statements are subject to risks and
uncertainties, including, without limitation, quarterly fluctuations in
operating results, the timely availability of new products, market acceptance of
the Company's products, and the impacts of competitive products and pricing and
other factors set forth above under the heading, "Risk Factors that May Affect
Future Results." These risks and uncertainties could cause actual results to
differ materially from those reflected in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates primarily from its investment of available cash
balances in money market funds with portfolios of investment grade corporate and
U.S. government securities and, secondarily, its long-term debt arrangements.
Under its current policies, the Company does not use interest rate derivative
instruments to manage exposure to interest rate changes.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The following independent auditors' report and financial statements of the
Company set forth in the Company's 1999 Annual Report to Stockholders are
incorporated herein by reference and are filed herewith as Exhibit 13.1.

Report of Independent Auditors
Balance Sheets as of January 2, 1999 and December 31, 1997
Statements of Operations for the years ended January 2, 1999, December 31,
1997 and December 31, 1996
Statements of Stockholders' Equity for the years ended January 2, 1999,
December 31, 1997 and December 31, 1996
Statements of Cash Flows for the years ended January 2, 1999, December 31,
1997 and December 31, 1996
Notes to Financial Statements

Selected Quarterly Financial Data is set forth in Note 16 of the Notes to
Financial Statements referred to above and incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Incorporated by reference from the portions of the Definitive Proxy
Statement entitled "Proposal 1-Election of Directors," "Additional Information"
and "Section 16(a) Beneficial Ownership Reporting Compliance."

Item 11. EXECUTIVE COMPENSATION.

Incorporated by reference from the portions of the Definitive Proxy
Statement entitled "Executive Compensation" and "Additional Information-
Compensation of Directors."

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated by reference from the portion of the Definitive Proxy
Statement entitled "Security Ownership by Management and Principal
Stockholders."

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated by reference from the portion of the Definitive Proxy
Statement entitled "Certain Relationships and Related Transactions."

31
<PAGE>

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K.

(a) Financial Statements

The following Financial Statements as set forth under Item 8 of this Report on
Form 10-K are incorporated herein by reference:

Other information and financial statement schedules are omitted because they are
not applicable, or not required, or because the required information is included
in the financial statements or notes thereto.

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter ended January 2,
1999.

The following exhibits are required to be filed with this Report by Item 14
and are incorporated by reference to the source cited in the Exhibit Index below
or are filed herewith.

Exhibit
Number Description
- ------ -----------------------------------------------------------------

3.1 Restated Certificate of Incorporation of the Company. Filed as Exhibit
3.8 to the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

3.2 Amended and Restated By-laws of Company. Filed as Exhibit 3.10 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

4.1 Specimen of Common Stock Certificate. Filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

4.2 Stock Warrant between the Company and Bear, Stearns & Co. Inc., dated
April 29, 1997. Filed as Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1, as amended (Registration Statement No. 333-46933)
and incorporated herein by reference.

4.3 Warrant to Purchase Common Stock between the Company and the Trustees of
Columbia University in the City of New York, dated June 21, 1996. Filed
as Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, as
amended (Registration Statement No. 333-46933) and incorporated herein by
reference.

4.4 Contingent Stock Subscription Warrant between the Company and CB Capital
Investors, Inc., dated April 29, 1997. Filed as Exhibit 4.4 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

10.1* 1998 Equity Incentive Plan. Filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.2* 1998 Director Stock Option Plan. Filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

10.3* 1998 Employee Stock Purchase Plan. Filed as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

10.4+ Non-Exclusive License Agreement (#1) for Solvent Detergent Treated Blood
Derived Therapeutic Products between the Company and the New York Blood
Center, Inc., dated September 21, 1995. Filed as Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

32
<PAGE>

10.5+ Non-Exclusive License Agreement (#2) for UV Treated Blood Derived
Therapeutic Products between the Company and the New York Blood Center,
Inc., dated September 21, 1995. Filed as Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.6+ Exclusive License Agreement (#3) for Virally Inactivated Transfusion
Plasma Products between the Company and the New York Blood Center, Inc.,
dated September 21, 1995, as amended on December 31, 1996 and July 1,
1997. Filed as Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1, as amended (Registration Statement No. 333-46933) and
incorporated herein by reference.

10.7+ Exclusive License Agreement (#4) for Virally Inactivated Fibrin
Sealant/Thrombin Products between the Company and the New York Blood
Center, Inc., dated September 21, 1995, as amended on September 27, 1996
and January 1, 1998. Filed as Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.8+ Exclusive License Agreement (#5) for Virally Inactivated Cellular
Products between the Company and the New York Blood Center, Inc., dated
September 21, 1995, as amended on February 16, 1998. Filed as Exhibit
10.8 to the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

10.9 Omnibus Agreement between the Company and the New York Blood Center,
Inc., dated October 26, 1995. Filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.10+ Exclusive Distribution Agreement between the Company and United States
Surgical Corporation, dated September 11, 1996, as amended on October 3,
1996. Filed as Exhibit 10.10 to the Registrant's Registration Statement
on Form S-1, as amended (Registration Statement No. 333-46933) and
incorporated herein by reference.

10.11+ First Amended and Restated Agreement for Custom Processing between the
Company and Bayer Corporation, dated January 24, 1996. Filed as Exhibit
10.11 to the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

10.12+ Modification Agreement between the Company and Bayer Corporation, dated
December 22, 1997. Filed as Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.13++ Amended and Restated Supply, Manufacturing, and Distribution
Collaboration Agreement between the Company and the American National
Red Cross, dated October 1, 1998. Filed herewith.

10.14+ Joint Development, Marketing and Distribution Agreement between the
Company and Pall Corporation, dated February 19, 1998. Filed as Exhibit
10.15 to the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

10.15+ Stock Purchase Agreement between Pall Corporation and the Company,
dated February 19, 1998. Filed as Exhibit 10.16 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.16 Registration Rights Agreement between the Company and the Investors
named therein, dated February 19, 1998. Filed as Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

10.17 Facility Lease Agreement between the Company and Suffolk County
Industrial Development Agency, dated February 15, 1995. Filed as Exhibit
10.18 to the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

10.18 Lease Agreement between the Company and Bayer Corporation, dated
February 7, 1995. Filed as Exhibit 10.19 to the Registrant's Registration
Statement on Form S-1, as amended (Registration Statement No. 333-46933)
and incorporated herein by reference.

10.19 Sublease Agreement between the Company and Bayer Corporation, dated
February 7, 1995. Filed as Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1, as amended (Registration Statement No. 333-46933)
and incorporated herein by reference.

10.20 Security Agreement between the Company and Bayer Corporation, dated
December 22, 1997. Filed as Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.21 Lease between the Company and the Trustees of Columbia University in the
City of New York, dated June 21, 1996. Filed as Exhibit 10.22 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

10.22+ Settlement Agreement between the Company and Bayer Corporation, dated
July 1, 1997. Filed as Exhibit 10.23 to the Registrant's Registration
Statement on Form S-1, as amended (Registration Statement No. 333-46933)
and incorporated herein by reference.

33
<PAGE>

10.23* Employment Agreement between the Company and Bernard Horowitz, dated
January 15, 1998. Filed as Exhibit 10.26 to the Registrant's Registration
Statement on Form S-1, as amended (Registration Statement No. 333-46933)
and incorporated herein by reference.

10.24* Letter Agreement between the Company and John R. Barr, dated November
10, 1997. Filed as Exhibit 10.27 to the Registrant's Registration
Statement on Form S-1, as amended (Registration Statement No. 333-46933)
and incorporated herein by reference.

10.25* Memorandum from Rick Charpie to the Company's Vice Presidents, dated
October 28, 1997. Filed as Exhibit 10.28 to the Registrant's Registration
Statement on Form S-1, as amended (Registration Statement No. 333-46933)
and incorporated herein by reference.

10.26 Credit Agreement between the Company and The Chase Manhattan Bank, dated
December 22, 1997. Filed as Exhibit 10.29 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.27 Intercreditor Agreement among the Company, Bayer Corporation and The
Chase Manhattan Bank, dated December 22, 1997. Filed as Exhibit 10.30 to
the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

10.28 Mortgage and Security Agreement among the Company, Suffolk County
Industrial Development Agency and The Chase Manhattan Bank, dated
December 22, 1997. Filed as Exhibit 10.31 to the Registrant's
Registration Statement on Form S-1, as amended (Registration Statement
No. 333-46933) and incorporated herein by reference.

10.29 Guaranty and Collateral Agreement between the Company and The Chase
Manhattan Bank, dated December 22, 1997. Filed as Exhibit 10.32 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

10.30 Mortgage, Security Agreement and Fixture Filing among the Company,
Suffolk County Industrial Development Agency and Bayer Corporation, dated
February 15, 1995, as amended December 22, 1997. Filed as Exhibit 10.33
to the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

10.31 Form of Indemnification Agreement. Filed as Exhibit 10.34 to the
Registrant's Registration Statement on Form S-1, as amended (Registration
Statement No. 333-46933) and incorporated herein by reference.

10.32 First and Second Amendments, each dated March 31, 1998, to the Omnibus
Agreement (which was previously filed as Exhibit 10.9). Filed as Exhibit
10.35 to the Registrant's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-46933) and incorporated herein by
reference.

13.1 Independent Auditors' Report, Financial Statements, Notes to Financial
Statements and Supplementary Data. Filed herewith.
23.1 Consent of KPMG LLP. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.

* Management contracts and compensatory plans or arrangements.
+ Certain confidential material contained in the document has been omitted
and filed separately with SEC pursuant to Rule 406 of the Securities Act.

++ Certain confidential material contained in the document has been omitted
and filed separately with the SEC pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.

34
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

V.I. TECHNOLOGIES, INC.

By: /s/ John R. Barr
----------------
John R. Barr
President and Chief Executive Officer
March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date

<S> <C> <C>
/s/ David Tendler Chairman of the Board of Directors March 31, 1999
- -----------------
David Tendler

/s/ John R. Barr President, Chief Executive Officer and March 31, 1999
- ---------------- Director (Principal Executive Officer)
John R. Barr

/s/ Bernard Horowitz, Ph.D. Executive Vice President, Chief March 31, 1999
- --------------------------- Scientific Officer and Director
Bernard Horowitz, Ph.D.

/s/ Thomas T. Higgins Executive Vice President, Operations, March 31, 1999
- --------------------- Treasurer and Chief Financial Officer
Thomas T. Higgins (Principal Financial Officer and
Principal Accounting Officer)

/s/ Richard A. Charpie Director March 31, 1999
- ----------------------
Richard A. Charpie

/s/ Jeremy Hayward-Surry Director March 31, 1999
- ------------------------
Jeremy Hayward-Surry

/s/ Irwin Lerner Director March 31, 1999
- ----------------
Irwin Lerner

/s/ Peter D. Parker Director March 31, 1999
- -------------------
Peter D. Parker

/s/ Damion E. Wicker, M.D. Director March 31, 1999
- --------------------------
Damion E. Wicker, M.D.
</TABLE>

<PAGE>

EXHIBIT 10.13

AMENDED AND RESTATED SUPPLY, MANUFACTURING, AND
DISTRIBUTION COLLABORATION AGREEMENT

This AMENDED AND RESTATED SUPPLY, MANUFACTURING AND DISTRIBUTION
COLLABORATION AGREEMENT (this "Agreement") is entered into as of the 1st day of
October, 1998 , by and between V.I. TECHNOLOGIES, INC., a Delaware corporation,
with its headquarters at 155 Duryea Road, Melville, New York 11747 ("VITEX") and
the AMERICAN NATIONAL RED CROSS, a corporation formed under the laws of the
United States, with its headquarters at 8111 Gatehouse Road, Falls Church,
Virginia 22042 (the "ANRC").

W I T N E S S E T H:
--------------------

WHEREAS, VITEX is the owner/and or licensee of certain Proprietary Rights
(as hereinafter defined) with respect to the Product (as hereinafter defined);
and

WHEREAS, the ANRC has certain expertise in the promotion, distribution,
marketing and sale of products similar to the Product; and

WHEREAS, VITEX has certain expertise in the processing and manufacturing of
products similar to the Product; and

WHEREAS, the parties have entered into a Collaboration Agreement dated
February 22, 1991 between VITEX and the ANRC as First Amended and Restated in an
agreement dated July 22, 1996 (collectively the "First Collaboration
Agreement"); and
<PAGE>

WHEREAS, as a result of the First Collaboration Agreement, each of the
parties has invested significant funds and other resources toward development of
the Product; and

WHEREAS, the mission of the ANRC is to fulfill the needs of the American
people for the safest, most reliable and most cost-effective blood, plasma and
tissue services through voluntary donations; and

WHEREAS, the ANRC and VITEX entered into the Supply, Manufacturing and
Distribution Collaboration Agreement the 15th day of December 1997 (the "Initial
Agreement"); and

WHEREAS, the ANRC desired to enter into the Initial Agreement so as to
materially enhance the safety of the Input (as hereinafter defined) to aid and
assist in advancing the health and well-being of as many people as possible and
thereby furthering the charitable mission of the ANRC; and

WHEREAS, the ANRC's distribution system is well-suited for professional
distribution of the Product; and

WHEREAS, in furtherance of the First Collaboration Agreement and the
parties' desire to extend their collaboration, VITEX desire that the ANRC
should be principally responsible for the promotion, marketing, sale and
distribution of the Product in the Territory (as hereinafter defined) and the
ANRC is prepared to accept such responsibility, all in accordance with the terms
and conditions of the Initial Agreement; and

2
<PAGE>

WHEREAS, the First Collaboration Agreement was amended and restated
contemporaneously with the Initial Agreement (the "Amended First Collaboration
Agreement"); and

WHEREAS, after nearly a year of experience of operating under the Initial
Agreement, the ANRC and VITEX wish to amend and restate the Initial Agreement;
and

WHEREAS, VITEX and the ANRC are committed to continue the foregoing
relationship that will ensure the greatest success for the Product (as
hereinafter defined) by ensuring its broad distribution and availability; and

WHEREAS, the parties hereby amend and restate the Initial Agreement as set
forth in this Agreement and desire to amend and restate the Amended First
Collaboration Agreement at the same time, such amended and restated agreement
being referred to as the Amended Restated First Collaboration Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements contained herein, VITEX and the ANRC hereby agree as follows:

SECTION 1
---------

DEFINITIONS

When used in this Agreement, the terms set forth in this Section shall have
the following meanings:

3
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

1.1 "Affiliate" shall mean, with respect to each Party, any entity
directly or indirectly controlled by, controlling, or under common control with
such Party. For purposes of this definition, the meaning of word "control"
(including the terms "controlled by" and "under common control with") as used
with respect to any entity, means possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person
whether through ownership or vesting securities, contracts or otherwise. A
Person shall be deemed to control another Person if such Person owns fifty
percent (50%) or more of the voting securities of such other Person.

1.2 "Annual Report" shall have the meaning set forth in Schedule 5.8.

1.3 "Average Selling Price" shall have the meaning set forth in Section
5.1(a).

1.4 "Base Price" shall mean *** during Period One and Period Two and
during any Subsequent Period *** as adjusted as set forth in Section 5.1(c).

1.5 "Base Sale Price" shall mean **** during Period One, *** during Period
Two and during any Subsequent Period ****, as such price during the Subsequent
Period is adjusted as provided in Section 5.1(c).

1.6 "Competitive Product" shall mean human blood plasma intended for
transfusion which has been demonstrated
********************************************************************************
*************************************************************** as compared to
the Product, and has received final FDA approval for the same indications for
which the Product is then currently used.

4
<PAGE>

1.7 "Confidential Information" shall have the meaning set forth in Section
9.4

1.8 "CPI" shall mean the Consumer Price Index (U.S. City Average) which
became effective in January 1978 as compiled by the Bureau of Labor Statistics,
United States Department of Labor.

1.9 "Distribution Rights" shall have the meaning set forth in Section 2.1.

1.10 "Effective Date" shall mean December 15, 1997.

1.11 "Faulty Customer" shall have the meaning set forth in Section 6.6.

1.12 "Faulty Plasma" shall have the meaning set forth in Section 6.6.

1.13 "Faulty Processing" shall have the meaning set forth in Section 6.6.

1.14 "FDA" shall mean the United States Food and Drug Administration or
any successor agency or body.

1.15 "First Subsequent Period" shall have the meaning set forth in Section
2.4.

1.16 "GAAP" shall mean generally accepted accounting principles in the
United States consistently applied.

1.17 "Governmental Authorities" shall mean any office, department or
agency of the government of the Territory having jurisdiction over any aspect of
the manufacture, sale or distribution of the Product.

1.18 "Inadequate Yield" shall have the meaning set forth in Section 6.6.

5
<PAGE>

1.19 "Informational Materials" shall have the meaning set forth in Section
3.4.

1.20 "Initial Purchase Order" shall have the meaning set forth in Section
2.2.

1.21 "Input" shall mean human blood plasma provided to VITEX by the ANRC
pursuant to the terms of this Agreement which plasma meets the specifications
set forth in Schedule 1.21 hereto.

1.22 "Input Loss" shall have the meaning set forth in Section 6.6.

1.23 "Know-How" shall mean all proprietary technical information,
including processes, formulae, designs and data, owned or possessed in whole or
part by VITEX relating to the manufacture or use of the Product. Know-How
existing as of the Effective Date is specified in Schedule 1.23.

1.24 "Marketing Expenses" shall have the meaning set forth in Section 3.3.

1.25 "Marketing Materials" shall have the meaning set forth in Section
3.3.

1.26 "Marketing Committee" shall have the meaning set forth in Section
4.6.

1.27 "Minimum Purchase Requirements" shall have the meaning set forth in
Section 3.6.

1.28 "NYBC" shall mean the New York Blood Center, Inc., a New York not-
for-profit corporation, with its headquarters at 310 East 67th Street, New York,
New York 10021.

1.29 "Party" or "Parties" shall mean VITEX or the ANRC or both, as the
case may be.

6
<PAGE>

1.30 "Patent Rights" shall mean all patents and patent applications owned
and/or licensed by VITEX relating to the manufacture, use or sale of the
Product. Patent Rights existing as of the Effective Date are listed in Schedule
1.30.

1.31 "Period One" shall mean the period which commenced when the FDA
released the first lot of the Product for delivery to the ANRC and ended on
September 30, 1998.

1.32 "Period Two" shall mean the period commencing October 1, 1998 and
ending on September 30, 2000.

1.33 "Person" shall mean an individual, corporation, partnership, limited
liability company or any other entity, or any government or agency or political
subdivision of a government.

1.34 "PLA" shall mean a Product License Application submitted for approval
by the FDA. "S/D Plasma PLA" shall mean the PLA for solvent/detergent-treated
human blood plasma for transfusion submitted by the NYBC for filing with the FDA
on February 28, 1993, as revised on July 11, 1994. Pursuant to the Amended and
Restated Asset Transfer Agreement between NYBC and VITEX, dated February 7,
1995, the S/D Plasma PLA was transferred from NYBC to VITEX.

1.35 "Product" shall mean the product referenced in the S/D Plas+SD, which
product is a human blood plasma, pooled and treated to inactivate virus and
intended for transfusion as such or following minor changes in composition.
Purified plasma derivatives, such as coagulation factor concentrates,
fibrinogen, immunoglobulin, prepared from Virus-inactivated plasma are not

7
<PAGE>

covered by this Agreement. The Product is also known under the names VIPLAS/SD,
Plas Plus or S/D Plasma and conforms to the specifications set forth in Schedule
1.35. The Product is manufactured by processing Input using VITEX's Proprietary
Rights.

1. 36 "Proprietary Rights" shall collectively mean Patent Rights and Know-
How.

1. 37 "Purchase Order" shall mean a form of irrevocable take or pay
purchase order for the Product from the ANRC to VITEX in the form of Schedule
1.37 hereto.

1.38 "Quarterly Report" shall have the meaning set forth in Section 5.8.

