INTERFERON SCIENCES INC, S-2/A, 1995-07-18

INTERFERON SCIENCES INC
S-2/A, 1995-07-18
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1995

REGISTRATION NO. 33-59479

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

INTERFERON SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 22-2313648
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

783 JERSEY AVENUE
NEW BRUNSWICK, NEW JERSEY 08901
(908) 249-3250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

LAWRENCE M. GORDON, ESQ.
GENERAL COUNSEL
INTERFERON SCIENCES, INC.
9 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 230-9513
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
ROBERT J. HASDAY, ESQ. KENNETH R. KOCH, ESQ.
DUANE, MORRIS & HECKSCHER SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
SUITE 2125 551 FIFTH AVENUE
122 EAST 42ND STREET NEW YORK, NEW YORK 10176
NEW YORK, NEW YORK 10168
</TABLE>

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

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

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box: / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
================================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share................ 10,000,000 shares $ 1.50 $ 15,000,000 $ 5,172.41
- --------------------------------------------------------------------------------------------------------------------------------
Underwriter's Purchase Options(2)..................... 1,000,000 Options $ .001 $ 1,000 $ .34
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Common Stock, par value $.01 per share(3)............. 1,000,000 shares $ 1.80 $ 1,800,000 $ 620.69
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Total......................................... $ 5,793.44(4)
================================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
(2) To be issued to the Underwriter.

(3) Shares issuable upon exercise of the Underwriter's Purchase Options.

(4) Includes $4,634.76 paid on May 19, 1995.

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

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

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<PAGE> 2

INTERFERON SCIENCES, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-2

<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING LOCATION IN PROSPECTUS
---------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages of
Prospectus; Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Summary Financial
Information; Risk Factors; and Selected
Financial Information
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds; Risk
Factors
5. Determination of Offering Price........... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................ Prospectus Summary; Description of
Securities; Underwriting
10. Interests of Named Experts and Counsel.... Not Applicable
11. Information with Respect to the
Registrant................................ Inside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk
Factors; Dilution; Use of Proceeds; Price
Range of Common Stock; Dividend Policy;
Capitalization; Selected Financial
Information; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Principal Stockholders; Certain
Transactions; Description of Securities;
Financial Statements
12. Incorporation of Certain Information by
Reference................................. Documents Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

Subject to Completion, Dated July 18, 1995

PROSPECTUS

INTERFERON SCIENCES, INC.

MINIMUM: 5,000,000 SHARES OF COMMON STOCK

MAXIMUM: 10,000,000 SHARES OF COMMON STOCK

The shares of Common Stock, par value $.01 per share (the "Common Stock"),
of Interferon Sciences, Inc., a Delaware corporation (the "Company"), being
offered hereby are being sold by the Company. See "Underwriting" for information
relating to the factors considered in determining the public offering price.

The Common Stock is quoted on the NASDAQ National Market System under the
symbol "IFSC." On July 14, 1995, the last reported sale price of the Common
Stock on the NASDAQ National Market System was $1 15/16 per share.

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

INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.

SEE "RISK FACTORS" ON PAGES 8-16 OF THIS PROSPECTUS.

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

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

<TABLE>
<CAPTION>
======================================================================================================
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2)(3)
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<S> <C> <C> <C>
Per Share............... $ $ $
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Total Minimum........... $ $ $
- ------------------------------------------------------------------------------------------------------
Total Maximum........... $ $ $
======================================================================================================
</TABLE>

(1) Excludes additional compensation to be received by the Underwriter,
including (i) a 1.75% non-accountable expense allowance, (ii) a
non-accountable expense allowance for legal fees in an amount not to exceed
the lesser of (a) $100,000 and (b) 1% of the gross proceeds of the Offering,
(iii) an accountable expense allowance for disbursements of counsel to the
Underwriter, and (iv) options to purchase up to a number of shares of Common
Stock equal to 10% of the number of shares of Common Stock sold in the
Offering, exercisable over a period of four years commencing one year from
the date of this Prospectus at an exercise price equal to 120% of the public
offering price of the shares offered hereby (the "Underwriter's Purchase
Options"). The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities arising under the Securities Act
of 1933, as amended. See "Underwriting."

(2) Before deducting estimated expenses payable by the Company of $616,250 if
the minimum number of shares are sold and $772,500 if the maximum number of
shares are sold, including the Underwriter's expense allowances. See
"Underwriting."

(3) The shares of Common Stock are being offered by the Underwriter as the agent
for the Company on a "best efforts" 5,000,000 share minimum, 10,000,000
share maximum, basis for 30 days from the date of this Prospectus (which
period may be extended for an additional 30 days by the Underwriter). There
is no minimum number of shares required to be purchased by any investor. The
Company's officers, directors, employees, and principal stockholders may
purchase shares of Common Stock in the Offering. All such purchases may be
used to satisfy the 5,000,000 share minimum. Pending the sale of the
5,000,000 share minimum, all proceeds will be deposited into an escrow
account with , Escrow Agent for the Offering. After the sale of
the initial 5,000,000 shares, the remaining 5,000,000 shares will also be
offered on a "best efforts" basis. In the event the minimum number of shares
is not sold within the offering period or any extension thereof, the
Offering will terminate and all funds will be returned promptly to
subscribers by the Escrow Agent without any deduction therefrom or interest
thereon.

The shares of Common Stock are being offered on a "best efforts" 5,000,000
share minimum, 10,000,000 share maximum, basis by the Underwriter, subject to
prior sale, withdrawal, or cancellation of the Offering without notice. Any
modification to the Offering will be made by means of an amendment to this
Prospectus. The Company reserves the right to modify, withdraw, or cancel the
Offering without notice, and to reject any orders for the shares of Common Stock
offered hereby, in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the offices
of Sunrise Securities Corp., 919 Third Avenue, New York, New York 10022.

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

SUNRISE SECURITIES CORP.

THE DATE OF THIS PROSPECTUS IS , 1995
<PAGE> 4

AVAILABLE INFORMATION

The Prospectus omits certain of the information contained in the
Registration Statement relating to the securities offered hereby which is on
file with the Securities and Exchange Commission (the "Commission"). The Company
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
periodic reports, proxy statements, and other information with the Commission.
Such Registration Statement, reports, proxy statements, and other information
can be inspected, without charge, and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at its regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60061. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:

(a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994; and

(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies, supersedes, or replaces such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. Any person receiving a copy of this
Prospectus may obtain without charge, upon written or oral request, a copy of
any of the documents incorporated by reference herein, except for exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the documents which this Prospectus incorporates). Requests should be
directed to: Corporate Secretary, Interferon Sciences, Inc., 783 Jersey Avenue,
New Brunswick, New Jersey 08901, telephone number (908) 249-3250.
------------------------

ALFERON(R) and ALFERON LDO(R) are registered trademarks of the Company.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes that the minimum number of shares of
Common Stock is sold and that no outstanding stock options or warrants are
exercised.

THE COMPANY

General

Interferon Sciences, Inc. (the "Company") is a biopharmaceutical company
currently engaged in the manufacture and sale of ALFERON N Injection, the only
product approved by the United States Food and Drug Administration ("FDA") that
is based upon a natural source, multi-species alpha interferon ("Natural Alpha
Interferon"). ALFERON N Injection is approved for the treatment by injection of
certain types of genital warts and is being developed by the Company for the
potential treatment of hepatitis C, hepatitis B, HIV, multiple sclerosis,
cancers, and other indications. The Company believes that the existing FDA
approval of ALFERON N Injection for one indication should facilitate obtaining
approvals for other indications. The Company also is developing ALFERON N Gel
and ALFERON LDO, the Company's topical and oral formulations of Natural Alpha
Interferon.

Interferons are a group of proteins produced and secreted by cells to
combat diseases. Currently, various alpha interferon products, approved for 17
different medical uses in over 60 countries, are, as a group, one of the largest
selling of all biopharmaceuticals, with estimated 1994 sales in excess of $1.5
billion worldwide. A substantial majority of these sales are for the treatment
of hepatitis C, a liver disease affecting several million people worldwide,
including two to three million people in the United States and three million
people in Japan. As described below, the Company is presently conducting three
multi-center Phase 2 trials using Natural Alpha Interferon for the treatment of
hepatitis C.

Natural Alpha Interferon

A substantial portion of worldwide sales of interferon consists of sales of
alpha interferon produced from genetically engineered cells (recombinant alpha
interferon). Based on laboratory studies and clinical trials involving Natural
Alpha Interferon, the Company believes that Natural Alpha Interferon has certain
potential advantages over recombinant alpha interferon including:

Efficacy. Natural Alpha Interferon is used at significantly lower doses
than the competing recombinant alpha interferon product for the
treatment of genital warts and, in laboratory studies, was shown to be
10 to 100 times more effective than recombinant alpha interferon in
blocking replication of HIV. This unusually potent anti-HIV activity may
be due to specific members of the interferon family of proteins which
are present in Natural Alpha Interferon but not found in the presently
marketed recombinant interferons.

Side effects. The principal side effects of alpha interferon are
flu-like symptoms, which are dose dependent. The approved treatment with
ALFERON N Injection utilizes lower doses than the treatment with
recombinant alpha interferon, which may account, in part, for fewer side
effects being observed in patients being treated with Natural Alpha
Interferon. Based on a double-blind study of normal healthy adults, the
Company believes there is evidence that even when given at the same
doses as recombinant alpha interferon, the side effects are lower with
Natural Alpha Interferon. Furthermore, in a Phase 1 clinical trial on 20
asymptomatic HIV-infected patients, investigators at Walter Reed Army
Institute of Research ("Walter Reed") reported that significantly fewer
of the typical side effects associated with recombinant alpha interferon
were observed with Natural Alpha Interferon. In addition,
interferon-neutralizing antibodies, which may limit alpha interferon's
therapeutic benefit, have not been observed to date in clinical trials
with Natural Alpha Interferon, even in HIV and hepatitis C patients
treated with high doses of such product three times a week for up to six
months. There have been reports of these antibodies developing in
patients being treated with recombinant alpha interferons.

3
<PAGE> 6

Although, as described above, the Company believes that Natural Alpha
Interferon may have certain advantages over recombinant alpha interferon, there
can be no assurance that these advantages will enable the Company to obtain a
significant market share for products made with Natural Alpha Interferon.
Moreover, at the present time, the Company is limited in its ability to make
product marketing claims related to these potential advantages until additional
data are available and, in certain instances, until further FDA approvals are
obtained. Additionally, the Company derives Natural Alpha Interferon from human
white blood cells, the cost and availability of which are subject to
fluctuation, in part because the Company does not presently have long-term
agreements or multiple sources for the supply of such cells. Recombinant alpha
interferon products are not dependent on a source of human white blood cells
and, therefore, can be produced in greater volume and at a lower cost per unit
than the Company's formulations of Natural Alpha Interferon products. See
"Business -- Scientific Background."

Marketing, Distribution, and Production

ALFERON N Injection is approved for sale in the United States for the
intralesional treatment of adults with refractory (resistant to other treatment)
or recurring external genital warts, and is currently marketed and distributed
in the United States exclusively by Purdue Pharma L.P. ("Purdue Pharma" and,
collectively with its affiliates, "Purdue"). The Company has an option to
repurchase the marketing rights for ALFERON N Injection in the United States and
Canada from Purdue. See "Business -- ALFERON N Injection -- Approved Indication"
and "Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."

In February 1995, the Company entered into an agreement with Fujimoto
Diagnostics, Inc. ("Fujimoto") for the development and marketing of ALFERON N
Injection and ALFERON N Gel in Japan. Japan is currently the world's largest
market for interferon products, with 1994 annual sales approaching $900 million.
Under the terms of the agreement, Fujimoto agreed to purchase $2,000,000 of the
Company's Common Stock and to use its best efforts to develop, and obtain
Japanese regulatory approvals for, ALFERON N Injection and ALFERON N Gel
products. The Company believes that Fujimoto's development effort will entail a
substantial expense on Fujimoto's part. In addition, the Company's Natural Alpha
Interferon injectable product was recently approved for sale in Mexico for the
treatment of genital warts and will be marketed under the trade name ALTEMOL(R)
by Industrica Farmaceutica Andromaco S.A. De C.V. ("Andromaco"). See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Other
Marketing and Distribution Arrangements."

The Company is also exploring development and marketing arrangements that
would involve the potential use of Natural Alpha Interferon for the treatment of
hepatitis B and C, multiple sclerosis, HIV, and cancer. See "Risk
Factors -- Dependence on Certain Distributors; Limited Marketing Program."

The purified drug concentrate utilized in the formulation of ALFERON N
Injection is manufactured in a Company-owned, FDA-approved facility located in
New Brunswick, New Jersey. ALFERON N Injection is formulated and packaged for
the Company by Sanofi Winthrop Pharmaceuticals, Inc. ("Sanofi") at a production
facility located in McPherson, Kansas. See "Business -- ALFERON N Injection --
Manufacturing."

Recently Expanded License

As of March 31, 1995, the Company obtained a non-exclusive license from
Hoffmann-LaRoche, Inc. ("Hoffmann") and F. Hoffmann-LaRoche Ltd. ("Roche") which
grants the Company the worldwide rights to make, use, and sell, without a
potential patent infringement claim from Hoffmann or Roche, any formulation of
Natural Alpha Interferon. The 1995 license replaced a 1988 non-exclusive license
from Hoffmann which granted the Company the rights to make, use, and sell in the
United States, without a potential patent infringement claim from Hoffmann,
injectable formulations of Natural Alpha Interferon for the treatment of genital
warts or patients with diseases refractory to recombinant interferon therapy.
The 1995 license will enable the Company, if successful in obtaining necessary
regulatory approvals, to expand the formulations of Natural Alpha Interferon it
makes, uses, and sells in the United States and the rest of the

4
<PAGE> 7

world and to market its products for the treatment of additional indications.
See "Risk Factors -- Potential Patent Infringement Claims," "Business -- ALFERON
N Injection -- Patents and Licenses," and "Business -- ALFERON N
Injection -- Royalty Obligations."