1.39 "Registration(s)" shall mean any consent, approval or authorization
of, filing or registration with, notification to or other action with respect to
Governmental Authorities in the Territory required to be completed in order to
market and commercially distribute each Product.

1.40 "SOPs" shall mean VITEX's standard operating procedures for
inspection of the Input hereunder, as approved by the ANRC and as the same may
be amended from time-to-time by VITEX with the approval of the ANRC, which
approval will not be unreasonably withheld.

1.41 "Subsequent Generation Product(s)" shall mean a new form of virus-
inactivated human blood plasma, pooled and treated to inactivate virus and other
viruses and intended for transfusion which is the subject of a new PLA or a
supplement or amendment of the S/D Plasma PLA, such new PLA, supplement or
amendment covering a product with substantially altered quality or character,
not simply a therapeutic indication or use of an approved product. Examples of
such Subsequent Generation Product include virus-inactivated human blood plasma

8
<PAGE>

product intended for transfusion, the processing of which includes two virus
inactivation methods, or which is further processed to remove blood type-
specific antibodies.

1.42 "Subsequent Period(s)" shall mean every twelve (12) consecutive month
period following Period Two during the Term which commences on the anniversary
of the commencement of Period Two occurring after the end of Period Two.

1.43 "Target Yield" shall have the meaning set forth in Section 6.6.

1.44 "Term" shall have the meaning set forth in Section 7.1.

1.45 "Territory" shall mean the states of the United States of America,
its Territories and Possessions of the United States of America, the District of
Columbia, Canada, Mexico and the Commonwealth of Puerto Rico.

1.46 "Unit" shall mean two hundred (200) milliliters of frozen liquid
Product, prepared within VITEX's manufacturing specifications and intended for
use in patients.

SECTION 2
---------

GRANT OF DISTRIBUTION RIGHTS

2.1 Grant of Distribution Rights. Subject to the terms and conditions set
----------------------------
forth herein, VITEX hereby grants to the ANRC an exclusive, non-transferable
right to promote, distribute, market and sell, but not process or manufacture
the Product for commercial use in the Territory (the "Distribution Rights").
The Product shall be processed or manufactured by, or on

9
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

behalf of, VITEX. VITEX agrees that it will not grant Distribution Rights to
the Product in the Territory to any third party during the Term of this
Agreement, except as provided herein.

2.2 Purchase Orders for Period One and Period Two. In consideration
---------------------------------------------
of VITEX's grant of the Distribution Rights to the ANRC, the ANRC agreed to
purchase from VITEX and placed with VITEX, a Purchase Order equal to
************************** ************ Units of the Product during Period One
for the purchase price provided for in the Initial Agreement (the "Initial
Purchase Order"). The Initial Purchase Order is hereby amended
********************************************************************************
***********************************************************. The ANRC places
with VITEX a Purchase Order for Period Two for
************************************* Units to be delivered by VITEX as closely
as reasonably possible at the rate of ************* **************************.
The ANRC hereby agrees to provide VITEX sufficient Input on a timely basis in
order to permit VITEX to meet its production schedule for fulfilling the
Purchase Orders during Period One, Period Two and any Subsequent Periods. The
production schedule for Period One was attached as Schedule 2.2 to the Initial
Agreement. The production schedules for Period Two and Subsequent Periods will
be provided by VITEX or the ANRC within sixty (60) days after receipt by VITEX
of the Purchase Order related to such period. All Input provided to VITEX
pursuant to this Agreement will meet the specifications set forth in Schedule
1.21.

2.3 Additional Takedowns. While the ANRC will not be obligated to purchase
--------------------
more than *************************************** Units during Period Two, if
VITEX can process more than ***************************************** Units
during

10
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

Period Two, it is the present intention of the ANRC to purchase all of this
excess production subject to market demand, and it will provide the Input for
this purpose, if available.

2.4 Subsequent Takedowns After Period Two. In order for the ANRC to
-------------------------------------
maintain the Distribution Rights hereunder, (i) the ANRC will be required to
purchase pursuant to Purchase Orders delivered to VITEX ************** prior to
the commencement of the Subsequent Period immediately following Period Two (the
"First Subsequent Period") with respect to the First Subsequent Period and
************** prior to the commencement of any other Subsequent Period with
respect to that Subsequent Period a minimum of ****************
******************* Units of the Product during such First Subsequent Period and
for every other Subsequent Period during the Term, and (ii) the ANRC must supply
Input to VITEX in accordance with the terms of this Agreement.

2.5 Obligation to Make Payments. Once a Purchase Order is delivered to and
---------------------------
accepted by VITEX in accordance with the terms hereof, the ANRC will be required
to pay VITEX the amounts payable under the Purchase Order, even if the ANRC
fails to deliver, or delivers insufficient, Input or the ANRC fails to accept
delivery of the Product when available. In circumstances where VITEX is unable
to produce the Product as a result of a breach of this Agreement by the ANRC,
the ANRC will be required to pay VITEX the amounts as provided for in Section
5.1(a) and Section 5.4 when the Product would otherwise be available to the ANRC
if adequate Input has been delivered by the ANRC on a timely basis as provided
in this Agreement. In circumstances where VITEX is unable to deliver the Product
as a result of a breach of this Agreement by VITEX, the ANRC will not be
required to pay the amounts as provided in Section 5.1 and Section 5.4.

11
<PAGE>

SECTION 3
---------

OBLIGATIONS OF ANRC

3.1 Agreement to Purchase/Exclusivity. In exercising the Distribution
---------------------------------
Rights, the ANRC agrees that it shall purchase all of its requirements for the
Product from VITEX. Except as provided in this Section 3.1, the ANRC shall not
at any time during the Term, directly or indirectly through an Affiliate or any
other party, promote, distribute, market, sell or otherwise deliver the Product
or any similar product for use within the Territory, or provide Input to produce
such other product for use within the Territory, unless such product has been
processed and manufactured by, or on behalf of, VITEX. Notwithstanding the
foregoing, the ANRC may promote, distribute, market, sell or otherwise deliver a
Competitive Product. The ANRC will promptly notify VITEX if the ANRC has
determined to promote, distribute, market, sell or otherwise deliver a
Competitive Product.

3.2 Sales Activities. The ANRC shall conduct sales activities pursuant to
----------------
the Distribution Rights by purchasing the Product from VITEX for resale to and
use by its customers in the Territory. The ANRC shall conduct all sales
activities hereunder in a manner consistent with the highest standards of fair
trade, fair competition and business ethics and shall cause all of its
Affiliates, agents and employees to do the same. The ANRC agrees to conduct all
of its activities under this Agreement in accordance with applicable laws, rules
and regulations.

3.3 Marketing Strategies. In exercising the Distribution Rights, the ANRC will
--------------------
develop reasonable and appropriate marketing strategies for the Product in the
Territory and will promote actively the features and benefits of the Product in
the Territory. To this end, the ANRC

12
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

will produce labeling, package inserts, patient instructions, promotional
materials, plans for distribution and other related materials as reviewed by the
Parties (collectively the "Marketing Materials"). The ANRC shall submit
Marketing Materials to VITEX for its review before such Marketing Materials are
used by the ANRC. The ANRC agrees to budget and spend at least
********************************** in cumulative expenses during calendar years
1998 and 1999 which include expenses for all direct marketing, direct selling,
promotional, educational, advertising and similar activities previously reviewed
by VITEX (collectively "Marketing Expenses"). These Marketing Expenses are
designed to exclusively benefit the Product or Subsequent Generation Product(s)
produced by or for VITEX based on VITEX's Proprietary Rights and the budget for
Marketing Expenses will be determined and mutually agreed upon by the Parties in
advance. Schedule 3.3 represents the ANRC's initial Marketing Expenses
Proposal. Some allocation for direct sales force selling time expense, not to
exceed********************************* over the calendar years 1998 and 1999,
will be part of the ANRC budget for Marketing Expenses.

3.4 Informational Materials.
-----------------------

(a) Availability. In exercising the Distribution Rights, the ANRC
------------
shall establish and follow appropriate and reasonable standards and procedures
regarding the promotion, distribution, marketing and sale of the Product as
required by applicable Governmental Authorities, and in accordance therewith the
ANRC shall make all informational materials required by Governmental
Authorities, including but not limited to patient instructions and package
inserts (collectively "Informational Materials"), available to each physician,
customer or other user to whom a Unit of Product is distributed or delivered.
The ANRC shall

13
<PAGE>

not exercise its Distribution Rights with respect to any Unit of Product without
including appropriate portions of the Informational Materials applicable to the
Product. The ANRC shall submit any Informational Materials to VITEX for its
review and approval before any such Informational Materials are used by the
ANRC.

(b) Changes. The ANRC shall make changes in any Informational
-------
Materials subject to VITEX's prior approval (i) immediately upon receipt or
development of new information with respect to the Product or otherwise, to the
extent necessary to keep the Informational Materials fully accurate at all times
and (ii) as required by applicable Governmental Authorities.

3.5 Quality Assurance. In exercising the Distribution Rights and its
-----------------
obligations hereunder to form pools of Input and ship Input to and Product from
VITEX's processing facility, the ANRC shall establish and maintain appropriate
quality control review procedures in accordance with the requirements of all
Governmental Authorities and shall promote, market, distribute and sell the
Product in the Territory in accordance with the requirements of all applicable
Governmental Authorities, the highest standards of quality and medical ethics
prevailing in the blood plasma industry , and in compliance in all material
respects with all applicable laws and regulations. The ANRC shall immediately
notify VITEX if the quality of any Unit of the Product does not meet mutually
accepted quality levels as determined by the Parties from time to time and as
reflected in the specifications in Schedule 1.35 or any finding by the FDA with
respect thereto. The ANRC shall promptly notify VITEX if the quality of any
human blood plasma used to create Input does not meet the specifications for the
Input or a finding by the FDA of which the ANRC becomes aware with respect to
such human blood

14
<PAGE>

plasma used to create the Input or with respect to the formation of pools or
shipping or storage of Input or the Product which is the responsibility of the
ANRC hereunder. From time to time, and upon reasonable notice to the ANRC of no
less ten (10) days, VITEX shall have the right to audit the ANRC's compliance
with the requirements of the FDA with respect to this Agreement. In the event
of a finding by VITEX that the ANRC is not in compliance, VITEX shall provide
notice of its findings to the ANRC. In response to such notice, the ANRC shall
respond to VITEX regarding such notice and shall include in such response steps
(if any) which the ANRC will undertake to address such findings. The ANRC
agrees to take all reasonable and appropriate steps to insure compliance with
the requirements of the FDA, relevant to SOPs and specifications set forth in
Schedule 1.21.

3.6 Minimum Purchase Requirements.
-----------------------------

(a) The ANRC agrees that it shall be subject to certain minimum purchase
requirements (the "Minimum Purchase Requirements") with respect to its purchase
of the Product from VITEX during the Term of this Agreement. The Minimum
Purchase Requirements for the Territory are set forth in Section 2.2 for Period
One and Period Two and Section 2.4 for any Subsequent Period. If the ANRC fails
to undertake these minimum purchase commitments in the form of Purchase Orders
timely delivered to VITEX as provided herein and pay for the same or fails to
supply the necessary amount of Input which after processing will provide the
requisite amount of the Product on a timely basis all as provided in this
Agreement, then VITEX shall have the right in its sole and absolute discretion
to (1) terminate this Agreement if VITEX determines in its reasonable judgment
that the ANRC has not exercised its reasonable best efforts to achieve
significant market penetration and/or the ANRC is not using its reasonable best
efforts

15
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

to perform its marketing duties and distribution objectives hereunder or Input
delivery responsibilities hereunder;
**************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
****************************************************************

(b) In the event that after September 30, 2000 VITEX shall have capacity in
excess of that needed to meet the Minimum Purchase Requirements, VITEX shall
have the right to notify the ANRC of this situation in writing and may request
that the ANRC increase its Purchase Orders and delivery of Input and accept such
increased supply of the Product. The ANRC shall have ************************
days from the date of such notice to provide VITEX with amended Purchase Orders
reflecting the increased capacity and a commitment to provide Input. Should the
ANRC not provide VITEX with such amended Purchase Orders and a commitment to
provide Input in the requisite time, *********************************
********************************************************************************
********************************************************************************
********************************************************************************
***********

16
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

3.7 Universal Availability and Resale Prices.
----------------------------------------

(a) *************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
***************************

(b) In exercising its Distribution Rights in the Territory, the ANRC
agrees as follows:

(i ) The Product shall be made available to every hospital, blood center
or other customer in the Territory on commercially reasonable terms;

(ii) In the event that availability of the Product is insufficient to meet
the demand, supplying the Product to blood centers pursuant to preexisting
contractual commitments shall take preference over supplying the Product to
other blood centers, hospitals or customers outside of preexisting contractual
commitments; and

(iii) In the event that it becomes necessary to allocate supply of the
Product due to inadequate availability of the Input, the Product shall be
supplied pro rata on the basis of preexisting contractual commitments without
preference among blood centers, hospitals or other customers.

17
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

(c) If the ANRC elects to terminate a contractual commitment to supply the
Product to a blood center, the ANRC shall provide such blood center, with a
written notice thereof at least ************** in advance of the ANRC's intent
to terminate. Notwithstanding the foregoing, the ANRC may terminate such
contractual commitment in the event of a material breach of the contractual
commitment by the blood center, effective immediately upon written notice to the
breaching party by the ANRC.

3.8 Compliance with Law. In exercising the Distribution Rights, the ANRC
-------------------
agrees to comply with all laws and regulations applicable to the ANRC in the
conduct of its activities hereunder or otherwise applicable to the ANRC's
business.

3.9 Distribution. In exercising the Distribution Rights, the ANRC shall:
------------

(a) Develop A Market. Subject to the terms hereof, develop a market
----------------
for the Product within the Territory. Such efforts shall include, without
limitation, development of educational and training programs for blood centers,
blood banks, hospitals and other health care providers and distribution of
patient information packages.

(b) Monitor Use. Monitor the distribution and dispensation of the
-----------
Product in the Territory to ensure that such distribution and dispensation is
accomplished in accordance with this Agreement.

3.10 Information. In exercising the Distribution Rights, the ANRC shall
-----------
promptly inform VITEX of any new development which relates to the Product of
which the ANRC may become aware which may have any adverse affect on either
Party's ability to perform its

18
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

obligations hereunder or which concerns any serious health risk or unexpected
reaction believed to be associated with or attributed to the use of the Product.

3.11 Reimbursement. The ANRC shall reimburse VITEX as provided in Section
-------------
4.2. The ANRC shall provide VITEX with replacement Input as promptly as
possible if such Input is rejected by VITEX as provided in Section 4.2.

SECTION 4
---------

OBLIGATIONS OF VITEX

4.1 Agreement to Manufacture. Subject to the conditions set forth in this
------------------------
Agreement, VITEX agrees to manufacture and process Input and deliver the Product
required by the ANRC to exercise its Distribution Rights hereunder.

4.2 Quality Assurance.
-----------------

(a) Following receipt of each shipment of Input at VITEX's processing facility
in Melville, Long Island, New York, VITEX shall inspect, or otherwise
ascertain, the conformity of the Input with the requirements of the FDA,
the relevant VITEX SOPs and the specifications set forth in Schedule 1.21.
Prior to release for processing hereunder, each unit of Input shall be
visually examined and verified against accompanying documentation (i.e.
100% inspected). VITEX shall have the right to reject any units which do
not meet SOPs, FDA standards or the specifications of Schedule 1.21, or
which are otherwise damaged, possibly contaminated, improperly packaged,
labeled or stored, which are the subject of a lookback or which are not
properly documented. VITEX must notify the ANRC of any such rejected units
within ********************** of VITEX's completion of inspection thereof.
All rejected units are

19
<PAGE>

["****" indicates material omitted and filed separately with the Securities
and Exchange Commission Pursuant to a request for confidential treatment.]

to be destroyed when VITEX is notified to do so by the ANRC, or if notification
is not promptly received by VITEX, VITEX may hold the rejected units at the
expense and risk of the ANRC for a period of thirty (30) days, after which VITEX
may dispose of them in accordance with its SOPs. VITEX shall provide to the
ANRC documentation of any destruction of such units. The costs of destruction
and disposition of the rejected units will be for the account of the ANRC.

(b) In the event (1) the ANRC notifies VITEX of any non-conformity or
unsuitability if any unit of Input after the same has been accepted and pooled,
or (2) VITEX notifies the ANRC of any non-conformity or unsuitability of a pool
as provided in Section 4.2(a), and the pool is thereby deemed unsuitable,
**********************************************
***************************************************** VITEX shall cooperate
with the ANRC in any reasonable efforts requested by the ANRC to correct the
deficiencies including any retesting, reprocessing, or additional processing and
testing of the unsuitable pool, such activity of VITEX shall be at the sole cost
and expense of the ANRC. VITEX shall be responsible for the storage and
handling of Input once it is delivered to VITEX by the ANRC unless provided
otherwise in this Agreement.

(c) Effective January 1, 1999, VITEX will assume responsibility for (i)
the transportation of Input from locations designated by the ANRC and agreed to
by VITEX (ii) pooling of Input at a location or locations prior to transfer to
VITEX's processing facility in Melville, Long Island, New York, and (iii) for
transportation of Input from the pooling facility to VITEX's processing facility
in Melville, Long Island, New York.

20
<PAGE>

(d) VITEX shall promptly notify the ANRC if the quality of the Product does
not meet the specifications for the Product or a finding by the FDA of which
VITEX becomes aware with respect to the Product or with respect to shipping or
storage of the Input or the Product which is the responsibility of VITEX
hereunder. From time to time and upon reasonable notice to VITEX of no less
than ten (10) days, the ANRC shall have the right to audit VITEX's compliance in
inspecting the Input, with the requirements of the FDA, the relevant VITEX SOPs,
the specifications set forth in Schedule 1.21 and this Agreement. In the event
of a finding by the ANRC that VITEX is not in compliance, the ANRC shall provide
notice of its findings to VITEX. In response to such notice, VITEX shall
respond to the ANRC regarding such notice and shall include in such response the
steps (if any) which VITEX will undertake to address such findings. VITEX will
promptly advise the ANRC of the finding of any inspection or examination by the
FDA of VITEX's activities as it relates to this Agreement of which VITEX is
aware. VITEX agrees to take all reasonable and appropriate steps to ensure
compliance with the requirements of the FDA, relevant SOPs and specifications
set forth in Schedule 1.35.

4.3 Visits. From and after the date the ANRC commences purchasing of the
------
Product from VITEX, VITEX may at its sole discretion make representatives of
VITEX available to the ANRC in the Territory for the purpose of aiding in
introduction and penetration of the Product in the Territory.

4.4 Maintaining Registrations. VITEX shall be responsible at its sole expense,
--------------------------
for obtaining and maintaining any required Registrations in the Territory,
including, but not limited to, all reporting and updating and the preparation
and submission of all amendments and

21
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

supplements thereto and other requirement of the applicable Governmental
Authorities. All Registrations shall remain the sole and exclusive property of
VITEX.

4.5 Marketing Support. VITEX agrees to make every reasonable effort to
------------------
respond to a request by the ANRC for specific marketing support with respect to
the promotion of the features and benefits of the Product in the Territory.
VITEX agrees to budget and spend
******************************************************** in cumulative Marketing
Expenses during calendar years 1998 and 1999. Schedule 4.5 represents VITEX's
initial Marketing Expenses proposal in this regard.