Clinical Trials

The Company is conducting or planning various clinical trials in an effort
to obtain approval to market ALFERON N Injection for additional indications in
the United States and around the world.

The Company is presently conducting three multi-center, randomized,
open-label, dose-ranging Phase 2 clinical trials in patients infected with
hepatitis C virus (HCV). The objective of these HCV clinical studies is to
compare the safety and efficacy of different doses of Natural Alpha Interferon
injected subcutaneously in naive (previously untreated), refractory
(unsuccessfully treated with recombinant alpha interferon), and relapsing
(initially responded to recombinant alpha interferon but later relapsed)
patients. The Company believes that the preliminary results of such trials are
promising.

In a recent follow-up analysis of patients in the Walter Reed Phase 1
clinical trial, it was found that an average of 16 months after treatment, CD4
lymphocyte levels (the white blood cells which normally decline in HIV-infected
patients) remained essentially unchanged or were higher than at the onset of the
trial in 11 of 20 patients. In addition, the amount of HIV detectable in the
patients' blood, as measured by a quantitative PCR (Polymerase Chain Reaction)
technique, declined in a dose dependent manner (the greatest declines were
observed in the highest dose group). Although there can be no assurance that the
results of laboratory studies and the Phase 1 clinical trial will be reproduced
in a large-scale, controlled clinical trial, based upon the foregoing, the
Company believes that Natural Alpha Interferon may have potential clinical value
in the treatment of HIV-infected patients. The Company is planning to conduct a
multi-center clinical trial with HIV-infected patients, which is expected to
commence in 1995.

Two additional Phase 2 clinical studies are in progress. One is for the
treatment of Kaposi's sarcoma in patients with AIDS and the other is a
multi-center study in small cell lung cancer patients following successful
treatment by conventional chemotherapy. The goal of the small cell lung cancer
study is to see if Natural Alpha Interferon can alter the high relapse rate in
this disease.

Based upon encouraging anecdotal data, the Company is planning, subject to
obtaining funding or a sponsor, to conduct clinical trials utilizing Natural
Alpha Interferon for the treatment of multiple sclerosis, which affects more
than 250,000 Americans. See "Business -- ALFERON N Injection -- Clinical Trials
for New Indications."

Commercial sales in the United States or Mexico of ALFERON N Injection for
any indication other than the treatment of genital warts, commercial sales
outside of the United States and Mexico of ALFERON N Injection for any
indication, and commercial sales anywhere in the world of either ALFERON N Gel
or ALFERON LDO will be contingent upon the completion of necessary studies and
the approval of such products for such uses by the FDA and foreign regulatory
authorities. Submissions for regulatory approval to sell ALFERON N Injection for
the treatment of genital warts have been filed in various other countries. See
"Business -- Governmental Regulation," "Risk Factors -- Regulating Approvals,"
and "Risk Factors -- Foreign Regulatory Approvals."

Although the Company received FDA approval to market ALFERON N Injection in
1989, to date it has had only limited revenue from the sale of ALFERON N
Injection. The Company has experienced significant operating losses since its
inception in 1980. As of March 31, 1995, the Company had an accumulated deficit
of approximately $64.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

5
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby............... A minimum of 5,000,000 shares and a
maximum of 10,000,000 shares, on a best
efforts basis.

Common Stock to be outstanding after the
Offering................................ A minimum of 28,062,101 shares and a
maximum of 33,062,101 shares(1)(2).

Use of Proceeds........................... The Company anticipates that if the
minimum number of shares are sold,
approximately $4,000,000 of the net
proceeds of the Offering will be used for
research, product development, and
clinical trials, and the balance will be
used for working capital and general
corporate purposes. If more than the
minimum number of shares are sold, a
portion of the additional net proceeds may
also be used for research, product
development, and clinical trials, and the
balance will be used for working capital
and general corporate purposes. See "Use
of Proceeds."

NASDAQ National Market System Symbol...... IFSC.

Risk Factors.............................. Purchase of the Common Stock offered
hereby involves a high degree of risk.
Prospective purchasers should consider
carefully the factors specified under
"Risk Factors."
</TABLE>

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

(1) Does not include (i) 3,155,320 shares of Common Stock reserved for issuance
upon the exercise of options currently outstanding under the Company's stock
option plan, (ii) 886,000 shares reserved for issuance upon the exercise of
currently outstanding warrants, and (iii) 1,000,000 shares reserved for
issuance upon the exercise of the Underwriter's Purchase Options. See
"Underwriting."

(2) Gives effect to the exchange of $920,000 principal amount of indebtedness of
the Company to certain of its principal stockholders for 613,333 shares of
Common Stock, assuming that the offering price of the Common Stock is $1.50
per share. "Certain Transactions -- Other Transactions."

6
<PAGE> 9

SUMMARY FINANCIAL INFORMATION
(In thousands except per share data)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1)............................... $ 180 $ 1 $ 1,166 $ 51 $ 3,306
Research and development costs, net....... 960 1,169 5,196 4,151 3,983
Loss from operations...................... (1,795) (2,371) (11,782) (8,347) (5,953)
Net loss.................................. (1,798) (2,346) (12,078) (8,460) (5,997)
Net loss per share of Common Stock........ (.08) (.12) (.62) (.55) (.42)
Weighted average number of shares of
Common Stock outstanding................ 21,199 19,417 19,594 15,432 14,357
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------------
AS ADJUSTED(2) DECEMBER
------------------- 31,
ACTUAL MINIMUM MAXIMUM 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets......................................... $ 7,786 $14,846 $21,571 $8,182
Working capital (deficiency)......................... (907) 6,153 12,878 (782)
Current maturities of long-term debt................. 274 274 274 409
Common Stock subject to repurchase commitment........ 2,730 250(3) 250 (3) 2,730
Stockholders' equity................................. 2,664 12,204 18,929 2,979
</TABLE>

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

(1) Substantially all of the Company's revenues in 1992, 1994, and the three
months ended March 31, 1995 were from sales of ALFERON N Injection to
Purdue. Purdue did not purchase ALFERON N Injection from the Company in 1993
or the three months ended March 31, 1994. Purdue has informed the Company
that during 1993, 1994, and the three months ended March 31, 1995, Purdue
sold approximately 23,000, 25,000, and 6,800 vials, respectively, and
distributed as free samples approximately 2,800, 2,000, and 200 vials,
respectively, of ALFERON N Injection from its inventory. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources."

(2) Adjusted to give effect to (i) the sale of the minimum and maximum number of
shares of Common Stock in the Offering, (ii) the termination in July 1995 of
the commitment to repurchase 619,994 shares of Common Stock held by Purdue,
(iii) the $125,000 writedown of March 31, 1995 inventory resulting from the
July 1995 agreement with Purdue that the transfer price for each vial of
ALFERON N Injection sold to Purdue will be paid $25 in cash and the balance
as an offset to the cash exercise price of the Company's option to reacquire
certain marketing rights from Purdue, and (iv) the sale for cash during the
second quarter of 1995 of $920,000 principal amount of indebtedness of the
Company to certain of its principal stockholders, and the exchange at the
closing of the Offering of such indebtedness for 613,333 shares of Common
Stock, assuming that the offering price of the Common Stock is $1.50 per
share. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue," and "Certain Transactions -- Other
Transactions."

(3) Consists of 62,500 shares of Common Stock required to be repurchased from
Purdue in April 1995, which repurchase was completed in July 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of

Operations -- Liquidity and Capital Resources."

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<PAGE> 10

THE COMPANY

The Company, which was incorporated in Delaware in May 1980, commenced
operations in January 1981 by obtaining from National Patent Development
Corporation ("NPDC"), a principal stockholder of the Company and then its
parent, assets relating to NPDC's programs in human alpha interferon. The
Company's principal offices and research and production facilities are located
at 783 Jersey Avenue, New Brunswick, New Jersey 08901 and its telephone number
is (908) 249-3250.

RISK FACTORS

Prospective investors should consider carefully the following factors,
together with the other information contained in this Prospectus, in evaluating
an investment in the Common Stock offered hereby.

CONTINUING AND INCREASING OPERATING LOSSES; ACCUMULATED DEFICIT. The
Company has experienced significant operating losses since its inception in
1980. As of March 31, 1995, the Company had an accumulated deficit of
approximately $64.6 million. For the three months ended March 31, 1995 and the
years ended December 31, 1994, 1993, and 1992, the Company had losses from
operations of approximately $1.8 million, $11.8 million, $8.3 million, and $6.0
million, respectively. The Independent Auditors' Report on the Company's 1994
financial statements indicates that such accumulated deficit and operating
losses raise substantial doubt about the Company's ability to continue as a
going concern.

Although the Company received approval to market ALFERON N Injection for
the treatment of genital warts from the FDA in October 1989 and from the
comparable Mexican regulatory authority in December 1994, it has had only
limited revenue from the sale of ALFERON N Injection to date. In order for the
Company to operate profitably, the Company must sell significantly more ALFERON
N Injection. Increased sales will depend primarily upon the expansion of
existing markets and/or successful attainment of FDA approval to market ALFERON
N Injection for additional uses, of which there can be no assurance. See
"Products Under Development" below in this section. There can be no assurance
that sufficient quantities of ALFERON N Injection will be sold to allow the
Company to operate profitably. Moreover, the Company cannot market ALFERON N
Injection in other markets or for such other uses unless appropriate regulatory
approvals are obtained.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company will
require substantial funds to conduct research and development and preclinical
and clinical testing, to market its products, and, if it decides to do so, to
exercise an option, which is exercisable until December 31, 1996, to repurchase
certain marketing rights from Purdue. The cash required to exercise such option
and to repurchase certain shares of Common Stock from Purdue (which repurchase
is required in connection with the exercise of the option) is $5,000,000,
subject to reduction under certain circumstances. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." For the
three months ended March 31, 1995 and the years ended December 31, 1994, 1993,
and 1992, the cash utilized by the Company's operations was approximately $1.7
million, $7.8 million, $7.8 million, and $4.4 million, respectively. In January
1994, the Company amended certain agreements with Purdue pursuant to which the
Company agreed to bear the costs of conducting clinical trials required to
develop new indications for ALFERON N Injection, most of which costs previously
had been borne by Purdue. The Company's future capital requirements will depend
on many factors, including: continued scientific progress in its drug
development programs; the magnitude of these programs; progress with preclinical
testing and clinical trials; the time and costs involved in obtaining regulatory
approvals; the costs involved in filing, prosecuting, and enforcing patent
claims; competing technological and market developments; changes in its existing
research relationships; the ability of the Company to establish collaborative
arrangements; and effective commercialization activities and arrangements.

Management believes that if the cash currently available and the proceeds
from the Offering are not used to exercise the option to repurchase the
marketing rights from Purdue and to repurchase certain shares of Common Stock
from Purdue, such cash will be sufficient to enable the Company to continue
operations for approximately eight months from the date of this Prospectus if
the minimum number of shares of

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<PAGE> 11

Common Stock is sold in the Offering and 18 months if the maximum number is
sold, although no assurance can be given in this regard. To fund the Company's
operations beyond such periods, the Company will require additional funding,
whether through financial markets or collaborative or other arrangements with
corporate partners or from other sources, which may not be available when needed
or on terms acceptable to the Company. Insufficient funds will require the
Company further to delay, scale back, or eliminate certain or all of its
research and development programs or to license third parties to commercialize
products or technologies that the Company would otherwise seek to develop itself
and may cause the Company to be in default under its agreements with third
parties. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

NO GUARANTEED SOURCE OF REQUIRED MATERIALS. The Company uses a number of
essential materials in the production of Natural Alpha Interferon, including
human white blood cells, and has limited sources from which to procure such
materials. The Company does not have long-term agreements for the supply of most
of such materials. There can be no assurance that long-term supply agreements
covering essential materials can be entered into on commercially reasonable
terms, if at all. Although the Company currently obtains human white blood cells
from several sources, the loss of any one source of supply could have a material
adverse effect on the Company. In such event, the Company may be required to
scale back its operations or stop manufacturing such product. The costs and
availability of products and materials required by the Company for the
commercial production of ALFERON N Injection and other products which the
Company may commercially produce are subject to fluctuation depending on a
variety of factors beyond the Company's control, including competitive factors,
changes in technology, and FDA and other governmental regulation and there can
be no assurance that the Company will be able to obtain such products and
materials on terms acceptable to the Company or at all.

DEPENDENCE ON CERTAIN DISTRIBUTORS; LIMITED MARKETING PROGRAM. The Company
currently has marketing arrangements for the distribution of ALFERON N Injection
in North America and several countries outside of North America. Unless the
Company enters into marketing arrangements with other companies or develops its
own sales force, the Company will be dependent on the ability of its current
distributors to sell sufficient quantities of ALFERON N Injection to allow the
Company to operate profitably. There can be no assurance that the Company will
be able to enter into any such marketing arrangements on acceptable terms, if at
all. See "Business -- ALFERON N Injection -- Marketing and Distribution" and
"Business -- Products under Development -- Marketing and Distribution."

The Company has obtained an option, exercisable until December 31, 1996, to
reacquire from Purdue marketing rights for ALFERON N Injection in the United
States and Canada. The Company is exploring the possibility of entering into a
marketing arrangement with a new marketing partner for ALFERON N Injection in
the United States and Canada. However, there can be no assurance that a new
marketing partner will be found. If the Company exercises such option and
another such arrangement is not entered into, the Company would be left without
a marketing arrangement for ALFERON N Injection in the United States and Canada.
See "Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."