4.6 Right of First Refusal. VITEX hereby agrees to provide the ANRC with a
----------------------
right of first refusal ("ROFR") for exclusive distribution rights in the
Territory for the Subsequent Generation Product(s). Pursuant to this ROFR, if
the Subsequent Generation Product(s) become available during the Term, the
Parties agree to negotiate in good faith the terms and conditions of the
distribution rights with respect to such Subsequent Generation Product(s). This
ROFR shall not be available to the ANRC if VITEX has the right to terminate this
Agreement because of a material breach by the ANRC of this Agreement or
otherwise as provided in Section 7.2(a) and the period to cure such breach has
expired. A Subsequent Generation Product shall be deemed to become available
for this purpose no later than the receipt of a Registration from the FDA with
respect to such Subsequent Generation Product. Should the Parties not be able
to reach a mutually binding contract within a ninety (90) day period from the
date VITEX advises the ANRC of the prospective availability of the Subsequent
Generation Product(s), then VITEX shall have the right to negotiate with any
other Person for the distribution rights in the Territory for the Subsequent
Generation Product(s). Prior to entering into the initial contract with a third

22
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

party with respect to the distribution rights in the Territory for a Subsequent
Generation Product, VITEX shall disclose to the ANRC the key terms of any such
alternative proposal. The ANRC shall have thirty (30) days therefrom to enter
into a binding contract with VITEX on terms and conditions matching in all
material respects the key terms of the alternative proposal. VITEX will be
required to accept the ANRC proposal. If the ANRC does not enter into a binding
contract with VITEX within such thirty (30) day period, VITEX may for a period
of ninety (90) days be free to enter into a binding agreement with respect to
the alternative proposal. In the event VITEX enters into such a binding
agreement with a third party, VITEX shall thereafter not be required to offer
the ANRC a ROFR with respect to such Subsequent Generation Product.

SECTION 5
---------

SALES PROCEDURES

5.1 Price.
-----

(a) Compensation Payable by the ANRC to VITEX for the Product - Period One and
--------------------------------------------------------------------------
Subsequent Periods. The sales price of the Product to the ANRC for Period
------------------
One and Subsequent Periods shall be the Base Price per Unit of the Product,
plus a quarterly "royalty" of
**************************************************************** per Unit
of the Product (such **** as adjusted as provided in Section 5.1(c) being
the "Base Sale Price") times the number of Units of the Product sold in
such quarter. The "Average Selling Price" shall mean the weighted average
selling price of a Unit of Product by the ANRC to an end user or a Person
which is not an Affiliate of the ANRC net of commissions or fees paid to
third parties which are

23
<PAGE>

["****" indicates material omitted and filed separately with the Securities
and Exchange Commission Pursuant to a request for confidential treatment.]

not Affiliates of the ANRC and which commissions and fees have been reviewed and
approved by the Marketing Committee as commercially reasonable.

(b) Compensation Payable by the ANRC to VITEX for the Product - Period
------------------------------------------------------------------
Two. The sale price of the Product to the ANRC for Period Two shall be the Base
- ---
Price plus a royalty determined as provided in this Section 5.1(b). If the
number of Units produced by VITEX during a month is less than ****** for such
month, the royalty for the month would be ***** times the number of Units
produced by VITEX in such month. If the number of Units produced by VITEX
during a month is ****** or more Units but not more than ******* Units, the
royalty shall be ***** per Unit plus an additional royalty of
**************************
************************************************************* (but such
additional royalty shall not exceed ***** per Unit) times the number of Units
produced by VITEX in such month. If the number of Units produced by VITEX
during a month is greater than ******* Units, the royalty shall be
**************************************************
********************************* times the number of Units produced by VITEX in
such month.

(c) Adjustments to Base Price, and Base Sale Price. The Base Price and the
----------------------------------------------
Base Sale Price shall each be adjusted prospectively by
*************************** ***************for the period October 1, 1998
through October 1, 2000 commencing October 1, 2000 for the period October
1, 2000 to October 1, 2001, and thereafter on each anniversary of such date
during the Term, each of the Base Price and the Base Sale Price will be
adjusted prospectively by ************************************ for the
immediate previous twelve month period ended on such anniversary date. The
ANRC agrees to negotiate in good faith an

24
<PAGE>

["****" indicates material omitted and filed separately with the Securities
and Exchange Commission Pursuant to a request for confidential treatment.]

additional prospective adjustment to each of the Base Price and the Base Sale
Price of up to an additional
******************************************************* for the period October
1, 1998 through October 1, 2000 commencing October 1, 2000 for the period
October 1, 2000 to October 1, 2001, and thereafter on each anniversary of such
date during the Term the ANRC agrees to negotiate in good faith, an additional
prospective adjustment of each of the Base Price and the Base Sale Price of up
to an additional ********************************** ********** for the immediate
previous twelve month period ended on such anniversary date.

(d) Additional Payments by the ANRC.
-------------------------------

(i) In the event any additional labor, material or packaging,
including relabeling is required in meeting the packaging specifications or any
special delivery conditions of the ANRC (including, without limitation, any
effort VITEX is requested to take relating to any Informational Materials), the
ANRC will reimburse VITEX for VITEX's actual additional costs, provided (a) such
costs have been approved in advance by the ANRC and (b) to the extent such
additional costs arise from packaging materials, the ANRC shall have been given
the opportunity to supply such materials directly to VITEX. In the event the
ANRC orders Units of the Product which may entitle VITEX to such additional
payments, and the ANRC fails to approve such additional payments, any ensuing
dispute shall be resolved in accordance with the provisions of Section 8.2.

(ii) Any and all taxes, including customs duties (other than income taxes)
assessed to VITEX by federal, state, or local governments on sales of the
Product to the ANRC shall be paid by the ANRC.

25
<PAGE>

["****" indicates material omitted and filed separately with the Securities
and Exchange Commission Pursuant to a request for confidential treatment.]

5.2 Ordering Procedures ******************************************
--------------------
*************after the Effective Date, the ANRC shall provide VITEX with sales
forecasts in a form (rolling twelve months) agreed to by the Parties setting
forth the expected number of Units which the ANRC reasonably expects to purchase
from time to time. The Purchase Orders shall be placed by the ANRC and filled
by VITEX in accordance with this Agreement and upon such other additional
procedures and upon such other terms and conditions as the Parties may agree
from time to time.

5.3 Shipment Terms and Storage. Prior to January 1, 1999 the ANRC will be
--------------------------
responsible for the collection and pooling of Input and for all shipment and
delivery of pooled Input to VITEX's processing and manufacturing facility or
other location designated by VITEX, and VITEX agrees to reimburse the ANRC for
reasonable costs incurred in pool formation by the ANRC of the Input and
reasonable costs including insurance costs incurred in shipping the pooled Input
to VITEX's processing and manufacturing facility or other location designated by
VITEX and from VITEX's facility to the ANRC central facility for distribution of
the Product in the Territory which central facility must be in the continental
United States. All such shipments of the Product shall be f.o.b. at VITEX's
manufacturing facility or other place designated by VITEX from time to time. On
and after January 1, 1999, the ANRC shall be responsible for the collection and
storage of Input prior to delivery to VITEX. VITEX shall be responsible for the
pick up and transportation of Input from the ANRC's blood centers or other
locations agreed by the Parties hereto, the transportation thereof from such
locations to a central pooling facility, the pooling of the Input and the
transportation of the Input to VITEX's processing facility for the manufacture
of the Product. All storage and transportation costs of Input once delivered to

26
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

VITEX by the ANRC shall be at the sole expense of VITEX; provided, however
that all storage costs of the Product shall be at the sole expense of the ANRC,
if the ANRC fails to take delivery of the Product substantially in accordance
with the delivery schedule provided by VITEX to the ANRC.

5.4 Payment Terms. (a) Period One and Subsequent Periods - For Product
------------- ---------------------------------
produced prior to October 1, 1998 and after September 30, 2000, payments
respecting the Product shall be paid to VITEX by the ANRC as follows: The ANRC
shall pay VITEX ********************
********************************************************************************
********************************************************************************
******************************************************** The royalty set forth
in Section 5.1(a) for the Product produced before October 1, 1998 and after
September 30, 2000 shall be paid by the ANRC to VITEX **************** after the
close of each calendar quarter during which the Product was produced.

(b) Period Two. For Product produced on and after October 1, 1998 and before
----------
September 30, 2000; payment shall be made by the ANRC for the Product promoted,
marketed, distributed and sold by the ANRC and its Affiliates as follows. The
ANRC will pay VITEX
********************************************************************************
********************************************************************************
*************. For Product produced on and after October 1, 1998 and before
September 30, 2000, the royalty due VITEX for a calendar quarter shall be paid
****************
********************************************************************************
****************************************************************************

27
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

********************************************************************************
********************************************************

(c) *************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
**************************************

5.5 Unanticipated Cost Escalation. The Base Price for the Product is
------------------------------
based in part on VITEX's estimate of its full scale production costs. VITEX is
not aware of any imminent substantial increase in its manufacturing costs.
Nevertheless, should VITEX's full scale production costs suffer unanticipated
increases in the future (including but not limited to the regulatory imposition
of new environmental or product testing costs), the ANRC will agree to negotiate
in good faith an increase in the Base Price which reflects VITEX's increased
full sale production costs.

5.6 ****************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************

28
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************. This price rebate
will be adjusted pro rata as the Base Price is adjusted as provided in Section
5.1(a).

5.7 Marketing Committee.
---------------------

(a) Subject to Section 10.6, the activities of VITEX under Section 4.5 and
of the ANRC under Section 3.3 shall be coordinated by a Marketing Committee
consisting of the Vice President Marketing and Sales for VITEX, and a
counterpart from the ANRC and whatever other members the Parties jointly
determine. The Marketing Committee shall meet at least monthly for the first
six (6) months during calendar year 1998 and at least quarterly thereafter.

(b) The ANRC shall use its best efforts in realizing the market goal of
maximum market penetration in the Territory. Irrespective of the magnitude of
the ANRC's purchases from VITEX, if the VITEX senior representative on the
Marketing Committee reasonably determines that the ANRC is not exercising its
best efforts towards full market penetration, VITEX will have the right to
request greater resources and/or programs to remedy the deficiencies. If the
ANRC

29
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

does not comply with this request, VITEX and the ANRC will negotiate in good
faith to find some resolution to the situation. If the Parties cannot identify
a mutually satisfactory resolution, VITEX may terminate this Agreement.
(c) Each Party agrees to notify the Marketing Committee of consumer
complaints regarding the Product. The Marketing Committee shall be responsible
for formulating responses to such complaints.

5.8 Records and Reports
-------------------

(a) Sales Records. The ANRC shall maintain, and cause its Affiliates to
-------------
maintain, in accordance with GAAP, complete and accurate records of all sales of
the Product.

(b) Reports. Each Party agrees to provide the other Party with the reports
-------
which are its responsibility as set forth in Schedule 5.8. Reports shall be
produced on a prompt and timely basis.

5.9 ******************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
***************

30
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

SECTION 6
---------
ALLOCATION OF RISKS; DEFENSE OF PATENT RIGHTS

6.1 Indemnity .
----------

(a) Except as provided in Section 6.1(b), the ANRC shall indemnify and hold
harmless VITEX, its officers, directors, agents, employees and Affiliates (the
"VITEX Indemnitees") from any claim or suit (based on any injury, illness,
disease, allergy, allergic reaction, side effect, death or other adverse
experience) and from all , losses and expenses, including without limitation
reasonable attorney fees, costs and expenses the VITEX Indemnitees may incur as
a result of ******************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*****************************, provided however, that upon learning of the
filing of any such claim or suit, VITEX shall promptly notify the ANRC and
permit the ANRC, at the ANRC's cost, to handle and control such claim or suit
and shall cooperate in the defense thereof.

(b) Except as provided in Section 6.1(a), VITEX shall indemnify and hold
harmless the ANRC, its officers, directors, agents, employees and
Affiliates (the "ANRC Indemnitees") from any claim or suit (based on any
injury, illness, disease, allergy, allergic reaction, side effect, death or
other adverse experience) and from all losses and expenses, including
without limitation

31
<PAGE>

["****" indicates material omitted and filed separately with the Securities
and Exchange Commission Pursuant to a request for confidential treatment.]

reasonable attorney fees, costs and expenses the ANRC Indemnitees may incur as a
result of ***
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
****************************************provided however, that upon learning of
the filing of any such claim or suit, the ANRC shall promptly notify VITEX and
permit VITEX, at VITEX's cost, to handle and control such claim or suit and
shall cooperate in the defense thereof.

6.2 Exclusion of Warranty.
---------------------

(a) VITEX MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER AS TO THE
PRODUCT OR ITS DESIGN, VALUE, EFFICACY OR FREEDOM FROM DEFECTS IN DESIGN OR
MANUFACTURE OR OTHERWISE EXCEPT AS SPECIFICALLY PROVIDED HEREIN. ALL WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND OTHERWISE ARE EXPRESSLY
EXCLUDED.

(b) The ANRC MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER AS TO THE
INPUT OR ITS DESIGN, VALUE, EFFICACY OR FREEDOM FROM DEFECTS IN DESIGN OR
MANUFACTURE OR OTHERWISE EXCEPT AS SPECIFICALLY PROVIDED HEREIN. ALL WARRANTIES
OF MERCHANTABILITY,

32
<PAGE>

FITNESS FOR A PARTICULAR PURPOSE AND OTHERWISE ARE EXPRESSLY EXCLUDED.

6.3 Insurance or Equivalent. Each Party shall maintain, at its sole expense,
-----------------------
at all times, during the term of this Agreement, the insurance coverage set
forth in Schedule 6.3, with respect to its activities relating to the Product in
the Territory. Such insurance coverage shall be maintained in an amount not
less than the amount required by this Agreement and with carriers with an A.M.
Best rating of not less than A. Such insurance policy shall be written as
primary policy coverage and not contributing with, or in excess of any insurance
which the other Party shall carry with respect to the obligations of each Party
under this Agreement. Each insurance policy shall provide that at least thirty
(30) days' prior written notice of cancellation of, or material change which
reduces the terms, amounts and conditions below that which are required herein,
shall be given to the other Party. Each Party shall furnish certificates of
insurance to the other on or before the date the Distribution Rights are
initially granted hereunder thereafter upon request by the other Party. VITEX
shall supply evidence of its property insurance on an ACORD "Evidence Property
Insurance" Form 27. In the event each Party shall cease selling the Product as
a result of the termination of the Distribution Rights or otherwise, VITEX may
satisfy its obligations under this Section 6.3 by purchasing discontinued
product liability insurance for such period as the ANRC may reasonably approve
and providing coverage comparable to the ANRC's general liability insurance in
effect at that time. During the Term of this Agreement, each Party shall have
the right to obtain certificates of insurance from the other Party that
insurance coverage is maintained by the other Party. From time to time but at
least annually,

33
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

upon request from the other Party, each Party shall provide to the other Party
notice of insurance coverage maintained by it to satisfy its obligations under
this Section 6.3.

6.4 No Warranty Against Infringement. Neither VITEX nor the ANRC makes
--------------------------------
any representation or warranty to the other that the Product will not infringe
the patents, trademarks, trade names, or other intellectual property rights in
the Territory of any other Person. VITEX is not aware, on the Effective Date,
of any claim of such infringement by any other Person.

6.5 No Consequential Damages. NOTWITHSTANDING ANYTHING HEREIN TO THE
------------------------
CONTRARY, UNDER NO CIRCUMSTANCES SHALL VITEX OR THE ANRC BE LIABLE TO EACH OTHER
OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, INCLUDING BUT NOT LIMITED TO LOST GOODWILL OR LOST PROFITS.

6.6 Risk Allocation. Liability and risk associated with returns and recalls of
----------------
the Product shall be allocated as follows.
******************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
**************************************** The ANRC will bear the out-of-pocket
costs of ************************************************. The ANRC will be
required to pay VITEX's full processing costs (but not any profit) for
************* to pay the logistical and other direct costs of the recall
procedure and to supply VITEX with sufficient Input

34
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

to produce and manufacture replacement Units.
**************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
**********which constituted such Input Loss plus any pooling cost associated
with that Input already paid to VITEX by the ANRC plus interest at the
applicable federal rate if such payment is not made by VITEX within six months
after the date it is due. Payments referred to in the immediately preceding
sentence shall be due 30 days after the occurrence of the event giving rise to
the payment. In addition, VITEX will bear the out-of-pocket costs of a
**********************. To the extent the actual yield of Units of the Product
from donor units of the Input fall below the Target Yield,
***************************************** ************************************
In the case of a Faulty Processing or an Input Loss,
********************************************************************************
********************************************************************************
*********************************************************. In all other
instances of recalls or Product returns that do not fall into one of the three
prior categories, the Marketing Committee will review the matter. If the
Marketing Committee cannot reach a mutually satisfactory resolution, VITEX and
the ANRC will negotiate in good faith to find some resolution to the situation.
If the two Parties hereto cannot identify a mutually satisfactory

35
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

resolution, the matter will be submitted to arbitration pursuant to Section 8.2.
In no event shall either Party be liable to the other for special, incidental or
consequential damages, punitive damages, lost profits and other losses. For
purposes of this Agreement, ********************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
****************************************************************

36
<PAGE>

6.7 Patent Enforcement.
-------------------
(a) The ANRC shall promptly provide written notification to VITEX, in the
event the ANRC becomes aware of any third party infringement or possible
infringement of the Patent Rights. Upon receipt of such notice and subject to
VITEX's rights under the Exclusive License Agreement (#3) For Virally
Inactivated Transfusion Plasma Products between VITEX and the New York Blood
Center, Inc., VITEX shall have the right, but not the obligation, to take
appropriate legal action in connection therewith. In the event that VITEX
elects to take such action, the conduct of the action shall be entirely directed
by VITEX, and VITEX shall pay all costs and expenses associated therewith and
retain all recoveries of any such action. However, in the event that VITEX
elects not to take such action, then VITEX shall elect to grant in writing to
the ANRC the right to sue in its own name, at its own expense and for its own
benefit, any such infringement under the Patent Rights. In such event, VITEX
agrees that it will cooperate with the ANRC. Further, if the ANRC prevails in
such action, the ANRC shall retain any recoveries up to and including an amount
equal to the ANRC's reasonable costs and expenses incurred in bringing the
action. Any recoveries in excess of such amounts shall be divided equally
between VITEX and the ANRC.

(b) The ANRC agrees to report to VITEX, promptly and in written detail, each
claim of patent infringement of which the ANRC becomes aware based solely
on ANRC's exercise of the Distribution Rights. In the event of litigation
against the ANRC on account of any such claim, and upon the ANRC's
providing notice of same to VITEX, within ten (10) days after service
thereof upon the ANRC, VITEX shall undertake the defense of any such
litigation at its own cost and expense. Alternatively, at VITEX's option,
VITEX may permit the ANRC to

37
<PAGE>

["****" indicates material omitted and filed separately with the Securities
and Exchange Commission Pursuant to a request for confidential treatment.]

defend, and in such event, the ANRC shall have the right to reimburse itself
fully from up to ******************* of each future payment to VITEX becoming
due hereunder, following the filing of each such suit, for all its expenses
arising out of, or in connection with, the defense of such suit. In either
event, each Party shall cooperate with the other, including providing witnesses,
documents or other evidence in its possession relating to the defense of such
litigation. In the event that VITEX, having undertaken the defense of such
suit, discovers that the claim against the ANRC is not based solely upon the
ANRC's exercise of the rights granted herein, then to the extent such claim is
based on actions taken by the ANRC outside of the scope of the Distribution
Rights hereunder, the ANRC shall reimburse VITEX for VITEX's costs and expenses
to such extent, as well as any amounts paid in settlement or to satisfy
judgments to such extent.

SECTION 7
---------

TERM, TERMINATION AND RENEWAL

7.1 Term. Unless sooner terminated by a Party hereto, this Agreement
----
shall remain in effect for four (4) years and nine (9) months from the
commencement of Period One (the "Term"). The expiration or termination of this
Agreement or any part hereof shall not release the ANRC or VITEX from any
liability which at the time of expiration or termination has already accrued, or
which thereafter may accrue.