PRODUCTS UNDER DEVELOPMENT. The Company's products under development
include (i) expansion of the approved uses of ALFERON N Injection for the
potential treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis,
cancers, and other indications, (ii) ALFERON N Gel for the potential treatment
of cervical dysplasia, recurrent genital herpes, other viral diseases, and
cancers, and (iii) ALFERON LDO for the potential treatment of certain symptoms
of patients infected with the HIV virus and the treatment of other viral
diseases. However, there can be no assurance that these products will be
cost-effective, safe, and effective treatments for these diseases, and there is
no assurance of receiving regulatory approvals to market these other products.
The Company cannot market such other products until such approvals are obtained.
Even if such approvals are obtained, there can be no assurance that any of these
products will be successful or will produce significant revenues or profits for
the Company. The ability of the Company to become profitable depends on the
successful commercial development of these products.

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<PAGE> 12

POTENTIAL ADVERSE SIDE EFFECTS. The Company is engaged in the manufacture
and sale of a single FDA approved product, ALFERON N Injection for the treatment
of refractory or recurring external genital warts in adults. In clinical trials
conducted for the treatment of genital warts with ALFERON N Injection, patients
have not experienced serious adverse side effects; however, there can be no
assurance that unexpected or unacceptable adverse side effects will not be found
in the future for this use or other potential uses of this product or for any
other product the Company might develop which could threaten or limit such
product's usefulness. See "Risk of Product Liability" below.

SUBSTANTIAL COMPETITION. In the United States, the Company currently
competes with Schering-Plough Corp.'s ("Schering") injectable recombinant
interferon product and other therapies in the treatment of genital warts. If and
when the Company obtains additional approvals of uses of its products, it
expects to compete primarily on the basis of product performance and price with
Schering and a number of additional pharmaceutical companies, both in the United
States and abroad, including Hoffmann, Roche, Amgen Inc., and Burroughs Wellcome
Co. The Company's potential competitors have developed or may develop products
(containing either alpha interferon or other therapeutic compounds) or other
treatment modalities for those uses. Many of the Company's potential competitors
are among the largest pharmaceutical companies in the world, are well known to
the public and the medical community, and have substantially greater financial
resources, product development, and manufacturing and marketing capabilities
than the Company or its marketing partners. Schering's recombinant interferon
product has achieved market dominance for the treatment of hepatitis C and
hepatitis B in the United States and other markets, and there is no assurance
that if the Company is able to obtain regulatory approval of ALFERON N Injection
for the treatment of those diseases, it will be able to achieve any significant
penetration into those markets. In addition, because certain of the competitive
products are not dependent on a source of human blood cells, such products may
be able to be produced in greater volume and at a lower cost than ALFERON N
Injection and the Company's other Natural Alpha Interferon formulations. Other
companies may succeed in developing products earlier than the Company, obtaining
approvals for such products from the FDA more rapidly than the Company, or
developing products that are more effective than those proposed to be developed
by the Company. While the Company will seek to expand its technological
capabilities in order to remain competitive, there can be no assurance that
research and development by others or other medical advances will not render the
Company's technology or products obsolete or non-competitive or result in
treatments or cures superior to any therapy developed by the Company, or that
any therapy developed by the Company will be preferred to any existing or newly
developed technologies. See "Business -- ALFERON N Injection -- Competition,"
"Business -- Products under Development -- ALFERON N Gel," and
"Business -- Products under Development -- ALFERON LDO."

POTENTIAL PATENT INFRINGEMENT CLAIMS. On March 5, 1985, the United States
Patent and Trademark Office issued a patent to Hoffmann claiming purified human
alpha (leukocyte) interferon (regardless of how it is produced). On May 6, 1994,
the United States Patent and Trademark Office issued an Office Action in
Reexamination on the Hoffmann patent and rejected all of the 14 claims in the
Hoffmann patent. Claims in a patent under reexamination are valid and
enforceable until such time as a final disposition on the claims is reached. On
July 11, 1994, Hoffmann filed a response objecting to the Patent Office's
rejection of such claims. The outcome of such reexamination of the Hoffmann
patent cannot be determined at this time. Roche, the parent of Hoffmann, also
has been issued patents covering human alpha interferon in many countries
throughout the world. As of March 31, 1995, the Company obtained a non-exclusive
license from Hoffmann and Roche which grants the Company the worldwide rights to
make, use, and sell, without a potential patent infringement claim from Hoffmann
or Roche, any formulation of Natural Alpha Interferon. If Hoffmann's United
States patent is found to be invalid, the royalty payable by the Company to
Hoffmann and Roche on net sales of Natural Alpha Interferon products in the
United States would be eliminated, but potential competitors of the Company may
be more likely to enter the market. The license permits the Company to grant
marketing rights with respect to Natural Alpha Interferon products to third
parties, except that the Company cannot grant marketing rights with respect to
injectable products in any country in which Hoffmann or Roche has patent rights
covered by the license to any third party not listed on a schedule of
approximately 50 potential marketing partners without the consent of Hoffmann
and Roche, which consent cannot be unreasonably withheld. There can be no
assurance that the Company will not want to grant such marketing rights to a
third party not listed on such schedule, or that Hoffmann and Roche will not
withhold the required

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<PAGE> 13

consent. In addition, if such license were terminated, the Company may be
subject to a patent infringement lawsuit by Hoffmann and Roche. If such a suit
were brought, the Company would have to either counterclaim to attempt to
invalidate the Hoffmann and Roche patents or prove that it did not infringe such
patents. See "Business -- ALFERON N Injection -- Patents and Licenses" and
"Business -- ALFERON N Injection -- Royalty Obligations."

In addition, there may have been other patent applications filed in the
United States and in foreign countries, some of which may have been filed by
potential competitors of the Company, with respect to the technologies and/or
products which may be required by the Company to produce its current and
proposed products. If any of such patents issue in the United States or in
foreign countries in a form which covers the Company's products or processes,
the Company would be required to obtain licenses under such patents in
connection with the domestic and international commercialization of such
products. There can be no assurance that the Company could obtain licenses under
any of such patents if so issued, particularly if they were issued to companies
directly in competition with the Company, or that, even if the Company could
obtain licenses, it could do so on commercially reasonable terms.

If the sale or use of any of the Company's products were to become the
basis of a patent infringement lawsuit, assuming the Company could not obtain a
license on satisfactory terms, the Company may be required to incur substantial
litigation expenses, and such litigation could also consume substantial
management time, which could have a material adverse effect upon the financial
condition of the Company even if it were to be successful in the litigation. If
the Company proved unsuccessful in such litigation, it may be required to pay a
royalty for the use of the claimed patents or cease producing the products and
redevelop the products in such a way as to avoid infringing any claimed patent
rights. There can be no assurance in such case that the Company could obtain a
license under such patents on commercially reasonable terms or at all, or that
it could successfully redevelop the products to fall outside the scope of the
claim.

It is the Company's policy to seek licenses if it believes that the terms
of such licenses, when weighed against the expense and uncertainties of
potential litigation, are cost effective.