38
<PAGE>

7.2 Termination Prior to Term.
-------------------------

(a) By VITEX. Subject to the right of the ANRC to have any dispute
--------
hereunder resolved in accordance with the provisions of Section 8.2, this
Agreement may be terminated immediately by VITEX whenever any of the following
events occur:

(i) the ANRC's failure to pay all sums due VITEX hereunder as and when
due, which failure is not cured within fifteen (15) days after receipt of notice
that such payment has not been paid when due;

(ii) the ANRC's failure to maintain insurance as required by Section
6.3, which failure is not cured within fifteen (15) days after receipt of notice
from VITEX that the ANRC is in breach of its obligations under this Agreement to
maintain insurance;

(iii) any other material breach of this Agreement or a Purchase Order
by the ANRC not cured within ninety (90) days after receipt written of notice
thereof from VITEX;

(iv) a court of competent jurisdiction enters a decree or order of
relief (1) with respect to the ANRC in any voluntary or involuntary case or
proceeding under any bankruptcy, insolvency or similar law or (2) appointing a
receiver, liquidator, assignee, trustee or similar official of the ANRC or any
substantial part of its assets, and such decree or order is consented to by the
ANRC or continues unstayed and in effect for a period of sixty (60) days;

(v) the ANRC files a voluntary petition or acquiesces in or fails to
contest an involuntary petition, or an involuntary petition is filed against the
ANRC and is not

39
<PAGE>

dismissed within sixty (60) days, in any case or proceeding under any
bankruptcy, insolvency or similar law;

(vi) the ANRC makes a general assignment for the benefit of
creditors;

(vii) the ANRC is dissolved or liquidated;

(viii) the ANRC is prevented from performing its obligations
hereunder by any law, governmental or other action (other than laws of general
application) and has not resumed such performance, in compliance with all
applicable laws, within one hundred twenty (120) days following the date as of
which performance was prevented;

(ix) the ANRC fails to provide VITEX with Input as required in
this Agreement;

(x) the ANRC fails to timely deliver to VITEX a Purchase Order as
provided in this Agreement;

(xi) VITEX exercises its rights under Section 3.6(a) or Section
5.7; or

(xii) in the event the conditions for termination arise as
provided in Section 10.7.

If any of these events should occur, then and in addition to the other
rights and remedies which VITEX may have at law or in equity, VITEX may, at its
option, upon written notice to the ANRC and subject to the rights of the ANRC
under the provisions of Section 8.2: (1) immediately terminate this Agreement
and all Distribution Rights hereunder in their entirety; or

40
<PAGE>

(2) convert any rights granted herein with respect to the Product and/or any
country or territory within the Territory to non-exclusive rights and in which
event the ROFR rights of the ANRC will terminate. In the event VITEX converts
the rights pursuant to items (2) above, VITEX reserves the right at any time
thereafter to terminate this Agreement or the Distribution Rights in their
entirety. Any action by VITEX shall be effective as of the date specified in
the notice.

(b) By the ANRC. Subject to the right of VITEX to have any dispute
-----------
hereunder resolved in accordance with the provisions of Section 8.2, this
Agreement may be terminated by the ANRC whenever any of the following events
occur:

(i) any material breach of this Agreement by VITEX not cured within
ninety (90) days after written receipt of notice thereof from the ANRC;

(ii) VITEX's failure to maintain insurance as required by Section 6.3,
which failure is not cured within fifteen (15) days after receipt of notice from
the ANRC that VITEX is in breach of its obligations under this Agreement to
maintain insurance;

(iii) a court of competent jurisdiction enters a decree or order of
relief (1) with respect to VITEX in any voluntary or involuntary case or
proceeding under any bankruptcy, insolvency or similar law or (2) appointing a
receiver, liquidator, assignee, trustee or similar official of VITEX or any
substantial part of its assets, and such decree or order is consented to by
VITEX or continues unstayed and in effect for a period of sixty (60) days;

(iv) VITEX files a voluntary petition or acquiesces in or fails to
contest an involuntary petition, or an involuntary petition is filed against
VITEX and is not dismissed

41
<PAGE>

within sixty (60) days, in any case or proceeding under any bankruptcy,
insolvency or similar law;

(v) VITEX makes a general assignment for the benefit of
creditors;

(vi) VITEX is dissolved or liquidated;

(vii) VITEX is prevented from performing its obligations
hereunder by any law, governmental or other action (other than laws of general
application) and has not resumed such performance, in compliance with all
applicable laws, within one hundred twenty (120) days following the date as of
which performance was prevented; or

(viii) in the event the conditions for termination arise as
provided in Section 10.7.

If any of these events should occur, then and in addition to the other
rights and remedies which the ANRC may have at law or in equity, the ANRC may,
subject to the rights of VITEX under the provisions of Section 8.2, immediately
terminate this Agreement by written notice, which shall set forth the event or
events of default that have occurred. The termination shall be effective as of
the date specified in the notice.

(c) By Either Party. Subject to the right of any Party to have any
---------------
dispute hereunder resolved in accordance with the provisions of Section 8.2.,
this Agreement may be terminated upon thirty (30) days prior written notice from
the terminating Party to the non-terminating Party in the following
circumstances:

42
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

***************************************************************************
***********************

***************************************************************************
*********************************************

Notwithstanding the foregoing, (i) a Party giving the above notice
must give it within thirty (30) days of the event giving rise to the right of
termination and (ii) no Party who is then in material breach of this Agreement
shall have the right to exercise the right of termination provided for in this
subsection (c) during the pendency of such material breach or if such Party's
breach resulted in the failure to meet such sales levels.

7.3 Obligations Upon Termination or Expiration. Upon termination or
------------------------------------------
expiration of this Agreement the mutual rights and obligations of the Parties
shall forthwith terminate to the extent of such termination; provided that no
---------
such expiration or termination shall terminate or otherwise affect (i) the
Parties' respective obligations under Section 5. 4 (to the extent payments are
due on the date of termination), 6.6, Section 8.2, and Section 9.4, as
applicable, (ii) any right or obligation accruing hereunder prior to such
expiration or termination, or accruing thereafter in respect of any event
occurring prior thereto and (iii) unless VITEX shall notify the ANRC of its
objection to further sale of the Product, the ANRC shall have the right to
dispose of its existing inventory of the Product (including the Product ordered
prior to termination but delivered after termination) in the ordinary course of
business during the six (6) month period following the date of termination.
After such termination or expiration, (a) VITEX shall not be required to accept
any new Purchase Orders from the ANRC or fulfill Purchase Orders that have not
been delivered

43
<PAGE>

as of the date of termination and (b) except as expressly set forth above, the
ANRC shall immediately discontinue selling, marketing and distributing the
Product. In the event of any termination pursuant to Section 7.2(a) above, the
ANRC shall immediately (a) assign and transfer to VITEX any and all rights the
ANRC may have with respect to any Registrations relating to the Product to the
extent permissible under applicable law and (b) make available, transfer and
assign to VITEX any other information available to the ANRC with respect to any
Registrations and the Product. In the event of any termination pursuant to
Section 7.2(b) above, VITEX shall provide the ANRC with such assistance as may
be reasonably requested by the ANRC in order to enable the ANRC to arrange for
an alternative processing source for the Product, provided, however such
alternative processing source must enter into a license agreement with VITEX in
form and substance reasonably satisfactory to VITEX for the utilization of
Patent Rights to process Input to manufacture the Product. Upon termination or
expiration of this Agreement, except as provided in Section 6.6(4), VITEX shall
return all unprocessed Input to the ANRC and complete the processing of all
pooled Input to the extent reasonably possible.

7.4 Termination By the ANRC. The ANRC may terminate this Agreement
-----------------------
without liability if within thirty days after the Effective Date, (i) the ANRC
receives a written opinion of its legal counsel addressed to the ANRC that the
Product cannot be manufactured, used or sold in the Territory based upon the
valid, United States patent rights of persons other than VITEX and the NYBC and
(ii) the ANRC notifies VITEX of such termination and its receipt of such opinion
and the ANRC provides a copy of such opinion to VITEX.

44
<PAGE>

SECTION 8
---------

INTERPRETATION AND ENFORCEMENT

8.1 Rules of Interpretation.
-----------------------

(a) Waiver. The waiver by either Party hereto of a breach or default
------
in any of the provisions of this Agreement by the other Party shall not be
construed as a waiver of any succeeding breach of the same or other provisions;
nor shall any delay or omission on the part of either Party to exercise or avail
itself of any right, power, or privilege that it has or may have hereunder
operate as a waiver of any breach or default by the other Party.

(b) Headings. The headings of the articles and sections of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.

(c) Separability. If any provision of this Agreement is found by any
------------
panel of arbitrators referred to in Section 8.2 below or by any court of
competent jurisdiction to be invalid or unenforceable, the invalidity of such
provision shall not affect the other provisions of this Agreement and all
provisions not affected by such invalidity or unenforceability shall remain in
full force and effect.

8.2 Resolution of Disputes. Any dispute arising out of or relating to any
----------------------
provision of this Agreement or to the Parties' performance of any of their
respective obligations hereunder, whether or not any such dispute involves a
cause of action or claim for relief within the jurisdiction of a court of law or
equity, shall be resolved in the following manner: such dispute shall be set
forth in writing by representatives of both VITEX and the ANRC and shall
promptly

45
<PAGE>

be presented to the duly appointed representatives of VITEX and the ANRC. Such
duly appointed representatives shall forthwith negotiate in good faith in order
to resolve such dispute as soon as possible. If, within ten (10) days after the
submission of any such dispute to them, such representatives are unable to work
out a mutually agreeable solution, or to agree to continue such good faith
negotiations for an additional period of time, such dispute shall be settled by
arbitration before a panel of three (3) arbitrators chosen by such
representatives within ten (10) days after they determine that they cannot
resolve any dispute by their good faith negotiations. If such representatives
cannot agree upon the selection of the arbitrators, the arbitrators shall be
selected according to the Rules of the American Arbitration Association as at
the time in effect. Such arbitration shall take place in New York City, New
York in accordance with such Rules. Any decision of the arbitrators shall be
final and binding upon the Parties, and the Parties expressly agree to abide by
any equitable relief granted in such arbitration. The Parties shall bear the
costs, including attorneys' fees, in connection with any such arbitration in
accordance with the arbitrators' determination thereof. Judgment upon any award
of the arbitrators may be entered in any court of competent jurisdiction.
Except in cases of purported fraud, no Party to the arbitration shall have any
right to bring any action to challenge any such arbitration award hereunder, nor
shall it be permitted to oppose any petition to confirm such an award hereunder.
Notwithstanding the foregoing, either Party hereto may seek equitable relief in
a court of competent jurisdiction.

8.3 Governing Law. This Agreement is made and executed in the State of
-------------
New York and shall be governed by the laws of the State of New York in all
respects, without regard to

46
<PAGE>

principles of conflicts of law, including matters of validity, construction,
performance and remedy.

SECTION 9
---------

PARTIES' RELATIONS

9.1 No Assignment. This Agreement shall not be assignable by either party
-------------
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, either Party may, without
the consent of the other Party, assign this Agreement to a transferee or
successor in interest of all or substantially all of the business to which this
Agreement relates, whereupon this Agreement shall bind and inure to the benefit
of any such transferee, successor or assignee; provided however that any such
transferee, successor or assignee shall expressly assume in writing the
performance of all of the terms and conditions of this Agreement to be performed
by it.

9.2 Distributors and Agents. The ANRC may, with the prior written
-----------------------
approval of VITEX, which approval shall not be unreasonably withheld, appoint as
distributors or agents entities which are not FDA licensed blood centers for the
sale, distribution and promotion of the Product in the Territory or any part
thereof, provided that the appointment thereof shall not relieve the ANRC of any
of its responsibilities hereunder.

9.3 Relationship Between Parties. The ANRC and VITEX agree that in all
----------------------------
matters relating to this Agreement they are and shall be acting as independent
contractors and shall bear all of their expenses in connection with this
Agreement. Neither the ANRC nor VITEX is, and

47
<PAGE>

shall not hold itself out as, an agent, partner or joint venturer of the other.
Neither the ANRC nor VITEX shall have any authority to assume or create any
obligation, express or implied, on behalf of the other. Neither the ANRC nor
VITEX shall make quotations or write letters in the name of the other but in
every instance shall use its own name.

9.4 Confidential Information.
------------------------

(a) Disclosure to Third Parties. During the term of this Agreement
---------------------------
and after termination of this Agreement for any reason neither Party shall, nor
shall it permit its respective directors, trustees, officers, employees,
independent contractors, consultants, agents, or Affiliates to use or disclose
to any third party, except as may be required by the FDA or other Governmental
Authorities, any proprietary information received from or related to the other
Party hereto, including, without limitation, any information relating to the
Proprietary Rights and the Product or otherwise relating to any technology,
know-how, trade secrets, designs, methods, customer information, practices,
ideas, discoveries, processes and other information relating to the business of
the other Party (all information set forth above referred to collectively as the
"Confidential Information") except as permitted in writing by the other party,
and except as specifically permitted hereunder. Each party shall be permitted
to disclose to any of its directors, trustees, officers, employees, independent
contractors, consultants and agents with a need to know, such portion of such
Confidential Information as is necessary to permit such party to exercise any
right or perform any obligation hereunder, provided that each such party
acknowledges and agrees to be bound by the terms of this Section.

48
<PAGE>

(b) Exceptions. Confidential Information shall not include information
----------
which (i) was at the time of disclosure generally known to the public through no
fault of the receiving party of the Confidential Information, (ii) subsequently
becomes generally known to the public other than by breach of this Agreement,
(iii) the receiving party, by documentary evidence, can demonstrate was known to
or in the possession of the receiving party prior to disclosure by the
disclosing party, or (iv) the receiving party, by documentary evidence, can
demonstrate became known to the receiving party subsequent to disclosure by the
disclosing party through a third party having no obligation of confidentiality
to the disclosing party.

(c) Disclosure of Confidential Information. If either Party hereto
--------------------------------------
becomes legally compelled to disclose any Confidential Information of the other
Party, that Party will promptly notify the other Party so that the other Party
may seek a protective order or other appropriate remedy and/or waive compliance
with the provisions of this Agreement. If a protective order or other remedy is
not obtained, or if the other Party waives compliance with the provisions of
this Agreement, the disclosing Party or such other person shall furnish only
that portion of the Confidential Information which such Party is legally
required to disclose and such Party will not oppose any action by the other
Party to obtain other reliable assurance that confidential treatment will be
accorded such Confidential Information.

(d) Further Action. Each of the Parties shall take such further
--------------
action as shall be reasonably requested by the other Party to ensure the
safeguarding and confidentiality of the other Party's Confidential Information.

49
<PAGE>

(e) Limitation. The ANRC recognizes that VITEX may wish to sell securities
----------
which may be registered under the Securities Act of 1933, as amended or in one
or more private placements. The foregoing provisions of this Section shall not
restrain VITEX from making disclosures which its counsel recommends pursuant to
such Act, the Securities Exchange Act of 1934, as amended or to a purchaser in a
private placement.

(f) The provisions of this Section shall survive termination,
cancellation or expiration of this Agreement and of the Amended Restated First
Collaboration Agreement, as amended and restated.

9.5 Publicity. The Parties agree not to issue any press release or
---------
other public statement disclosing the existence of or relating to the terms and
conditions of this Agreement without the prior written consent of the other
Party. Notwithstanding, neither Party shall be prevented from complying with
any duty of disclosure it may have pursuant to law or from making such
disclosures as counsel recommends in connection with potential or actual legal
disputes with third parties.

9.6 Use of Tradenames and Trademarks. The Parties agree not to use
--------------------------------
directly or indirectly the other Party's tradenames or trademarks in connection
with promotions, advertising or sales activity without the prior written consent
of the other Party. All material in connection with such activities which is
submitted by one Party to the other Party for its consent shall be in compliance
with the consenting Party's written specifications for the use of its tradenames
or trademarks. Any consent granted under this Section shall not excuse any
failure to comply with such specifications. If a Party determines that the
other Party's use of its

50
<PAGE>

tradenames and trademarks is not in compliance with such Party's written
specifications, then that Party shall be entitled to request that the other
Party refrain from using such tradenames or trademarks within three (3) days
from the receipt of written notice of such request. Notwithstanding any consent
previously given, a Party may revoke its consent as to specific uses of its
tradenames or trademarks provided however that such revocation shall not take
effect until the supply of such material in existence before such revocation
has been exhausted.

SECTION 10
----------

MISCELLANEOUS

10.1 Entire Agreement. This Agreement and the Schedules hereto, which are
----------------
an integral part hereof, embody the entire understanding between the Parties
with respect to the subject matter hereof. The Parties agree that no
representations have been made or relied upon, except as specifically stated in
this Agreement. Notwithstanding the foregoing, this Agreement shall not
supersede the Amended Restated First Collaboration Agreement.

10.2 Modifications. This Agreement may be modified only by a writing
-------------
signed by both Parties.

10.3 Notices. Unless otherwise specifically provided, all notices,
-------
demands, or requests required or permitted by this Agreement shall be in writing
and may be delivered personally or by facsimile transmission, or may be sent by
mail, addressed to the addresses set forth below or such other addresses that
the Parties may designate in writing pursuant to this Section 10.3. Any notice
delivered personally or by facsimile transmission shall be deemed received on
the date

51
<PAGE>

thereof, and any notice given by mail shall be deemed received on the third
business days after the postmarked date thereof. Nothing contained herein shall
justify or excuse failure to give oral notice for the purpose of informing the
other Party thereof when prompt notification is appropriate, but such oral
notice shall not satisfy the requirement of written notice.

If to VITEX: V.I. Technologies, Inc.
155 Duryea Road
Melville, New York 11747
Attention: President
with a copy to: Facsimile: (516) 752-8754

Gibbons, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Frank E. Lawatsch, Jr.
Facsimile: (973) 639-6249

If to the ANRC: American National Red Cross
1616 Fort Myer Drive, 17th Floor
Rosslyn, Virginia 22209-3100
Attention: Chris Lamb
Facsimile: (703) 312-8742

with a copy to: American National Red Cross
Office of General Counsel
1616 Fort Meyer Drive, 18th Floor
Rosslyn, Virginia 22209-3100
Facsimile: (703) 312-5728

10.4 No Third-Party Benefits. Nothing in this Agreement shall be construed
-----------------------
to confer upon any Person not a Party hereto any right, remedy or claim
hereunder.

52
<PAGE>

10.5 Modification of First Collaboration Agreement. To the extent the
---------------------------------------------
provisions in this Agreement are inconsistent with the provisions of the Amended
Restated First Collaboration Agreement, the provisions of this Agreement shall
govern.

10.6 Tax Exempt Status of the ANRC. Notwithstanding any other provision in
-----------------------------
this Agreement, the ANRC shall not be required to engage in any activity that
would jeopardize the charitable tax exempt status of the ANRC nor shall the ANRC
or VITEX be required to engage in any activity that presents a reasonable
likelihood of the imposition of intermediate sanctions under the Internal
Revenue Code of 1986, as amended, on VITEX, the ANRC or managers of the ANRC.

10.7 Severability. In the event implementation of any of the provisions
------------
of this Agreement present a material risk of loss of the ANRC's tax exempt
status or the imposition of intermediate sanctions under the Internal Revenue
Code of 1986, as amended, or if any provision of this Agreement is held invalid,
illegal or unenforceable in any jurisdiction ("Invalid Provision"), the Parties
shall promptly negotiate in good faith a lawful, valid enforceable provision
that is similar in terms to such Invalid Provision as may be possible while
giving effect to the future benefits and burdens accruing to the Parties
hereunder, and which removes the risk, if any, of loss of the ANRC's tax exempt
status and the imposition of intermediate sanctions under the Internal Revenue
Code of 1986, as amended. The remaining provisions of this Agreement shall
remain binding on the Parties hereto. In the event that the Parties cannot agree
on a provision to replace an Invalid Provision, at the ANRC's election, the
Parties shall attempt to renegotiate their relationship in good faith under
commercially reasonable terms, or this Agreement shall terminate under either
Section 7.2(a)(xii) or Section 7.2(b)(viii) of this

53
<PAGE>

Agreement. The ANRC does not believe on the date hereof that any provisions of
this Agreement are an Invalid Provision.