POSSIBLE INABILITY TO PROTECT TECHNOLOGY. To a significant extent, the
ability of the Company to protect its rights in any products or technology it
may develop depends upon its ability to obtain suitable patent or similar
protection. The ability of the Company to obtain patents, and the nature,
extent, and enforceability of the intellectual property rights that are obtained
as a result of the Company's research, involve complex legal and factual issues.
New technology and products developed by the Company may not qualify for patent
protection or, if they do qualify, may be subject to challenge or to protracted
judicial proceedings. In addition, the Company may determine not to seek
additional patent or other protection for its technology or products. It is not
certain that other patents will be issued or, if issued, that they will afford
the Company protection from competitive products. Although the Company's
practice is to require its technical and scientific employees and consultants to
execute confidentiality agreements covering proprietary information, there can
be no assurance that others will not independently make similar discoveries or
otherwise obtain access to proprietary information of the Company. In addition,
the Company has a non-exclusive license agreement with Hoffmann and Roche which
enables the Company to sell its products. There can be no assurance that
Hoffmann or Roche has not granted or will not grant a similar license to another
company with considerably greater financial, technical, and marketing resources
than the Company or that Hoffmann or Roche will not enter the market itself with
a competitive product.

While the Company has several patent applications pending, it does not
currently have significant patent protection for its products or technology. In
addition, even if such protection were obtained, it is possible that others have
or may develop equivalent or superior products or technologies which would not
fall within the scope of the Company's patent claims or which might involve
inventions similar in scope to those of the Company for which patent or similar
rights are obtained by others prior to the time that the Company is able to do
so. See "Business -- ALFERON N Injection -- Patents and Licenses" and
"Business -- Products under Development -- Patents and Licenses."

REGULATORY APPROVALS. The production and marketing of the Company's
products in the United States, as well as its ongoing research and development
activities, are subject to regulation by governmental agencies,

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<PAGE> 14

most significantly the FDA. Such regulation includes requirements for obtaining
FDA approval prior to marketing each of its products in the United States. In
order to obtain such FDA approval, the Company must demonstrate, among other
things, the safety and efficacy of each product through pre-clinical and
clinical testing. Obtaining such approvals is a time-consuming process and
requires the expenditure of substantial resources. Each facility in which the
products are produced and packaged, whether operated by the Company or a third
party, must meet the FDA's standards for current good manufacturing practices
and must also be approved prior to marketing any product produced or packaged in
such facility. Any significant change in the production process which may be
commercially required, including changes in sources of certain raw materials, or
any change in the location of the production facilities will also require FDA
approval. To the extent a portion of the manufacturing process for a product is
handled by an entity other than the Company, the Company must similarly receive
FDA approval for the participation by such third party in the manufacturing
process. For example, the Company has entered into an agreement with Sanofi
Winthrop Pharmaceuticals L.P. ("Sanofi"), formerly Sterling Drug Inc., pursuant
to which Sanofi formulates and packages ALFERON N Injection. The Company
presently has a biologic establishment license for the facilities in which it
produces ALFERON N Injection, which includes the facilities in which Sanofi
formulates and packages ALFERON N Injection. If the Company's present
manufacturing facilities were damaged or destroyed or the Company's arrangements
with Sanofi were terminated, there can be no assurance that FDA approval could
be obtained for another facility or that another facility could be built and
approved on a timely basis or on commercially reasonable terms. Delays in
obtaining, or the failure to obtain, any necessary regulatory approvals could
have a material adverse effect on the Company's ability to develop, produce, and
sell its products. In addition, failure of the Company to comply in any respect
with FDA requirements with respect to the production and marketing of drug
products can subject the Company to potential civil and criminal penalties and
its products to seizure and other civil enforcement action. Because of the
uncertain nature of many of these requirements, there can be no assurance that
regulatory problems of this type will not occur. See "Business -- Governmental
Regulation."

FOREIGN REGULATORY APPROVALS. To market its products outside of the United
States, the Company is subject to numerous and varying foreign regulatory
requirements, implemented by foreign health authorities, governing the design
and conduct of human clinical trials and marketing approval. The approval
procedure varies among countries and can involve additional testing, and the
time required to obtain approval may differ from that required to obtain FDA
approval. At present, foreign marketing authorizations are applied for at a
national level, although certain registration procedures are available within
the European Union (the "EU") to companies wishing to market a product in more
than one EU member country. If a regulatory authority is satisfied that adequate
evidence of safety, quality, and efficacy has been presented, marketing
authorization is usually granted. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval set forth
above. Approval by the FDA does not ensure approval by other countries. There
can be no assurance that the Company's products will receive such approvals. In
addition, in most cases, the Company may not export its products for commercial
sale for any use other than an FDA-approved use except that the FDA may under
certain circumstances authorize exportation of such products to one or more of
21 specifically-approved countries. However, these FDA export restrictions
generally do not apply if the Company's products are manufactured outside the
United States. At the present time, the Company does not have any foreign
manufacturing facilities.

In May 1990, the Company's licensee applied for a product license in the
United Kingdom for the use of ALFERON N Injection for the intralesional
treatment of refractory or recurring external genital warts in patients 18 years
of age or older. In October 1991, the Committee on Safety of Medicines informed
the Company's licensee that it might be unable to advise the Licensing Authority
to grant a product license. Subsequent oral and written representations made by
the Company to the Committee resolved certain of the issues raised by the
Committee, but the Committee believed that additional information and possibly
clinical work would be necessary to resolve certain other quality and safety
issues and determined to advise the Licensing Authority not to grant a product
license at that time. The Company's licensee was entitled to appeal this
recommendation and has done so. The Company can appear before or make written
representations to the Committee about such advice, but has not done so because
of a lack of funds. The Company is considering whether to continue to pursue
this appeal or to have the Company's licensee withdraw the product

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<PAGE> 15

license application. The Company could submit a new application for the same use
or for another use if and when sufficient clinical data is available. There can
be no assurance, however, that approval of the use of ALFERON N Injection for
the treatment of genital warts or any other indication will be obtained even if
it is pursued.

UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT. The future revenues and profitability of, and availability of
capital for, biotechnology companies may be affected by the continuing efforts
of governmental and third-party payors to contain or reduce the costs of health
care through various means. For example, in certain foreign markets, the pricing
and profitability of prescription pharmaceuticals is subject to government
control. In Japan, which is currently the world's largest market for interferon
products, the government imposed price cuts ranging from 13.5% to 22.7% in 1994
on certain interferon products then being marketed in Japan. The Company cannot
predict whether similar price cuts will be imposed on any of the Company's
products in Japan or in any other country at such time as such products are
being marketed in such country or the size or duration of any cuts that may be
imposed. However, there can be no assurance that any such cuts will not have a
material adverse effect on the Company's future results of operations. There
have been, and the Company expects there to continue to be, a number of United
States federal and state proposals to implement similar government control. It
is uncertain what form any health care reform legislation may take or what
actions the federal, state, and private payors may take in response to the
suggested reforms. The Company cannot predict when any suggested reforms will be
implemented, if ever, or the effect of any implemented reform on the Company's
business. There can be no assurance, however, that any implemented reform will
not have a material adverse effect on the Company's future results of
operations. The Company's long-term ability to market its products successfully
may depend in part on the extent to which reimbursement for the cost of such
products and related treatment will be available from public and private health
insurers and other organizations. Third-party payors are increasingly
challenging the prices of medical products and services. The reimbursement
status of newly-approved health care products is highly uncertain, and there can
be no assurance that third-party coverage will be available or that available
third-party coverage will enable the Company to maintain price levels sufficient
to realize an appropriate return on its investment in product development. While
recombinant alpha interferon products can be produced at a lower cost per unit
than the Company's formulations of Natural Alpha Interferon products, until dose
regimens and treatment durations are determined, the Company is unable to
determine whether the cost of treatment with the Company's products will be
greater, equal to, or less than the cost of competing treatments.