54
<PAGE>

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the 17 day of
December, 1998.

V.I. TECHNOLOGIES, INC.

By: /s/ John R. Barr
--------------------------------
Name:
Title:

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

AMERICAN NATIONAL RED CROSS

By: /s/ Philip C. Yenrich
--------------------------------
Name: Philip C. Yenrich
Title: Contracting Officer
12/17/98

55
<PAGE>

SCHEDULES

Schedule 1.21 Specifications of the Input

Schedule 1.23 Know-How

Schedule 1.30 Patent Rights

Schedule 1.35 Specifications of the Product

Schedule 1.37 Form of Purchase Order

Schedule 3.3 ANRC Marketing Expenses Proposal

Schedule 4.5 VITEX Marketing Expenses Proposal

Schedule 5.8 Records and Reports

Schedule 6.3 Insurance Coverage
<PAGE>

SCHEDULE 1.21

SPECIFICATIONS OF THE INPUT
---------------------------
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

PLASMA FOR SOLVENT/DETERGENT (SD)
---------------------------------

PLASMA PROCESSING SPECIFICATIONS
--------------------------------
(the "SPECIFICATIONS")
----------------------

1.0 OBJECTIVE

To establish a program for the acceptance of plasma by V.I. Technologies,
Inc. ("VITEX") for use in SD Plasma processing.

2.0 DEFINITIONS

2.1. Plasma for SD Plasma Processing (the "PSDP") - The fluid portion of
whole blood (Human) collected in the U.S. by FDA-licensed blood centers
from volunteer, non-remunerated donors and containing no additives other
than FDA approved anti-coagulant. The plasma must have been drawn from
adult humans who are in good physical condition to give blood, in so far as
can be determined by personal history and physical examination on the date
of collection.

In order for plasma to be acceptable for use in the production of SD Plasma
it needs to meet the requirements for Recovered Plasma (Frozen) or Source
Plasma from plateletpheresis or plasmapheresis as well as the additional
requirements outlined in these SPECIFICATIONS. The plasma shall be
separated from red cells and frozen solid no longer than ******** after
collection. (It is preferable for the plasma derived from a whole blood
collection to be separated from both red cells and platelets, but this is
not required.) The plasma shall be frozen flat and stored continuously at
---
************* or below. Once frozen, plasma may not be thawed.

Plasma for SD Plasma Processing must be collected, prepared (processed),
labeled and stored in accordance with these SPECIFICATIONS and in a manner
fully consistent with plasma or any blood component intended for
transfusion, e.g. FFP or Red Blood Cell Concentrate. PSDP needs to be
labeled by ABO type. As such, PSDP must undergo a blood center's normal
cGMP practices for unit release and labeling and ultimate release for
distribution (i.e. release for transport by VITEX's authorized carrier to
VITEX for SD Plasma Processing) as would be the case for any labeled blood
component intended for transfusion.

VITEX RETAINS THE RIGHT TO REJECT OR OTHERWISE NOT ACCEPT ANY UNITS OF
PLASMA FOR SD PLASMA PROCESSING WHENEVER IT BELIEVES, IN ITS SOLE
DISCRETION, THAT THE UNITS SUPPLIED ARE NOT IN FULL CONFORMANCE WITH THESE
SPECIFICATIONS.

1
<PAGE>

2.2 Short Supply Agreement - An agreement between a plasma supplier and
VITEX, signed by the respective Responsible Heads or by their designated
individuals, in accordance with 21 CFR 601.22. By completing and signing
the Short Supply Agreement, the plasma supplier certifies that it has
received these SPECIFICATIONS and has read and understood them, and that
the plasma supplier will abide by all terms and conditions as stated in
these SPECIFICATIONS.

3.0. PROCEDURE

3.1. Within two weeks of the date of the Short Supply Agreement, and upon
any reasonable request by VITEX thereafter while a Short Supply Agreement
between the parties is in effect, the plasma supplier will provide VITEX
with a copy of its current FDA Establishment License.

3.2 The SPECIFICATIONS outlined herein are applicable to plasma used in the
production of products in short supply, as defined in 21 CFR 601.22.

3.3 The following regulations and other requirements apply specifically:

3.3.1. 21 CFR 606.3 through 606.170 - Current good manufacturing practices
for blood and blood components.

3.3.2. 21 CFR 610.40 and 610.41 - Standards for Hepatitis testing.

3.3.3. 21 CFR 610.45 - Human Immunodeficiency Virus (HIV-1/2) requirements
and recommendations).

3.3.4. 21 CFR 640.1 through 640.5 - Standards for collection and testing
of whole blood.

3.3.5. 21 CFR 640.16 and 21 CFR 640.24 - Preparation of plasma and
platelets.

3.3.6. 21 CFR 606.121 - Standards for labeling, including 21 CFR
606.121(c)(12) with respect to ABO labeling requirements.

3.3.7. Plasma for SD Plasma Processing is to be collected only from
volunteer, non-remunerated donors under the age of 59.5. Donor selection,
blood collection and record

2
<PAGE>

keeping shall be performed according to FDA approved procedures (including
the requirements of the December 11, 1996 guideline "Interim
Recommendations for Deferral of Donors at Increased Risk for HIV-1 Group O
Infection" and "Revised Precautionary Measures to Reduce the Possible Risk
of Transmission of Creutzieldt- Jakob Disease (CJD) by Blood and Blood
Products") and the procedures defined in the current edition of the AABB
"Standards for Blood Banks and Transfusion Services".

Persons who have received treatment with extracts from human pituitary
glands, such as growth hormone, gonadotropins or thyroid-stimulating
hormone (thyrotropin), are not acceptable as donors. Persons having
received dura mater grafts are not acceptable as donors.

Autologous donors are not acceptable. Plasma that has been irradiated is
not acceptable.

The plasma pooled by VITEX must reflect the original antibody spectrum of
the donor population. It should be neither enriched nor deprived of
special antibodies, either by screening or by adsorption methods, except
for antibodies against HIV, HCV and HTLV. Anti-HBc positive donations
should not be removed. If for its own reasons a plasma supplier wishes to
remove anti-HBc positive donations from its shipments, the supplier must
inform VITEX of this in writing before the first shipment without anti-HBc
positive units is to be shipped to VITEX.

Donor documentation (donor assessment, identification, test results) is to
be kept for at least 10 years.

3.3.8 All units of PSDP must be tested by an FDA approved method and found
negative or non-reactive to the following tests: HBsAg, RCV antibody, HIV-
1/2 antibodies, HIV-1 antigen (HIV- Ag) and Syphilis. (ALT testing is not
required.)

3
<PAGE>

3.3.9 Donors of all units of PSDP collected as of February 15, 1998 must be
tested, and found negative, for HTLV-II by an FDA licensed donor screening
test.

3.3.10 Positive antibody screen (red cell antibodies) units are to be
excluded.

3.3.11 Only single units in FDA-approved satellite bags of a closed
multiple system are acceptable. Pooled plasma will not be accepted. The
volume per unit must be at least 160 mL.

3.3.12 The plasma supplier's manufacturing process must assure that plasma
units are free of microbial or pyrogenic contamination, essentially free of
red blood cells, and the hemoglobin content is not to exceed 100mg per
100mL. Grossly lipemic units will not be accepted. Leaking, damaged or
cracked bags are not to be shipped.

3.3.13 Only plasma which has been collected and processed under the
Establishment License number which has been defined in the mutually-agreed
Short Supply Agreement may be delivered to VITEX.

Within two weeks of the date of the Short Supply Agreement, VITEX must be
informed if the HBsAg, anti-HIV 1/2, anti-HCV, HIV-1 antigen or Syphilis
antibody tests are not performed under the same Establishment License as
the Establishment License for the collection and processing operations. In
addition, in those cases where the testing defined in the preceding
sentence is performed under a different Establishment License, the
responsibilities between the plasma supplier (i.e. the blood collection
center) and the testing laboratory must be provided in writing to VITEX.

3.3.14 If FDA requires any additional screening tests or testing
modifications, such testing shall be implemented as soon as required.

4
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

3.4 Prior to freezing, PSDP is to be stored at room temperature (not
refrigerated) whenever allowed under 21 CFR 640 regulations. Units must be
frozen solid within ******** after collection.

3.5 If Fresh Frozen Plasma (FFP) originally prepared from whole blood is to
be used as PSDP, then each unit must be relabeled as Recovered Plasma in
accordance with Section 3.8 below.

3.6 If FFP prepared by plateletpheresis or plasmapheresis is to be used as
PSDP, then each unit must be relabeled as Source Plasma in accordance with
Section 3.8 below. (A blood center will need to hold a Source Plasma
license to ship such material for SD Plasma processing.)

3.7 Prior to shipment to VITEX (or pick-up by its contract carrier),
units of PSDP may be stored at ************************************
*********************************************************

3.8 The labeling on each unit shall comply with all applicable FDA
requirements. The following information shall be displayed on the front of
the plasma bag:

3.8.1 Donor number: each plasma unit has to be labeled with a unique
donor/donation number and labeled with the bar code corresponding to this
number.

3.8.2 Collection date or expiration date.

3.8.3 Name, address, and Registration number of the blood center.

3.8.4 The name "RECOVERED PLASMA" in a prominent position if the unit is
prepared from whole blood or was prepared originally as FFP from whole
blood. The name "SOURCE PLASMA" needs to appear in a prominent position if
the unit originally was prepared as Fresh Frozen Plasma from platelpheresis
or plasmapheresis.

3.8.5 Statement of the volume of plasma and the type of anti- coagulant
used.

3.8.6 Statement to indicate that the plasma was frozen within ********
after collection.
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

3.8.7 Recommended storage temperature, i.e., store at or below
************.

3.8.8 Statement that the plasma is non-reactive for HBsAg, HIV-Ag and
negative for antibodies to HIV-1/2 and HCV by FDA approved tests.

3.8.9 The statement: "CAUTION: FOR MANUFACTURING USE ONLY".

3.8.10 The unit must indicate ABO type. (Note: Rh + or - may be included
on the label, but is not required; either is acceptable for SD Plasma
processing.)

3.8.11 Any bar code symbology used on the label must comply with current
approved FDA guidelines.

3.8.12 Examples of product labels that conform to the requirements of
this Section 3.8 are shown in FRAP0001G/4 and FRAP0001G/5, attached to
these SPECIFICATIONS.

3.9 The shipment of each ABO type represents a separate shipment for
documentation purposes. Therefore, each shipment requires its own Summary
Control Sheet (see 3.9.5 below) and Bill of Lading (see 3.9.6 below). Each
shipment of PSDP must be packaged, labeled and documented as outlined
below:

3.9.1 Only shipping cartons provided by VITEX may be used to ship PSDP to
VITEX.

3.9.2 All units of PSDP must be segregated by type (A, B, O, AB) into
separate shipping cartons at the blood center. Each shipping carton will
hold 20 units of PSDP processed from whole blood. The ABO type will need
to be clearly marked on the shipping carton exterior (see 3.9.3 below). No
mixing of ABO type will be allowed.

3.9.3 Each shipping carton of plasma must be labeled with the approved
label provided by VITEX. The label is to be placed in the space indicated
on the shipping carton. The following information is to be entered onto

6
<PAGE>

the label (see FRAP0001G/6 for an example of a properly completed shipping
carton label):

3.9.3.1 The name and address of the plasma supplier.

3.9.3.2 The Bill of Lading Number.

3.9.3.3 The shipping carton number (e.g. Box 1 of 20) for the shipment.

3.9.3.4 The ABO type is to be designated by circling the applicable type on
the label.

3.9.4 Each shipping carton of plasma must contain a Packing Slip which
includes a list of all of the individual units in that shipping carton.
Donor number and the date of collection or the expiration date are to be
provided on the Packing Slip for each unit. The Packing Slip shall also
include the date and initials of the responsible person, the total number
of units and the total volume (in liters) of plasma in the shipping carton.
(See FRAP0001G/7 for an example of a properly completed Packing Slip.)

3.9.5 Each shipment (by ABO type) must be accompanied by a Summary
Control Sheet referencing each Packing Slip in the shipment, and a copy of
each Packing Slip is to be stapled to the Summary Control Sheet. The
Summary Control Sheet must be enclosed in a sealed plastic bag and placed
in a separate, clearly marked shipping carton. The Summary Control Sheet
must include the name, generation (if applicable) and manufacturer of the
screening tests listed on the Summary Control Sheet and a statement
certifying that all units have been tested and found negative or non-
reactive using FDA- approved tests for the following: HBsAg, HCV
antibodies, HIV- 1/2 antibodies, Syphilis antibodies, and HIV-1 antigen.
The Summary Control Sheet is to be signed and dated by an appropriate
responsible person. (The Summary Control Sheet for shipping PSDP to VITEX
is shown as FRAP0001G/8.)

7
<PAGE>

3.9.6 Each shipment (by ABO type) must be accompanied by a properly
completed Bill of Lading (BOL). The BOL will include (FRAP0001G/9 provides
an example of a properly completed BOL):

3.9.6.1 The name and address of the processing establishment.

3.9.6.2 A BOL number which will consist in part of a shipper number
assigned by VITEX to each processing establishment shipping PSDP to VITEX
and a sequential shipment number (assigned by the blood center).

3.9.6.3 The date of shipment.

3.9.6.4 The consignee (i.e. VITEX) and the consignee's address (i.e.
c/o Caliber Logistics Healthcare, 525 Park East Boulevard, New Albany, IN
47150).

3.9.6.5 the number of shipping cartons in the shipment and the
description of contents (i.e. Plasma for SD Plasma Processing), the total
number of units, the total weight in Kg and the total volume in liters.

3.9.6.6 The shipper's signature.

3.9.7 The processing establishment must retain a copy of the Bill of
Lading, the Packing Slips, and the Summary Control Sheet for each shipment
to facilitate any future tracking and recovery of a unit shipped to VITEX
for SD Plasma processing.

3.10 To optimize the packaging of plasma units, the following guidelines
are provided:

3.10.1 The bottom of the shipping carton provided by VITEX is to be taped
closed.

3.10.2 PACK ONLY ONE BLOOD TYPE PER SHIPPING CARTON.

3.10.3 Remove all tags and strings from the plasma units.

8
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

3.10.4 Remove tubing segments.

3.10.5 Stand each plasm unit on its side, alternating port direction, with
labels facing in the same direction.

3.10.6 If the shipping carton is not full, add filler material to protect
the plasma units from breakage. NO SHIPPING CARTON WITH LESS THAN TEN (10)
UNITS SHOULD BE SHIPPED TO VITEX.

3.10.7 The Packing Slip for each shipping carton should be enclosed in a
sealed plastic bag to protect it from leaks and then placed inside the
shipping carton.

3.10.8 Each shipping carton is to be sealed with tape.

3.11 Ship cartons containing PSDP (or turn over to the VITEX designated
carrier) at ************* or below.

3.12 Notification and Recall - **************************************
******************************************************************
********************************************************************
*****************************************************************
********************************************************************
*******************************************************************
***********

****** ***********************************************************
***********************************************************
**************************************************

9
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

***********************************************
***************************************

******** ***********************************************
***************************************** ***********

3.12.2.3 A recipient develops a post transfusion infection that can be
traced back to the donor.

******** ******************************************
***********************************************
************************************************ ******************

3.12.3 All necessary information (See FRAP0001G11, "PLASMA NOTIFICATION"
form) is to be provided to VITEX (Attention: Quality Assurance Department)
by fax at (516) 752-8768 and the original PLASMA NOTIFICATION form also
mailed to:

Quality Assurance Department V.I. Technologies, Inc. (VITEX) 155 Duryea Road
Melville, NY 11747

3.13 Each blood center shall maintain a quality assurance system that
provides confidence that all systems and elements that influence the
quality and safety of the PSDP are as expected.

3.14 Failure to comply with any of the aforementioned SPECIFICATIONS
shall be sufficient cause for VITEX to reject any PSDP delivered to VITEX.

4.0 RESPONSIBILITIES

4.1 Plasma Suppliers - It is the responsibility of each plasma supplier
to ensure that the collection, preparation, testing, labeling and storage
of all PSDP has been carried out according to all of these SPECIFICATIONS.
A written recall procedure in conformance with current FDA requirements
shall be in place. (See FRAP0001G/10 for Recall and Lookback Procedure
Guidelines.)

10
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

4.2 Transportation Contractor - It is the responsibility of the
Transportation Contractor to pick up and deliver the PSDP in acceptable
condition to the proper storage location. Storage during transit must be
shown to have been carried out at ******** or colder.

4.3 VITEX Records Retention Department - It is the responsibility of
Records Retention to maintain all records associated with shipments of
PSDP.

4.4 VITEX Quality Assurance Inspectors - It is the responsibility of the
Quality Assurance Inspectors to follow the established Warehouse - Quality
Assurance System.

5.0 ADDITIONAL INFORMATION

5.1 VITEX reserves the right to conduct on-site visits, either by the
VITEX Quality Assurance Department or by another qualified party designated
by VITEX, of Plasma Supplier's operations under 21 CFR 601.22. VITEX
reserves the right to reject incoming shipments of Plasma for SD Plasma
Processing that fail to meet these SPECIFICATIONS.

5.2 Short Supply Agreement - Under FDA Establishment License number 386,
VITEX is authorized under the Products in Short Supply regulations to
further manufacture plasma collected at licensed whole blood collection
centers. A signed Short Supply Agreement between the collection center and
the manufacturer, VITEX, shall be available for inspection by FDA
investigators.

5.3 All Packing Slips pertinent to the PSDP units received will remain on
file in the VITEX Records Retention Department.

6.0 DOCUMENTATION

6.1 FRAP0001G/4 - Example of PSDP Label - Recovered Plasma (Frozen).

6.2 FRAP0001G/5 - Example of PSDP Label - Source Plasma.

6.3 FRAP0001G/6 - Example of PSDP Shipping Carton Label.

6.4 FRAP0001G/7 - Example of PSDP Packing Slip.

6.5 FRAP0001G/8 - PSDP Summary Control Sheet.

11
<PAGE>

6.6 FRAP0001G/9 - Example of PSDP Bill of Lading.

6.7 FRAP0001G/10 - Recall and Lookback Guidelines.

6.8 FRAP0001G/11 - PLASMA NOTIFICATION Form.

6.9 FRAP0010/1 - Short Supply Agreement (Fractionation)

6.10 FRAP0010/2 - Short Supply Agreement (SD Plasma)

If there are any questions with respect to these
SPECIFICATIONS, please contact VITEX, Quality Assurance
Department, by phone: (516) 752-7314 ext. 126 or 127
by fax: (516) 752-8768

12
<PAGE>

[Example of PSDP Label - Recovered Plasma (Frozen)]

13
<PAGE>

RECALL AND LOOKBACK PROCEDURE GUIDELINES FOR BLOOD CENTERS
------------------------------------------------------------

The plasma supplier providing Plasma for SD Plasma Processing to VITEX shall
have in place a written recall procedure that will include the following:

1. Distribution procedures that will document the production, labeling and
shipment of each plasma unit so that the disposition of the unit can be readily
determined to facilitate its recall, if necessary. Information on the date of
collection, date of shipment, bill of lading number, and carton, number shall be
accessible, and whether the plasma is recovered, from plasmapheresis, or from
plateletpheresis.

2. The possible reasons to initiate a recall, e.g. donor reconsideration,
incomplete donor history, testing deficiencies, viral marker reactivity,
positive confirmatory tests, etc. If the unit is considered unacceptable for
transfusion for any reason, VITEX should be notified within seventy- two (72)
hours of such a determination, giving the specific reason as well as all test
results.

3. Procedures for the delegation of the authority to initiate a recall.

4. Lookbacks - instructions should indicate that any FDA-recommended lookback
be performed.

5. CJD - (Creutzfaldt - Jakob Disease) - the conditions under which unit is to
be recalled for CJD of the donor or a relative, in accordance with current FDA
guidelines.