ROYALTY OBLIGATIONS. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of its products. Royalty payments under such license agreements
with respect to ALFERON N Injection, ALFERON N Gel, and ALFERON LDO could
aggregate up to 9.5%, 13.5%, and 19.5%, respectively, of the Company's net sales
of such products. See "Business -- ALFERON N Injection -- Royalty Obligations"
and "Business -- Products under Development -- Royalty Obligations." In
addition, under the terms of a marketing agreement, the Company may be obligated
to pay an additional royalty equal to a maximum of 3% of the net sales of
ALFERON N Injection in certain territories. See "Business -- ALFERON N
Injection -- Marketing and Distribution." Such royalty obligations, together
with any additional royalties which may be payable by the Company, may limit the
Company's marketing strategies and prevent it from obtaining adequate profit
margins and could have a material adverse effect on the commercial exploitation
of the Company's products.

In connection with the acquisition of certain intellectual property and
technology rights from NPDC, the Company agreed to pay NPDC a royalty of $1
million. Such amount is payable if and when the Company generates income before
income taxes, limited to 25% of such income before income taxes per year until
such amount is paid in full. See "Certain Transactions -- Agreements with
NPDC -- Transfer Agreement."

LIMITED PRODUCTION EXPERIENCE. Although the Company has produced ALFERON N
Injection in accordance with its commercial requirements, it has never produced
ALFERON N Injection at levels which would allow the Company to operate
profitably. There can be no assurance that, if the Company's commercial
requirements increase to such levels, the Company will be able to produce
ALFERON N Injection at such levels and at a competitive price.

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<PAGE> 16

RISK OF PRODUCT LIABILITY. The Company's products have undergone or will
undergo extensive clinical testing prior to the granting of any regulatory
approval for the purpose, among other things, of determining the safety of such
products. The Company may sell products which cause unexpected adverse reactions
or result in an allergic or other reaction or which are alleged to have
unacceptable adverse side effects. Product liability risk is inherent in the
testing, manufacture, marketing, and sale of the Company's products, and there
can be no assurance that the Company will be able to avoid significant product
liability exposure. Such liability might result from claims made directly by
consumers or by pharmaceutical companies or others selling such products. It is
impossible to predict the scope of injury or liability from such unexpected
reactions, or the measure of damages which might be imposed as a result of any
claims or the cost of defending such claims. The Company has a product liability
insurance policy in the amount of $10,000,000. Although the Company believes
this amount is sufficient, there is no assurance that the Company will be able
to maintain such coverage, and even if it does maintain it, in the event that
the Company becomes subject to liability claims in excess of any insurance
coverage it may have in effect, the Company may not have sufficient assets or
liquidity to satisfy such claims which could result in the Company's inability
to continue its operations. Furthermore, any published reports or rumors
suggesting a link between a Company product and injury to a person could be
expected to materially impair the Company's ability to market such product.

RETENTION OF KEY PERSONNEL. Because of the specialized scientific nature
of the Company's business, it is necessary to attract and retain personnel with
a wide variety of scientific capabilities. Competition for such personnel is
intense. There can be no assurance that the Company will continue to attract and
retain personnel of high scientific caliber. None of the Company's key employees
have employment agreements. The Company does not maintain key man life insurance
for any of its key employees and does not intend to obtain such insurance. The
Company's loss of services of certain of its employees or other members of its
staff could have a material adverse effect on the Company's operations. See
"Business -- Research Staff and Employees" and "Management."

CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST. Based, in part,
on a Schedule 13D filed by the beneficial owner with the Securities and Exchange
Commission, NPDC, David Blech, three trusts of which Mr. Blech is the income
beneficiary but not the trustee (the "Blech Trusts"), and Biotechnology
Investment Group L.L.C. beneficially own approximately 31.1%, 4.3%, 9.6%, and
11.3%, respectively, of the outstanding shares of Common Stock, certain of which
shares have been pledged to their respective banks as collateral to secure
indebtedness owed to such banks. Upon completion of the Offering of the minimum
number of shares of Common Stock and after giving effect to the exchange of
indebtedness of the Company to certain of such stockholders for shares of Common
Stock, such stockholders beneficially will own approximately 26.3%, 3.7%, 7.7%,
and 9.5%, respectively, of the then outstanding shares of Common Stock.

Certain conflicts of interest may arise as a result of NPDC's stock
ownership in the Company and certain related transactions between the Company
and NPDC. Furthermore, certain officers of the Company also serve as officers of
NPDC and may have conflicts of interests in allocating management time,
services, and functions between the Company and NPDC. Presently, Samuel H.
Ronel, Ph.D., President and Chief Executive Officer, Stanley G. Schutzbank,
Ph.D., Executive Vice President, Lawrence M. Gordon, Vice President and General
Counsel, Drew R. Stoudt, Vice President Regulatory Affairs and Quality, and
Donald W. Anderson, Controller, devote a portion of their time to the business
of NPDC, which includes some overlapping responsibilities for the benefit of the
Company. In addition, certain directors of NPDC also serve as directors of the
Company. Transactions in which certain members of the Board of Directors or
principal stockholders of the Company may have a conflict of interest must be
approved by a majority of the disinterested directors. See "Principal
Stockholders," "Certain Transactions," "Description of Securities," and
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."

PREFERRED STOCK. The Company's charter provides for 5,000,000 authorized
but unissued shares of Preferred Stock, the rights, preferences, qualifications,
limitations, and restrictions of which may be fixed by the Board of Directors
without any further vote or action by the stockholders. The ability to issue the
Preferred Stock could have the effect of delaying, deferring, or preventing a
change of control of the Company.

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<PAGE> 17

SHARES AVAILABLE FOR FUTURE SALE; UNDERWRITER'S PURCHASE OPTIONS. The
Company (subject to certain exceptions), the Company's directors and officers
(who own in the aggregate 17,600 shares of Common Stock and options and warrants
to purchase 1,912,000 shares of Common Stock), and the Company's principal
stockholders (who after consummation of the Offering will own in the aggregate
13,240,482 shares of Common Stock and no options and warrants to purchase shares
of Common Stock), have agreed not to sell, directly or indirectly, any of their
shares of Common Stock for periods ranging from six to 24 months following the
date of this Prospectus, without the consent of the Underwriter and the Company.
However, certain of such principal stockholders have pledged an aggregate of
shares of Common Stock beneficially owned by them to their respective
banks as collateral to secure indebtedness owed to such banks. Any shares
acquired by lenders pursuant to such pledge arrangements would not be subject to
any agreements not to sell. In addition, any shares held by a principal
stockholder who was in bankruptcy proceedings might be released, in the
discretion of the bankruptcy court, from any agreement not to sell. Moreover,
the Underwriter and the Company may, in their sole discretion and at any time
without notice, release all or any portion of the securities subject to
agreements not to sell. On the expiration of the agreements not to sell, and
subject to the pledge arrangements, the principal stockholders may sell certain
of the shares of Common Stock held by them pursuant to Rule 144 under the
Securities Act of 1933 (the "Securities Act") or otherwise. In addition, certain
of the principal stockholders have certain demand and "piggyback" registration
rights with respect to the Common Stock beneficially owned by them. The sale of
a significant number of shares of Common Stock, whether by the principal
stockholders, the lenders pursuant to such pledge arrangements, or otherwise,
may adversely affect the market price of the Common Stock. See "Principal
Stockholders," "Certain Transactions," and "Underwriting."