6. For any recall:

. To expedite retrieval of a plasma unit, please fax all necessary
information to VITEX at Fax number (516) 752-8768. The attached PLASMA
NOTIFICATION form (FRAP0001G/11) provides an example of the information to be
provided to VITEX and the appropriate fax and phone numbers.

Also, mail the original to:
Quality Assurance Department
V.I. Technologies, Inc. (VITEX)
155 Duryea Road
Melville New York 11747

7. The unit being recalled will be destroyed by VITEX (if it is still
available); written notification will be sent confirming that the unit has been
destroyed.

14
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

VITEX PSDP SUMMARY CONTROL SHEET
AND LETTER OF TESTING CERTIFICATION

Blood Center Name: __________________________________
Address: ____________________________________________
City, State, Zip: ______________________________________
FDA License Number: _________________________________
Phone: ______________________________________________
Fax: ________________________________________________

TO: QA Department Phone # (516) 752-7314 ext. 126 or 127
V.I. Technologies, Inc. (VITEX) Fax # (516) 752-8768
155 Duryea Road
Melville, NY 11747

Please be advised that we are shipping one of the following:
_____Recovered Plasma (Frozen, within **** hours). ABO Type - A B AB O (circle
one)
_____Source Plasma. ABO Type - A B AB O (circle one)

Bill of Lading Number: ___________ Number of Boxes:____________

The shipment contains ___________ plasma units.

The shipment contains _____________ liters of plasma.

All donations are from bleed date__________to bleed date__________.

All units have been stored at *************** for _________ days.

and ______________at ***************
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
************** ***************** ********** ************
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*****
- -------------------------------------------------------------------------------------------------
**************** -
- -------------------------------------------------------------------------------------------------
*************
- -------------------------------------------------------------------------------------------------
********
- -------------------------------------------------------------------------------------------------
*************
- -------------------------------------------------------------------------------------------------
</TABLE>

***************************************************************************

**********************************************************

__________________________________________________________________
Signature of Responsible Head or Designee Date

15
<PAGE>

PLASMA NOTIFICATION

DATE:_________________________

TO: FROM:
Quality Assurance Department Blood Center Name: ___________________
V.I. Technologies, Inc. (VITEX) Address:______________________________
155 Duryea Road City, State, Zip: ___________________
Melville, New York 11747 FDA License Number:___________________
(P) 516-752-7314 x 126 or 127 Name: ________________________________
(F) 516-752-8768 Signature:____________________________
Phone: _______________________________
Fax: _________________________________

Our records indicate that we have shipped the following plasma unit(s) to your
facility and have subsequently initiated a recall or lookback. Please destroy
the unit if it has not been further manufactured.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Unit Number BOL # To VITEX Date Shipped Box Number Type of Plasma
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>

Reason for notification:

Medical History Deferral/Self Exclusion

This unit has been tested and found non-reactive/negative by FDA recommended

viral marker test procedures. Reason for request to destroy plasma unit:

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

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

16
<PAGE>

[Example of PSDP Label - Source Plasma]

17
<PAGE>

[Example of PSDP Shipping Carton - Label]

18
<PAGE>

EXAMPLE OF PSDP PACKING SLIP
-----------------------------

Shipment Information: -
- ---------------------

Ship Date: Shipment Number:

Shipped to: Shipping Region: -
- --------------------------------------------------------------------------------

Carton Information: -
- ------------------

Carton/Control Number: Units in Carton:

<TABLE>
<CAPTION>
Product Type: Frozen Recovered Plasma Net Weight: Kg-
- ----------------------------------------------------------------------

Unit Number Coll. Date Unit Number Coll. Date Unit Number Coll. Date
<S> <C> <C>
1. 011 017 73 01/20/97 2. 011 017472 01/20/97 3. 011FN57196 01/20/97
4. 011 596 53 01/20/97 5. 011 596061 01/20/97 6. 011FF37544 01/20/97
7. 011FZ34 36 01/20/97 8. 011FC54829 01/20/97 9. 011LX21421 01/20/97
10. 011FZ12 29 01/21/97 11. 011 596040 01/20/97 12. 011FC34836 01/20/98
13. 011FF37 45 01/20/97 14. 011 596050 01/20/97 15. 011FF37842 01/20/97
16. 011 596 57 01/20/97 17. 011 596052 01/20/97 18. 011FC3 824 01/20/97
19. 011FC34132 01/20/97 20. 011 596959 01/20/97
</TABLE>

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

Carton packed by Date:
--------------------------------

Verified by Date:
-------------------------------------

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

19
<PAGE>

[Example of PSDP Bill of Lading]

20
<PAGE>

SCHEDULE 1.23

KNOW-HOW
<PAGE>

SCHEDULE 1.23

Know-How
--------

The use of solvent-detergent technology has become widespread in the
preparation of blood derivatives to inactivate lipid-enveloped viruses. Because
viruses which lack lipid envelopes and/or are heat-resistant (e.g. hepatitis A
(HAV) or parvo virus (B19)) may be present the use of two methods of virus
elimination that operates by different mechanisms has been advocated. The
virucidal treatment of plasma or other protein solutions by ultraviolet
radiation and quenchers (UVC) has as its basis the higher absorption of light
energies between 250 and 260 nm by nucleic acid as compared with protein, and
orders of magnitude larger target presented by nucleic acids. The technology
will enhance existing techniques in the use of UVC irradiation by improving
compatibility with labile proteins through the addition of quenchers of reactive
oxygen species (ROS). Adoption of UVC irradiation has been limited in the past
because of the low recovery of coagulation factors when the fluence was
increased to levels required for complete viral inactivation. Current
experimental data indicates that greater than 10/5/ infectious doses of HAV or
porcine parvo virus could be eliminated at 0.1 J/cm/2/ without significant loss
of valuable coagulation factors. Later experiments have shown that a wide range
of viruses can be inactivated by UVC. The addition of NYBC's UVC treatment to
existing processes used in the manufacture of blood components and derivatives
and other therapeutic proteins will provide a substantial added margin of
safety, especially for non-enveloped viruses.

1
<PAGE>

UVC irradiation requires a specialized piece of equipment - the irradiator.
To deal with the large volumes of material to be irradiated, a device capable of
handling biological fluids in a continuous flow manner was developed. The
current device allows for accurate exposure of the sample with UVC light without
over or underexposure. This capability is achieved by irradiating a thin film
of liquid that flows down the inside surface of a rapidly rotating cylinder set
at a desired angle. In the interior of the cylinder are positioned several UV
lamps. Since the solution is maintained as a thin film throughout transit, it
is irradiated uniformly. The device was designed to be placed in-line in a
pharmaceutical manufacturing setting and to be run for extended periods. In
order to treat larger quantities of material, multiple units can be run in
parallel and the material repooled following treatment.

The device has a complete array of sensors and fail-safes to continuously
monitor operating parameters, e.g. cylinder rotation speed, light intensity,
fluid flow rates, power, and temperature. The system is computer operated and
is intended to meet government regulations. The KNOW-HOW also includes clinical
data, toxicology data, the results of neoimunogen studies, etc., and such other
general information contained in the laboratory notebooks and reports of Dr. B.
Horowitz and of the scientific staff reporting to him.

2
<PAGE>

SCHEDULE 1.30

PATENT RIGHTS
--------------
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

SCHEDULE 1.30

PATENT RIGHTS
--------------

************************************************************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*******************************[3 pages omitted]*************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*************************************************************

1
<PAGE>

SCHEDULE 1.35

SPECIFICATIONS OF THE PRODUCT
-----------------------------
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

SCHEDULE 1.35

SPECIFICATIONS OF THE PRODUCT
-----------------------------

************************************************************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*******************************[2 pages omitted]*************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*************************************************************

1
<PAGE>

SCHEDULE 1.37

FORM OF PURCHASE ORDER
----------------------
<PAGE>

[Form of Purchase Order]

1
<PAGE>

SCHEDULE 3.3

ANRC MARKETING EXPENSES PROPOSAL
--------------------------------
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

Schedule 3.3
ARC MARKETING EXPENSES PROPOSAL

********* (one page omitted) ****************************

1
<PAGE>

SCHEDULE 4.5

VITEX MARKETING EXPENSES PROPOSAL
---------------------------------
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

Schedule 4.5
VITEX MARKETING EXPENSES PROPOSAL

********* (one page omitted) ****************************

1
<PAGE>

SCHEDULE 5.8

RECORDS AND REPORTS
-------------------
<PAGE>

SCHEDULE 5.8

RECORDS AND REPORTS
--------------------

The Reports should discriminate sales (dollars and unit of the Product and
Input) as well as marketing activities directed at customers within a region or
locality by customer class (blood center, hospital and/or other customer).

a) Sales: Nationally, be region, by account, by month and quarter, dollars
and units

b) Sales activity reporting: Nationally, by region, by account, by customer
type/class, by quarter, by representative, including provision for monitoring
targeted special activities, e.g. teleconferences, speakers, training, etc.

c) Database of contracts pending or entered into, by relevant terms:
cost/price, volume, plasma re-purchases ("buy side"), by customer type and
class, i.e. blood center, hospital, blood bank, end-user, intermediaries (BCA),
etc.

1
<PAGE>

SCHEDULE 6.3

INSURANCE COVERAGE
------------------
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

SCHEDULE 6.3

INSURANCE COVERAGE
-------------------

Each Party shall maintain at all times during this Agreement the following
insurance policies at its sole cost and expense:

(a) (1) Commercial General Liability Insurance in an amount of at least
********* naming the other Party an additional insured as its interests may
appear;

(2) an auto liability policy with at least ********** in coverage, and;

(3) Workers' Compensation coverage covering each Party's own employees with
statutory limits for each jurisdiction where the work required under this
Agreement is performed (including monopolistic states if any work is to be
performed in one or more of them) and an employers' liability policy with at
least the following limits: ********** per accident, ********** per disease, and
********** per disease (each employee).

(b) (1) VITEX further agrees to maintain full replacement value "All Risk"
property insurance on all property and equipment of VITEX used under this
Agreement, and said property insurance shall insure at all times all the Product
and VITEX agrees to waive any right of subrogation for loss or damage to any
VITEX property at, on, or in VITEX's facilities or in transit. VITEX agrees to
obtain, if required in such property insurance, a waiver of subrogation in favor
of the ANRC. Said property insurance shall include Business Interruption and
Extra Expense coverage for such losses arising from loss or damage to the
aforementioned VITEX

1
<PAGE>

["****" indicates material omitted and filed separately with the Securities and
Exchange Commission Pursuant to a request for confidential treatment.]

property without expectation of contribution from any such insurance the ANRC
may maintain.

(2) VITEX further agrees to maintain Product Liability Insurance in an
amount not less than ********** specifically insuring claims arising from the
development, manufacture and use of the Product and the performance by VITEX of
its services to the ANRC, as defined in this Agreement and related material,
including, but not limited to, coverage for all expenses, including attorney's
fees, incurred in the investigation, negotiation, arbitration, and defense of
any suit or claim for damages including lost earnings of the ANRC. Said Product
Liability Insurance shall not exclude claims of a professional nature arising
from VITEX's development of the viral inactivation process.

(c) (1) The ANRC further agrees to maintain Professional Liability
Insurance (including medical malpractice) in an amount not less than **********
specifically insuring claims arising from performance by the ANRC of its
services to VITEX as defined in this Agreement and related material, including,
but not limited to, coverage for all expenses, including attorney's fees,
incurred in the investigation, negotiation, arbitration, and defense of any suit
or claim for damages including lost earnings of VITEX.

<PAGE>

EXHIBIT 13.1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
V.I. Technologies, Inc.:

We have audited the accompanying balance sheets of V.I. Technologies, Inc. as of
January 2, 1999 and December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended January 2, 1999. 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 V.I. Technologies, Inc. as of
January 2, 1999 and December 31, 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended January 2, 1999,
in conformity with generally accepted accounting principles.

The Company changed from a calendar year to a 52-53 week fiscal year ending on
the Saturday closest to December 31, beginning with the year ended January 2,
1999.

KPMG LLP

Melville, New York
January 15, 1999
<PAGE>

V.I. TECHNOLOGIES, INC.
Balance Sheets

January 2, December 31,
1999 1997
--------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 35,264,447 $ 5,250,019
Trade receivables............................................. 3,966,758 1,355,573
Other receivables............................................. 593,982 894,947
Due from related parties, net................................. 313,216 --
Inventory..................................................... 2,512,213 574,957
Prepaid expenses and other current assets..................... 987,131 320,815
------------ ------------
Total current assets....................................... 43,637,747 8,396,311
Property, plant and equipment, net............................. 30,820,902 29,049,897
Other assets, net.............................................. 766,488 720,593
------------ ------------
$ 75,225,137 $ 38,166,801
============ ============

LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 2,687,500 $ 2,687,500
Current portion of capital lease obligations.................. 1,272,357 964,055
Current portion of advances from customer..................... -- 337,500
Accounts payable and accrued expenses......................... 6,575,396 6,814,016
Due to related parties, net................................... -- 367,763
------------ ------------
Total current liabilities.................................. 10,535,253 11,170,834
Long-term debt, less current portion........................... 5,375,000 8,062,500
Capital lease obligations, less current portion................ 3,323,874 4,592,588
Advances from customer, less current portion................... 2,356,349 2,662,500

Commitments and contingencies

Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
1,000,000 shares; no shares issued and outstanding........... -- --
Common stock, par value $.01 per share; authorized
29,000,000 shares; issued and outstanding 12,359,148 at
January 2, 1999 and 7,852,723 at December 31, 1997........... 123,592 78,527
Additional paid-in-capital.................................... 86,574,660 38,298,387
Note receivable from stockholder.............................. -- (35,000)
Accumulated deficit........................................... (33,063,591) (26,663,535)
------------ ------------
Total stockholders' equity................................. 53,634,661 11,678,379
------------ ------------
$ 75,225,137 $ 38,166,801
============ ============
</TABLE>

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

2
<PAGE>

V.I. TECHNOLOGIES, INC.
Statements of Operations

<TABLE>
<CAPTION>
Year ended
January 2, Years Ended December 31,
1999 1997 1996
------------ ------------- ------------

<S> <C> <C> <C>
Revenues:
Product sales......................................... $ 33,755,499 $ 15,843,046 $ 14,898,914
Licensing fee......................................... -- -- 3,000,000
------------ ------------- ------------
Total revenues................................... 33,755,499 15,843,046 17,898,914

Costs and expenses, including related party amounts
of $2,302,000, $784,000 and $817,000 during the
year ended January 2, 1999 and December 31, 1997
and 1996, respectively:
Cost of sales......................................... 23,859,984 16,325,810 10,588,272
Research and development, net......................... 7,506,895 5,912,233 4,366,989
Selling, general and administrative expenses.......... 6,950,983 4,352,731 2,477,405
Special charge related to products.................... -- -- 4,100,000
Charge related to research collaboration.............. 2,202,000 -- --
------------ ------------- ------------
Total operating costs and expenses................ 40,519,864 26,590,774 21,532,666

Loss from operations................................... (6,764,367) (10,747,728) (3,633,752)

Interest income........................................ 1,217,363 366,167 125,795
Interest expense....................................... (1,496,703) (1,318,084) (617,228)
Discount on customer advance, net...................... 643,651 -- --
------------ ------------- ------------
Total interest income (expense), net.............. 364,311 (951,917) (491,433)
------------ ------------- ------------

Net loss............................................... ($6,400,056) ($11,699,645) ($4,125,185)
============ ============= ============

Basic and diluted net loss per share................... ($0.61) ($1.62) ($0.84)
============ ============= ============

Weighted average common shares used in computing
basic and diluted net loss per share:................. 10,453,652 7,240,923 4,897,271
</TABLE>

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

3
<PAGE>

V.I. TECHNOLOGIES, INC.
Statements of Stockholders' Equity
Years ended January 2, 1999 and December 31, 1997 and 1996

<TABLE>
<CAPTION>
Note
Common Stock Additional Receivable
--------------------- Paid-In From Accumulated Stockholders'
Shares Amount Capital Stockholder Deficit Equity
---------- --------- ------------ ------------ -------------- --------------

<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995................... 4,472,271 $ 44,722 $19,426,278 $ -- $(10,838,705) $ 8,632,295

Issuance of shares of common stock in
connection with a loan agreement.............. 129,964 1,300 361,950 -- -- 363,250

Issuance of shares of common stock upon
exercise of stock options and warrants........ 1,440,072 14,401 4,010,599 -- -- 4,025,000

Issuance of warrant to purchase 3,577
shares of common stock in connection
with a lease agreement........................ -- -- 10,000 -- -- 10,000

Net loss....................................... -- -- -- -- (4,125,185) (4,125,185)
---------- -------- ----------- ----------- ------------- ------------
Balance at December 31, 1996................... 6,042,307 60,423 23,808,827 -- (14,963,890) 8,905,360

Issuance of shares of common stock in
connection with a private placement,
net of issuance costs of $859,000............. 1,797,894 17,979 14,073,435 -- -- 14,091,414

Compensation expense in connection with
issuance of stock options..................... -- -- 381,250 -- -- 381,250

Issuance of shares of common stock upon
exercise of stock options..................... 12,522 125 34,875 (35,000) -- --

Net loss....................................... -- -- -- -- (11,699,645) (11,699,645)
---------- -------- ----------- ----------- ------------- ------------
Balance at December 31, 1997................... 7,852,723 78,527 38,298,387 (35,000) (26,663,535) 11,678,379

Issuance of shares of common stock in
connection with Initial Public
Offering, including exercise
of underwriter's over-allotment
option, net of issuance cost
of $1,239,000................................. 3,325,000 33,250 35,835,068 -- -- 35,868,318

Issuance of shares of common stock in
connection with private placements............ 925,070 9,251 8,990,749 -- -- 9,000,000

Charge in connection with research
collaboration................................. -- -- 2,202,000 -- -- 2,202,000

Issuance of shares of common stock to New
York Blood Center in satisfaction of
obligation.................................... 35,778 358 299,643 -- -- 300,000

Compensation expense in connection with
acceleration of option vesting................ -- -- 289,452 -- -- 289,452

Issuance of shares of common stock upon
exercise of stock options..................... 220,577 2,206 659,362 35,000 -- 696,568

Net loss....................................... -- -- -- -- $ (6,400,056) $ (6,400,056)
---------- -------- ----------- ----------- ------------- ------------
Balance at January 2, 1999..................... 12,359,148 $123,592 $86,574,660 $ -- $(33,063,591) $ 53,634,661
========== ======== =========== =========== ============= ============
</TABLE>

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

4
<PAGE>

V. I. TECHNOLOGIES, INC.
Statements of Cash Flows

<TABLE>
<CAPTION>
Year ended
January 2, Years Ended December 31,
1999 1997 1996
------------ ------------- ------------

<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ ($ 6,400,056) ($11,699,645) ($4,125,185)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization..................... 3,408,886 2,985,572 2,308,964
Processing reserve................................ -- -- 4,100,000
Debt refinancing costs............................ -- 190,385 --
Compensation expense in connection with
stock options.................................... 289,452 381,250 --
Charge related to research collaboration.......... 2,202,000 -- --
Discount on customer advance...................... (643,651) -- --
Changes in operating accounts:
Trade receivables................................. (2,611,185) (106,446) (811,463)
Other receivables................................. 300,965 1,072,766 (1,736,234)
Inventory......................................... (1,937,256) (133,470) 117,047
Prepaid expenses and other current assets......... (886,236) 147,855 (246,926)
Accounts payable and accrued expenses............. 61,373 (2,910,566) 1,463,268
Due to related parties, net....................... (680,979) 365,595 (75,737)
------------- ------------- ------------
Net cash (used in) provided by operating activities.. (6,896,687) (9,706,704) 993,734
------------- ------------- ------------

Cash flows from investing activities:
Additions to property, plant and equipment.......... (5,005,863) (3,858,031) (9,402,114)
Other investing activities.......................... -- (124,589) (277,032)
------------- ------------- ------------
Net cash used in investing activities................ (5,005,863) (3,982,620) (9,679,146)
------------- ------------- ------------

Cash flows from financing activities:
Proceeds from issuance of common stock, net of
issuance costs..................................... 45,564,890 14,091,414 4,025,000
Proceeds from issuance of long-term debt............ -- 10,750,000 5,000,000
Proceeds from issuance of notes payable............. -- 1,472,797 2,847,167
Advances from customer.............................. -- 1,000,000 1,012,000
Principal repayment of long-term debt............... (2,687,500) (12,500,000) (2,500,000)
Principal repayment of capital lease obligations.... (960,412) (627,231) --
Principal repayment of note payable................. -- -- (256,000)
------------- ------------- ------------
Net cash provided by financing activities............ 41,916,978 14,186,980 10,128,167
------------- ------------- ------------
Net increase in cash and cash equivalents............ 30,014,428 497,656 1,442,755

Cash and cash equivalents, beginning of year......... 5,250,019 4,752,363 3,309,608
------------- ------------- ------------

Cash and cash equivalents, end of year............... $ 35,264,447 $ 5,250,019 $ 4,752,363
============= ============= ============
</TABLE>

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

5
<PAGE>

V.I. TECHNOLOGIES, INC.
Notes to Financial Statements
January 2, 1999

1. Organization and Business Overview

The Company's predecessor, Melville Biologics, Inc., was formed more than 15
years ago by New York Blood Center, Inc. (NYBC), a world leader in research and
development in the fields of hematology and transfusion medicine, to process
plasma fractions and derivatives, and to facilitate its research efforts.
Effective January 1, 1995, pursuant to a transfer agreement between the Company
and the NYBC, the NYBC transferred to the Company substantially all of the
assets of the predecessor Company, including a cGMP manufacturing facility used
primarily to produce plasma fractions and related operating and product licenses
and certain other specified tangible and intangible assets, as well as various
contracts and the assumption of certain obligations of the NYBC related to such
assets and contracts. As a result of its spin-off from the NYBC, the Company
became the licensee of a substantial portfolio of patents and patent
applications held by the NYBC, including those related to the use of the SD
viral inactivation technology. In exchange for these net assets, the NYBC
received all of the issued and outstanding Common Stock of the Company.

Reverse Stock Split

In anticipation of the Company's initial public offering (IPO) which is further
described in note 8, effective February 23, 1998, the Board of Directors
authorized and the stockholders approved a 1-for-2.795 reverse split of the
Company's common stock. All share and per share amounts have been restated to
reflect the reverse stock split.

Change of Fiscal Year-End

On August 10, 1998, the Company changed from a calendar year to a 52-53 week
fiscal year ending on the Saturday closest to December 31, beginning with the
fiscal year ending January 2, 1999.

2. Summary of Significant Accounting Policies

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 and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Cash equivalents
consist primarily of money market funds invested in portfolios of investment
grade corporate and U.S. government obligations and are carried at cost which
approximates market value.

Inventory

Costs incurred in connection with plasma fractionation processing and the
production of PLAS+SD are included in inventory and expensed upon recognition of
related revenues. Such costs include direct labor and processing overheads. The
processed plasma is supplied and owned by the Company's customers and, as such,
is not included in inventory. Inventory is stated at the lower of cost, as
determined using the average cost method, or net realizable value.

6
<PAGE>

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are being depreciated on a
straight-line basis over the estimated useful lives of the respective assets,
which approximates seven to 25 years for building and manufacturing equipment,
and three to five years for all other tangible assets. During the fourth quarter
of the year ended January 2, 1999, the Company extended the estimated useful
life of its manufacturing facility located in Melville, New York, based on a re-
assessment of the building's utility, in conjunction with ongoing facility
renovation and expansion to accommodate additional products and capacity. The
useful life of the building, which the Company had previously been depreciating
over 10 years, was increased to a remaining life of 25 years. The effect of this
change was to reduce depreciation expense and net loss during the year ended
January 2, 1999 by $194,000 or $0.02 per share.

Revenue Recognition

Revenue from plasma fractionation processing and the production of PLAS+SD is
recognized in the period in which the related services have been rendered and
upon satisfaction of certain quality control requirements. Revenue recognized in
the accompanying statements of operations is not subject to repayment or future
performance obligations.

The Company's plasma fractionation processing revenues are principally derived
from Bayer, while PLAS+SD is sold to the Red Cross for subsequent distribution
to hospitals and other medical facilities. Revenue derived from sale of product
to Bayer and the Red Cross amounted to approximately 43% and 48%, respectively,
of total revenue during the year ended January 2, 1999. At January 2, 1999,
amounts owed from Bayer and the Red Cross amounted to 57% and 37%, respectively,
of net trade receivables. The Company does not require collateral or other
security to ensure collection.

Research and Development

All research and development costs are charged to operations as incurred.
Research and development is recorded net of collaborator reimbursement, which
amounted to $2.3 million, $1.2 million, and $1 million during the years ended
January 2, 1999 and December 31, 1997 and 1996, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the amounts of existing assets
and liabilities carried on the financial statements and their respective tax
bases and the benefits arising from the realization of operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled. A valuation allowance is established when necessary
to reduce deferred tax assets to the amount expected to be realized.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Diluted net loss per share is the
same as basic net loss per share since the inclusion of potential common stock
equivalents (stock options and warrants) in the computation would be anti-
dilutive.

Fair Value of Financial Instruments

The fair value of the Company's capital lease obligations are estimated using
discounted cash flow analyses, based upon the Company's estimated current
incremental borrowing rate for similar types of securities. For all other
financial instruments, the carrying value approximates fair value due to the
short maturity or variable interest rate applicable to such instrument (see note
7).

Reclassifications

Certain amounts contained in prior year financial statements have been
reclassified to conform with current year's presentation.

7
<PAGE>

3. Inventory

Inventory consists of the following components:

<TABLE>
<CAPTION>
January 2, December 31,
1999 1997
---- ----

<S> <C> <C>
Work-in-process................................... $1,382,000 $211,000
Supplies.......................................... 1,130,000 364,000
---------- --------
$2,512,000 $575,000
========== ========
</TABLE>

4. Property, Plant and Equipment

Property, plant and equipment consists of the following components:

<TABLE>
<CAPTION>
January 2, December 31,
1999 1997
---- ----

<S> <C> <C>
Land............................................... $ 638,000 $ 638,000
Building and related improvements.................. 22,135,000 21,573,000
Manufacturing and laboratory equipment............. 13,911,000 12,898,000
Office furniture and equipment..................... 1,242,000 581,000
Construction in progress........................... 2,769,000 --
----------- -----------
40,695,000 35,690,000
Accumulated depreciation and amortization.......... (9,874,000) (6,640,000)
----------- -----------
$30,821,000 $29,050,000
=========== ===========
</TABLE>

Interest capitalized in connection with construction activities totaled $370,000
and $306,000 in 1997 and 1996, respectively. No amounts were capitalized during
the year ended January 2, 1999.

The cost of manufacturing equipment held under a capital lease (see note 7)
amounted to $6,184,000 at January 2, 1999 and December 31, 1997, and accumulated
depreciation relating to such equipment amounted to $618,000 at January 2, 1999
and $206,000 at December 31, 1997.

5. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following components:

<TABLE>
<CAPTION>
January 2, December 31,
1999 1997
---- ----

<S> <C> <C>
Trade accounts payable.......................................... $1,701,000 $2,503,000
Accrued pooling and transportation fees......................... 544,000 --
Refunds due to customer......................................... 444,000 --
Amounts payable to Bayer Corporation (see note 7)............... -- 3,075,000
Accrued marketing............................................... 195,000 --
Accrued employee compensation................................... 1,681,000 788,000
Accrued operating taxes......................................... 726,000 --
Other........................................................... 1,284,000 448,000
---------- ----------
$6,575,000 $6,814,000
========== ==========
</TABLE>

6. Long-Term Debt

On December 22, 1997, the Company entered into a credit agreement (the "Credit
Agreement") with a bank providing for a term loan in the principal amount of
$10,750,000 (the "New Term Loan"). The proceeds under the New Term Loan were
used to repay

8
<PAGE>

the outstanding balance of existing term loans aggregating $10,500,000
previously provided by other banks, and related expenses associated with
executing the New Term Loan. The New Term Loan bears interest at the Company's
option at either LIBOR plus 2.75% to 1.75% or the base rate of the bank, as
defined, plus margins of up to 0.5%, as determined based on defined earnings
ratios. As of January 2, 1999, the Company was using one-month LIBOR (5.1%) plus
2.75%. Under the New Term Loan, interest is payable monthly and the principal
balance is payable in sixteen equal consecutive quarterly installments of
$671,875 commencing March 31, 1998 and continuing until maturity on December 31,
2001. Amounts outstanding under the Term Loan were $8,062,000 at January 2, 1999
and $10,750,000 at December 31, 1997. The Credit Agreement contains default
provisions, including financial covenants which provide restrictions on capital
investments and the payment of cash dividends and, among other things, requires
the Company to maintain minimum cash balances of $2,000,000 and leverage and
coverage ratios, as defined. The Company is in compliance with these covenants.

Under the New Term Loan, the Company granted the bank a mortgage upon, and
security interest in, substantially all of the property owned by the Company,
including the real property, building and fixtures, equipment, inventory,
accounts receivable, cash and certain intangible assets, subject to Bayer's
security interest in the Bayer Collateral (see note 11) and the security
interests of a third party under a Master Equipment Lease Agreement (see note
7).

7. Capital Lease Obligation

On April 8, 1996, the Company entered into a Master Equipment Lease Agreement
("the Master Lease") under which the Company borrowed $6,200,000 to be used for
leasing production equipment. The Master Lease contains escalating monthly lease
payments over a five-year period. The Master Lease also contains an early
purchase option and an option to purchase the equipment at 15.0% of the
equipment cost at the end of the lease term. The effective interest rate is
approximately 16.2% per annum.

Future minimum payments under the capital lease obligation is as follows:

1999..................................................... $1,762,000
2000..................................................... 1,807,000
2001..................................................... 1,613,000
2002..................................................... 359,000
----------
Total minimum lease payments............................. 5,541,000
Less amounts representing interest....................... (945,000)
----------
Present value of minimum lease payments.................. 4,596,000
Less current maturities.................................. 1,272,000
----------
Long-term portion........................................ $3,324,000
==========

The fair value of the Company's capital lease obligation was approximately
$4,983,000 at January 2, 1999.

8. Stockholders' Equity

Common Stock

Pursuant to the Transfer Agreement between the Company and the NYBC (see note
1), the Company issued to the NYBC 35 shares of no par value common stock,
representing all shares of common stock then issued and outstanding. On October
26, 1995, these shares were exchanged for 35 shares of common stock, $0.01 par
value.

On October 26, 1995, the Board of Directors approved a dividend of 26,833 shares
to be paid on each share of common stock then outstanding. Further, a Warrant to
purchase 715,563 shares of common stock at an exercise price of $2.80 per share
was issued to the NYBC in connection with the Company's recapitalization. This
warrant was exercised by the NYBC in September 1996.

Also on October 26, 1995, the Company completed a $5,000,000 private placement
of 1,788,909 shares of common stock, par value $0.01 per share, to Ampersand.
Both the NYBC and Ampersand have certain registration rights as defined in the
Common Stock Purchase Agreement. In connection with the private placement,
Ampersand also received a Warrant to purchase an additional 715,563 shares of
common stock at $2.80 per share which it exercised in September 1996.

9
<PAGE>

On June 21, 1996, in connection with a term loan facility in which the Company
borrowed $5,000,000 from a bank, Ampersand was issued 126,387 shares of common
stock, par value $0.01 per share, as consideration for providing a Letter of
Credit, and an affiliate of the bank was issued 3,577 shares of common stock,
par value $0.01 per share, as part of an up front fee for providing the loan.
The fair market value of these equity instruments was estimated at $2.80 per
share and amortized on a straight-line basis over the term of the related term
loan facility.

On April 29, 1997, the Company completed a $14,950,000 private placement of
1,797,894 shares of common stock, par value $0.01 per share, to CBC, less
issuance costs of $858,586. In addition, the Company issued a contingent stock
purchase warrant exercisable into 1% of the Company's fully diluted shares for
every $1,000,000 in subsequent private equity capital raised, after giving
effect to such financing, subject to a cap of 5% of the fully diluted equity of
the Company. This warrant expired upon consummation of the IPO. The Company
issued a warrant to purchase 32,361 shares of common stock to the private
placement agent with an estimated fair market value of $270,000. This warrant
was exercised upon consummation of the IPO.

In October 1997, the NYBC and the Company agreed to amend a license agreement
whereby the NYBC would receive common stock of the Company in lieu of cash
payable to the NYBC in connection with certain royalty payments due under the
license agreement totaling $300,000 (see note 12). The amendment was approved by
the Company's Board of Directors in January 1998, and pursuant to a Stock
Purchase Agreement dated January 23, 1998, the Company issued 35,778 shares of
common stock, par value $0.01 per share to the NYBC.

On June 15, 1998, the Company completed an initial public offering (IPO) of
3,000,000 shares of the Company's common stock, par value $0.01 per share, at
$12.00 per share, raising gross proceeds of $36,000,000 before underwriter's
commissions and expenses. On July 10, 1998, the underwriters of the IPO
partially exercised their over-allotment option for an additional 325,000 shares
priced at $12.00 per share, raising additional gross proceeds of $3,900,000
before underwriters' commissions and expenses. In conjunction with the
collaboration agreement between the Company and Pall, during 1998, Pall acquired
$9 million of the Company's common stock in two private placements, the second
of which closed contemporaneously with, and at the same price, terms and
conditions as the IPO. The Company is required to reserve 2,504,472 shares of
common stock in connection with future sales under the Pall collaboration
agreement (see note 11). The net proceeds received by the Company have been and
will be used to fund costs associated with the marketing and distribution of
PLAS+SD, clinical trials, research and development, working capital, and capital
investments, including the expansion of the manufacturing facility and other
corporate purposes.

Preferred Stock

The Company's Certificate of Incorporation was restated during 1998 to increase
the number of shares of preferred stock authorized from 500 shares to 1,000,000
shares. The preferred stock may be issued from time to time in one or more
series, with such designations, rights and preferences as shall be determined by
the Board of Directors. No preferred stock was outstanding as of January 2,
1999.

9. Stock Plans

Employee Stock Purchase Plan

In February 1998, the Company adopted its 1998 Employee Stock Purchase Plan (the
1998 Purchase Plan) under which employees may purchase shares of common stock at
a discount from fair market value. The 1998 Purchase Plan is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Internal Revenue Code. Rights to purchase common stock under the 1998 Purchase
Plan are granted at the discretion of the Compensation Committee of the Board of
Directors, which determines the frequency and duration of individual offerings
under the 1998 Purchase Plan and the dates when stock may be purchased. Eligible
employees participate voluntarily and may withdraw from any offering at any time
before stock is purchased. Participation terminates automatically upon
termination of employment. The purchase price per share of common stock to the
purchaser under the 1998 Purchase Plan is 85% of the lesser of the Company's
common stock fair market value at the beginning of the offering period or on the
applicable exercise date and may be paid through payroll deductions, periodic
lump sum payments or both. The 1998 Purchase Plan terminates in February 2008.
There are 89,445 shares of common stock reserved for issuance under the 1998
Purchase Plan, of which 9,184 shares of common stock were issued during the year
ended January 2, 1999.

10
<PAGE>

Director Stock Option Plan

In February 1998, the Company adopted and the Board of Directors and the
stockholders of the Company approved the 1998 Director Stock Option Plan (the
1998 Director Plan). All of the Directors who are not employees of the Company
(the Eligible Directors) are currently eligible to participate in the 1998
Director Plan. Each non-employee who is initially elected to the Company's Board
of Directors shall, upon his initial election by the Company's stockholders,
automatically be entitled to an option to purchase 15,000 shares of common
stock. In addition, each Eligible Director will be entitled to receive an annual
option to purchase 2,000 shares of common stock. During the year of plan
adoption, each of the Company's existing directors, as permitted by his
affiliate or employer, was granted an option to purchase 17,000 shares of common
stock. Directors who were prohibited by their employer from receiving stock
options from the Company were compensated through alternative arrangements.

The options vest over a four-year period with 25% of the grant vesting after six
months, and 25% vesting at the end of the second, third and fourth year
thereafter, provided that the optionholder is still a Director of the Company at
the opening of business on such date. The 1998 Director Plan has a term of ten
years. The exercise price for the Options is equal to the last sale price for
the common stock on the business day immediately preceding the date of grant.
The exercise price may be paid in cash or shares. The Director Plan provides for
the grant of up to 89,445 options (4,445 options available for future grants as
of January 2, 1999) to purchase shares of common stock of the Company. In
February 1999, the Company approved an increase in the maximum number of options
which may be granted under the Director Plan to 150,000. Such increase is
subject to stockholder approval.

Equity Incentive Plan

The Company's 1995 Equity Incentive Plan was originally adopted in October 1995
and was amended and restated in February 1998, as the 1998 Equity Incentive Plan
(the 1998 Equity Plan). The amendment in February 1998 increased the shares of
common stock reserved from 1,788,908 to 2,146,690 (201,672 options available for
future grants as of January 2, 1999). The 1998 Equity Plan permits the granting
of both incentive stock options and nonstatutory stock options. The option price
of the shares for incentive stock options cannot be less than the fair market
value of such stock at the date of grant. Options are exercisable over a period
determined by the Board of Directors, but not longer than ten years after the
grant date. All stock options issued to-date have been granted at the fair
market value of the stock on the respective grant dates.

Stock Based Compensation Plans

The Company continues to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25) and related interpretations
when accounting for its stock-based compensation plans. Under APB 25, because
the exercise price of the Company's employee stock options is set equal to the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net loss and net loss per share for each of the
years in the three year period ended January 2, 1999 was determined as if the
Company had accounted for its stock options using the fair value method
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions: volatility of 67% during the year
ended January 2, 1999 and no volatility during 1997 and 1996; expected dividend
yield of 0%; risk-free interest rate of 6.0% during the years ended January 2,
1999 and December 31, 1997 and 5.5% during the year ended December 31, 1996; and
an expected life of five years during the year ended January 2, 1999 and ten
years during the years ended December 31, 1997 and 1996.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.

11
<PAGE>

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:

Year ended Years ended December 31,
January 2, ------------------------
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported.............................. ($6,400,000) ($11,700,000) ($4,125,185)
Pro forma................................ ($7,408,000) ($11,975,000) ($4,265,743)
Basic and diluted net loss per share:
As reported.............................. ($0.61) ($1.62) ($0.84)
Pro forma................................ ($0.71) ($1.65) ($0.87)
</TABLE>

Information as to options for shares of common stock granted as December 31,
1996 and 1997 and January 2, 1999 is as follows:

<TABLE>
<CAPTION>
Years ended December 31,
Year ended January 2, ------------------------
1999 1997 1996
---- ---- ----
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Options price Options price Options price
------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year... 1,373,300 $ 5.05 812,880 $2.80 677,280 $2.80
Granted.......................... 642,344 10.09 678,487 7.85 165,832 2.80
Exercised........................ (220,577) 2.80 (12,522) 2.80 (8,944) 2.80
Forfeited........................ (92,092) 9.40 (105,545) 7.01 (21,288) 2.80
--------- --------- -------
Outstanding, end of year......... 1,702,975 7.15 1,373,300 5.05 812,880 2.80
========= ========= =======
Exercisable at end of year....... 484,398 4.33 385,957 2.82 164,713 2.80
========= ========= =======

Weighted average fair value of
options granted during the year $ 6.16 $3.94 $1.12
</TABLE>

The following table summarizes the information on stock options outstanding at
January 2, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price Exercisable price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.80 - $2.80 519,929 7.3 $ 2.80 334,284 $2.80
$3.88 - $3.88 125,173 9.8 3.88 - -
$8.39 - $8.39 583,002 8.7 8.39 150,114 8.39
$9.19 - $9.19 10,000 9.8 9.19 - -
$11.18 $11.18 306,947 9.2 11.18 - -
$11.63 - $11.63 141,499 9.4 11.63 - -
$17.58 - $17.58 15,216 9.6 17.58 - -
--------- -------

1,702,975 484,398
========= =======
</TABLE>

10. Income Taxes

The Company's deferred tax assets were as follows at:

<TABLE>
<CAPTION>
January 2, December 31,
1999 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.............. $ 12,334,000 $ 6,474,000
Start-up expenditures........................ 1,490,000 2,125,000
Depreciation and amortization................ 305,000 1,603,000
Replacement cost of plasma................... -- 1,261,000
Other, net................................... 1,312,000 1,495,000
------------ ------------
Total..................................... 15,441,000 12,958,000
Valuation allowance............................ (15,441,000) (12,958,000)
------------ ------------
Net deferred taxes............................. $ -- $ --
============ ============
</TABLE>

12
<PAGE>

At January 2, 1999 and December 31, 1997, a valuation allowance has been applied
to offset the respective deferred tax assets in recognition of the uncertainty
that such tax benefits will be realized. The valuation allowance increased by
$2,500,000 during the year ended January 2, 1999 and $5,200,000 and $1,800,000
during the years ended December 31, 1997 and 1996, respectively.

At January 2, 1999, the Company has available net operating loss carryforwards
for federal and state income tax reporting purposes of approximately
$27,900,000, and has available research and development credit carryforwards for
federal income tax reporting purposes of approximately $445,000, which are
available to offset future taxable income, if any. These carryforwards expire
beginning in 2010. The Company experienced a change in ownership during July
1998, which resulted in approximately $22,800,000 of the Federal net operating
loss being subject to an annual limitation of approximately $7,400,000.

11. Collaborations

Bayer. On February 7, 1995, the Company entered into an Agreement for Custom
Processing (the Processing Agreement) with Bayer, a world leader in the
manufacturing and marketing of plasma products, whereby the Company fractionates
plasma for Bayer in return for a contracted fee. Under the Processing Agreement,
as amended in January 1996, December 1997 and December 1998, Bayer contracted
for an initial term through December 31, 2001 at minimum production volumes, as
defined. Bayer has two one-year options to extend the term under essentially the
same terms and conditions. The Processing Agreement provides for annual price
increases based on increases in the consumer price index.

The Processing Agreement contains defined default provisions and, in the case of
a continuing event of default, Bayer may: (i) terminate the Processing
Agreement; (ii) suspend its obligations under the Processing Agreement; or (iii)
take over the operation of fractionating its plasma. In the event of such a
takeover, Bayer continues to be responsible for payment to the Company at the
Base Processing Fee in effect for all volumes of plasma actually processed,
subject to the requirement that Bayer use its best efforts to achieve the
minimum production volumes specified in the Processing Agreement, deducting
therefrom all reasonable expenses paid related to the processing operation. The
Company is currently in compliance with its obligations under the Processing
Agreement.

The Company and Bayer executed, concurrently with the execution of the
Processing Agreement, a Reimbursement and Security Agreement, a Mortgage, a
Lease Agreement and a Sublease Agreement (Reimbursement Agreement), which was
subsequently superseded by a Security Agreement (Security Agreement) upon the
Company's refinancing of its long-term debt on December 22, 1997 (see note 6).
The agreements secure certain obligations of the Company to Bayer, including
Bayer's march-in rights relating to the Processing Agreement, a priority
security interest in all of the equipment and other personal property owned by
the Company involved in the Company's plasma fractionation operation, and a
subordinated security interest in the Company's real property, building,
fixtures and equipment.

On July 17, 1998, the Company repaid, in full, amounts owed to Bayer under the
settlement agreement between the Company and Bayer, whereby the Company agreed
to pay damages of $4.1 million to compensate Bayer for its loss of plasma caused
by an equipment malfunction which occurred in 1996, while the Company was
processing plasma for Bayer. Amounts payable under the settlement agreement were
$1,937,000 at July 17, 1998 and $3,075,000 at December 31, 1997, respectively,
and carried interest at a rate of prime plus 3% at the time the amount was
repaid. The Company has commenced a legal proceeding to recover these and
related costs from its insurer (see note 15).

American National Red Cross. In December, 1997, the Company entered into a
Supply, Manufacturing, and Distribution Agreement (Red Cross Agreement) with the
American National Red Cross (Red Cross) over a term of 57 months for the Red
Cross to become the exclusive distributor of the Company's virally inactivated
transfusion plasma product, PLAS+SD. Under the agreement, the Red Cross, which
is the largest supplier of transfusion plasma to hospitals in the United States,
providing approximately 45% of the transfusion plasma used annually, is required
to purchase stated minimum quantities of PLAS+SD to maintain its exclusive
rights. Once the Red Cross places its annual purchase order with the Company, it
is obligated to supply the Company with a sufficient quantity of plasma to
enable the Company to fulfill such order. The Red Cross must pay for the amount
of PLAS+SD specified in the purchase order even if it is unable to supply
sufficient quantities of plasma. The Red Cross must purchase all of its virally
inactivated plasma from the Company unless an FDA approved product has been
independently shown to be safer than the PLAS+SD. The Company, in turn, is
obligated to offer any excess capacity that it has to produce PLAS+SD above the
stated minimum purchase requirements to the Red Cross before selling PLAS+SD to
any other party. Effective October 1, 1998, the Red Cross Agreement was amended
to, among other things, reduce the Red Cross's minimum

13
<PAGE>

annual purchase order commitment required to maintain its exclusive marketing
and distribution rights, provide for higher prices during periods of lower
volume purchases, and commit increased marketing spending by both the Company
and the Red Cross. Under the amended agreement, the Red Cross is required to pay
to the Company a fixed price per unit of PLAS+SD, plus a royalty which is
initially fixed. Beyond a specified volume, the royalty becomes variable, based
on equal sharing of the amount by which the average selling price of the Red
Cross exceeds a stated amount. The Company has granted to the Red Cross a right
of first refusal for exclusive distribution rights to any subsequent generation
of virally inactivated transfusion plasma that is developed during the term of
the agreement. The Company and the Red Cross have each committed to spend
minimum amounts for marketing PLAS+SD during the two year period ending
September 30, 2000. The Company's spending commitment is expected to be
satisfied, to a large extent, by the cost of its sales force. Additionally, a
joint marketing committee will coordinate all marketing activities for PLAS+SD.
The exclusive distribution agreement between the Company and the Red Cross
provides that the Red Cross will use its best efforts to insure universal
availability of the Company's virally inactivated plasma products to all
potential customers, including both Red Cross blood centers and non-Red Cross
blood centers.

Under a previous collaboration agreement, the Red Cross had made a total of $3.0
million non-interest bearing, unsecured advances to the Company's predecessor to
be used to fund improvements to the its manufacturing facility. Under this
previous agreement, the loan amortized at the rate of 15% per year following
receipt of marketing approval of PLAS+SD with a balloon payment due in year
five. In conjunction with the amended agreement, the repayment schedule was
modified to reflect repayment of 30% of the loan balance on the second
anniversary date of the approval of the PLAS+SD PLA and 15% of the balance on
each of the following two years, with the balance of the loan payable on the
fifth anniversary of the PLAS+SD PLA. Upon finalization of the repayment terms,
the Company discounted the advance to its net present value using an interest
rate of 7.75%, resulting in a gain of $644,000. Such gain is included in the
accompanying statement of operations for the year ended January 2, 1999. Each of
the Company and Red Cross has the right to terminate the agreement upon written
notice in certain circumstances, including failure to achieve minimum end-user
sales or a material breach of the agreement which is not cured by the other
party.

United States Surgical Corporation. In September 1996, as amended in October
1996, the Company entered into an Exclusive Distribution Agreement with United
States Surgical Corporation ("U.S. Surgical") regarding the Company's fibrin
sealant for a period of 15 years. U.S. Surgical is primarily engaged in the
development, manufacture and commercialization of surgical wound products for
hospitals throughout the world. In connection with entering into the agreement,
U.S. Surgical paid a $3,000,000 up front fee to the Company. U.S. Surgical has
agreed to fully fund all direct clinical and regulatory costs associated with
the development and regulatory approval of the Company's fibrin sealant. In
addition, U.S. Surgical has agreed, subject to termination upon notice, to pay a
substantial portion of agreed upon research and development costs for
improvements or, in return for exclusive rights, enhancements to the Company's
fibrin sealant. Pursuant to this agreement, the Company granted U.S. Surgical
the mutually exclusive worldwide right, until October 2011, to seek, in its own
name as permitted by law, necessary government approvals for and to use, market,
distribute and sell fibrin sealants, and any improvements thereto. U.S. Surgical
must achieve certain minimum product sales to maintain its exclusive rights
under the agreement. In accordance with the agreement, the Company has agreed to
supply U.S. Surgical's forecasted demand for the products and if it is unable to
supply such forecasted demand, plus an excess of up to 25% over such forecasted
demand, U.S. Surgical has an option to make arrangements to have the excess
demand for such products produced by third-party manufacturers until the later
of one year or the Company's supply of such demand. Either the Company or U.S.
Surgical may terminate the agreement upon written notice in certain
circumstances, including a breach of the agreement, or for any reason upon nine
months' notice to the Company.

Pall. On February 19, 1998, the Company and Pall entered into a series of
agreements (the Pall Agreements) providing for, among other things, a
collaboration on the development and marketing of systems employing the
Company's Light Activated Compounds and Quencher viral inactivation technologies
for red blood cell and platelet concentrates. Pall is a leading manufacturer and
supplier of filtration products, including those relating to the collection,
preservation, processing, manipulation, storage and treatment of blood and blood
products. Under the Pall Agreements, Pall receives exclusive worldwide
distribution rights to all the Company's systems incorporating viral
inactivation technology for red blood cells and platelets. The parties have also
agreed to share research, development, clinical and regulatory responsibilities
and will equally share profits and joint expenses from operations after each
party is reimbursed for its cost of goods. Upon execution of the Pall
Agreements, Pall made a $4,000,000 equity investment representing 477,042 shares
at $8.39 per share. Pursuant to the terms of the Pall Agreements, Pall also
acquired $5,000,000 of the Company's Common Stock in a private placement, which
closed contemporaneously with, and at the same price, terms, and conditions as
the IPO. In addition, the Pall Agreements provide that Pall will purchase up to
$17,000,000 worth of the Company's common stock in installments tied to the
achievement of specified development milestones. Such equity investments by Pall
will be made at the prevailing market price per share. Certain of the Pall
Agreements may be terminated in certain circumstances including an event of
default by either party which, in the case of the Company, includes the

14
<PAGE>

termination of the Company's current Chief Scientific Officer. During the year
ended January 2, 1999, the Company recorded a one-time charge to operations and
an increase to stockholder's equity of $ 2.2 million representing the difference
between the purchase price paid by Pall and the estimated fair value of the
common stock on the date of purchase.

12. Related-Party Transactions

License Agreements

The Company has entered into various license agreements with the NYBC. Under
these agreements, the Company has been granted exclusive and non-exclusive
worldwide licenses under the NYBC patents relating to viral inactivation and
other technologies. The Company also has rights of first negotiation for the
license to any NYBC improvements not otherwise exclusively licensed in the field
of viral inactivation for use with certain products, as defined.

Under the license agreements, the Company is required to pay royalties to the
NYBC on the Company's revenues derived from the use of these licenses, as
defined. The Company is required to pay aggregate minimum royalties to maintain
its exclusive licenses of $1,500,000 in fiscal 1999, $2,200,000 in fiscal 2000,
$2,400,000 in fiscal 2001 and $2,800,000 in each year thereafter. Royalty and
milestone payments in the amount of $1,037,000 were payable to the NYBC during
the year ended January 2, 1999, while $600,000 was payable to the NYBC in 1997,
of which $300,000 was paid in cash and the balance paid pursuant to a Stock
Purchase Agreement, whereby the Company issued 35,778 shares of common stock to
the NYBC (see note 8). The Company also is required to meet certain research and
development milestones, as defined, to maintain its exclusive licenses. Further,
the Company is required to spend a minimum annual amounts towards the further
development, evaluation and registration of products, as defined. If minimum
royalties are not paid or if any milestone is not met, as defined for a given
country, the NYBC may terminate the license for that country and may terminate
other such licenses if the licenses in all covered countries have been
individually terminated.

The NYBC may terminate any license by reasonable notice if the Company fails to
cure a breach, conform to government regulations, or sell products within a
specified number of years, as defined. Upon termination, all rights revert to
the NYBC. The Company is currently in compliance with all such obligations and
covenants.

Other Services

The Company leased, through November 30, 1996, approximately 6,000 square feet
of laboratory space from NYBC. Rental payments made to the NYBC were $532,000 in
1996. In November 1996, the Company moved its research and development
laboratories to another location in New York City (see note 15).

The NYBC sponsors certain scientific research at the Company. NYBC payments of
$96,000, $104,000 and $705,000 for the years ended January 2, 1999 and December
31, 1997 and 1996, respectively, have been netted against research and
development expenses in the accompanying statements of operations.

Ampersand has provided certain management advisory services to the Company,
including the provision of an interim Chief Executive Officer. Amounts payable
to Ampersand for such services totaled $156,000 and $134,000 during the years
ended January 2, 1999 and December 31, 1997, respectively.

During the year ending January 2, 1999, the Company had purchased approximately
$1,076,000 of production related materials and supplies from Pall.

15
<PAGE>

13. Supplemental Disclosure of Cash Flow Information

Information on cash paid for interest and non-cash investing and financing
activities are as follows:

Year Ended Years Ended December 31,
January 2, ------------------------
1999 1997 1996
---- ---- ----

<S> <C> <C> <C>
Cash paid during the year for interest............................. $1,560,000 $1,511,000 $ 924,000

Non-cash investing and financing activities:
Note receivable from stockholder.................................. -- 35,000 --

Conversion of notes payable to capital lease obligations.......... -- 2,847,000 1,864,000

Debt financing costs included in accounts
payable and accrued expenses.................................... -- 170,000 --

Reimbursable construction costs included
in other receivables and accounts
payable and accrued expenses.................................... -- -- 231,000

Capital improvements and equipment costs
included in property, plant and equipment and
accounts payable and accrued expenses........................... 410,000 47,000 425,000

Issuance of common stock to New York
Blood Center in satisfaction of obligation...................... $ 300,000 $ -- $ --
</TABLE>

14. Profit Sharing 401(k) Plan

Effective January 1, 1995, the Company established a 401(k) Profit Sharing Plan
(the "401(k) Plan") which covers substantially all employees. All eligible
employees may elect to contribute a portion of their wages to the 401(k) Plan,
subject to certain limitations. No employer contributions were made during the
years ended January 2, 1999 or December 31, 1997 and 1996.

15. Commitments and Contingencies

Lease Commitments

Future minimum lease payments under operating leases at January 2, 1999 are as
follows:

1999 ......................................................... $570,000
2000 ......................................................... 584,000
2001 ......................................................... 590,000
2002 ......................................................... 160,000
2003 ......................................................... 125,000

Rent expense was approximately $444,000, $415,000 and $107,000 during the years
ended January 2, 1999 and December 31, 1997 and 1996, respectively.

Supply Commitments

At January 2, 1999, the Company had entered into certain raw material supply
agreements for initial terms extending through the end of fiscal 1999. Under the
agreements, the Company is obligated to purchase minimum quantities at pricing
levels, as defined, totaling $780,000 over the term of the agreements. The party
to one of the supply agreements is an affiliate of Pall (see note 11).

16
<PAGE>

Litigation

The Company is aware that in the course of ongoing litigation between the NYBC
and a third party, the third party has asserted claims against NYBC based on
breach of a contract that was executed in 1988 by those parties and rights under
which were assigned to the Company in 1995. The third party has claimed that it
is entitled to payments from the NYBC based on improvements in albumin
throughput yields attributable to certain filtration technology licensed to the
NYBC by the third party. The Company understands that the NYBC believes it has
meritorious defenses against this third party's claims and, in any event, as
part of the assignment of NYBC's rights under the disputed contract by the NYBC
to the Company, the Company assumed no responsibility for pre-existing contract
liabilities. However, there can be no assurance that the third party will not
assert claims against the Company under that contract which are similar in
nature to the claims being asserted against the NYBC. No such claims have been
asserted to date. The Company believes that it would have meritorious defenses
against any such claims.

On March 23, 1998, the Company received a Civil Investigative Demand (CID) from
the Antitrust Division of the U.S. Department of Justice (the Justice
Department) as part of the Justice Department's investigation into possible
antitrust violations in the sale, marketing and distribution of blood products.
A CID is a formal request for information and a customary initial step of any
Justice Department investigation. The Justice Department is permitted to issue
a CID to anyone whom the Justice Department believes may have information
relevant to an investigation. Therefore, the receipt of a CID does not mean
that the recipient is the target of an investigation, nor does it presuppose
that there is a probable cause to believe that a violation of the antitrust laws
has occurred or that any formal complaint ultimately will be filed. The Company
believes that the primary focus of the CID relates to the Company's PLAS+SD
product and to the Supply, Manufacturing and Distribution Collaboration
Agreement between VITEX and the American National Red Cross. Following the
Company's response to the CID, there has been no further activity with respect
to this matter.

While it is impossible to predict accurately or to determine the eventual
outcome of these matters, the Company believes that the outcome of these
proceedings will not have a material adverse effect on the Company's financial
position, statement of operations or cash flows.

16. Quarterly Financial Data (Unaudited, in thousands, except per share data)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal 1998 Quarter Ended January 2, 1999 October 3, 1998 July 4, 1998 April 4, 1998
-------------------- -------------------- -------------------- --------------------

<S> <C> <C> <C> <C>
Product sales $10,028 $11,660 $ 7,946 $ 4,121
Gross margin from product sales 4,091 3,842 2,583 (621)
Net Income 1,025 486 (1,696) (6,215)
Earnings per share:
Basic and diluted 0.08 0.04 (0.18) (0.76)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31,
Fiscal 1997 Quarter Ended 1997 1997 1997 1997
-------------------- -------------------- -------------------- --------------------

Product sales $ 4,510 $ 3,171 $ 4,429 $ 3,733
Gross margin from product sales 1,075 (2,249) 427 264
Net Income (4,044) (4,361) (1,374) (1,921)
Earnings per share:
Basic and diluted (0.52) (0.56) (0.19) (0.32)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
V.I. Technologies, Inc.:

We consent to incorporation by reference in the registration statements on Forms
S-8 (No. 333-62925, No.333-62927, and No. 333-58601) of V.I. Technologies, Inc.
of our report dated January 15, 1999 relating to the balance sheets of V.I.
Technologies, Inc. as of January 2, 1999 and December 31, 1997, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended January 2, 1999, which report appears in
the January 2, 1999 annual report on Form 10-K of V.I. Technologies, Inc.

/s/ KPMG LLP

Melville, New York
March 31, 1999

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> JAN-02-1999
<CASH> 35,264
<SECURITIES> 0
<RECEIVABLES> 4,874
<ALLOWANCES> 0
<INVENTORY> 2,512
<CURRENT-ASSETS> 43,638
<PP&E> 40,695
<DEPRECIATION> 9,874
<TOTAL-ASSETS> 75,225
<CURRENT-LIABILITIES> 10,535
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 53,511
<TOTAL-LIABILITY-AND-EQUITY> 75,225
<SALES> 33,755
<TOTAL-REVENUES> 33,755
<CGS> 23,860
<TOTAL-COSTS> 40,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> (6,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,400)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)

</TABLE>