The Company currently has outstanding options to purchase 3,155,320 shares
and warrants to purchase 886,000 shares of Common Stock. Moreover, the Company
will sell to the Underwriter and/or its designees, for nominal consideration,
the Underwriter's Purchase Options to purchase up to 1,000,000 shares of Common
Stock. For the life of the outstanding options and warrants and the
Underwriter's Purchase Options, the holders are given, at nominal cost, the
opportunity to profit if the price for the Common Stock in the public market
exceeds the exercise price of the options, warrants, or Underwriter's Purchase
Options, without assuming the risk of ownership, with a resulting dilution in
the interest of other security holders. If the public market price of the Common
Stock does not rise above the exercise price of the options, warrants, or
Underwriter's Purchase Options during the exercise period, then such securities
will expire worthless. As long as the outstanding options, warrants, and the
Underwriter's Purchase Options remain unexercised, the terms under which the
Company could obtain additional capital may be adversely affected. Moreover, the
holders of these securities may be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by these
securities.

In addition, if the Company exercises its option to repurchase certain
marketing rights from Purdue, the Company will issue up to 750,000 shares of
Common Stock to Purdue which the Company has agreed to utilize its best efforts
to ensure will be registered and freely tradeable. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue."

VOLATILITY OF SHARE PRICE; LACK OF LIQUIDITY. There has been significant
volatility in the market prices for publicly traded shares of biotechnology
companies, including the Company. There can be no assurance that the price of
the Common Stock will remain at or exceed current levels. Factors, such as
announcements of technological or product developments by the Company or its
competitors, governmental regulation, or patent or proprietary rights
developments may have a significant impact on the market price of the Common
Stock.

DILUTION. Based on the net tangible book value per share of the Common
Stock as of March 31, 1995, investors in the Offering will experience
substantial dilution of $1.07 per share if the minimum number of shares is sold
and $.92 per share if the maximum number of shares is sold, from an assumed
offering price of $1.50 per share. See "Dilution."

15
<PAGE> 18

DIVIDENDS ON COMMON STOCK UNLIKELY. The Company does not, in the
foreseeable future, anticipate paying any dividends on the Common Stock. See
"Price Range of Common Stock and Dividend Policy."

NO MARKET MAKING ACTIVITY BY UNDERWRITER. The Underwriter has indicated
that it does not intend to act as a market maker in the Common Stock, which may
adversely affect the price and liquidity of the Common Stock. While 15 firms
currently make a market in the Common Stock, all or some of such firms may
discontinue such activities at any time or from time to time.

LIMITED UNDERWRITING HISTORY. The Underwriter was first registered as a
broker-dealer in February 1992 and has not previously participated in any public
offerings as an underwriter, though it has acted as syndicate member, sole
placement agent, co-placement agent, selected dealer, or sole participating
broker in more than a dozen public or private offerings. Prospective purchasers
of the Common Stock offered hereby should consider the Underwriter's limited
experience in evaluating an investment in the Common Stock. See "Underwriting."

16
<PAGE> 19

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $6,265,000 if the minimum number of shares are sold
and $12,990,000 if the maximum number are sold, assuming that the offering price
of the Common Stock is $1.50 per share.

The Company anticipates that of the net proceeds of $6,265,000 if the
minimum number of shares are sold, it will use approximately $4,000,000 for
research, product development, and clinical trials of the Company's products,
and the balance for working capital and general corporate purposes. If more than
the minimum number of shares are sold, a portion of the additional net proceeds
may also be used for research, product development, and clinical trials of the
Company's products, and the balance will be used for working capital and general
corporate purposes. The Company reserves the right to reapportion the net
proceeds of the Offering among the foregoing categories or to other uses if it
determines that to do so would be in the best interests of the Company.

Until utilized, the proceeds of the Offering are expected to be invested
principally in short- and medium-term, interest-bearing investments.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded in the over-the-counter market and is quoted on
the NASDAQ National Market System under the symbol IFSC. The following table
sets forth for each period indicated the high and low sales prices for the
Common Stock as reported on the NASDAQ National Market System.

<TABLE>
<CAPTION>
HIGH LOW
--- ---
<S> <C> <C>
1993
First Quarter................................................ $ 3 15/16 $ 2 1/8
Second Quarter............................................... 5 3/4 1 7/8
Third Quarter................................................ 5 1/8 3 3/8
Fourth Quarter............................................... 6 1/4 4 3/8

1994
First Quarter................................................ 5 3/8 3 5/8
Second Quarter............................................... 4 1/8 2 3/4
Third Quarter................................................ 3 7/8 1 1/2
Fourth Quarter............................................... 2 5/8 1 1/4

1995
First Quarter................................................ 3 1 5/16
Second Quarter............................................... 2 1/2 1 11/16
Third Quarter (through July 14, 1995)........................ 2 1/16 1 3/4
</TABLE>

On July 14, 1995, the last reported sale price of the Common Stock was
$1 15/16 per share. As of July 12, 1995, the Company had approximately 860
stockholders of record.

The Company has not paid any dividends on the Common Stock since its
inception and does not contemplate paying dividends on the Common Stock in the
foreseeable future.

17
<PAGE> 20

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1995 and as adjusted to give effect to (i) the sale of the minimum and
maximum number of shares of Common Stock in the Offering, (ii) the termination
in July 1995 of the commitment to repurchase 619,994 shares of Common Stock held
by Purdue, (iii) the $125,000 writedown of March 31, 1995 inventory resulting
from the July 1995 agreement with Purdue that the transfer price for each vial
of ALFERON N Injection sold to Purdue will be paid $25 in cash and the balance
as an offset to the cash exercise price of the Company's option to reacquire
certain marketing rights from Purdue, and (iv) the sale for cash during the
second quarter of 1995 of $920,000 principal amount of indebtedness of the
Company to certain of its principal stockholders, and the exchange at the
closing of the Offering of such indebtedness for 613,333 shares of Common Stock
(assuming that the offering price of the Common Stock is $1.50 per share and
assuming no other changes in the net tangible book value after March 31, 1995).
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- ALFERON N Injection
-- Marketing and Distribution -- Agreements with Purdue," and "Certain
Transactions -- Other Transactions."

<TABLE>
<CAPTION>
MARCH 31, 1995 (UNAUDITED)
----------------------------------------------
AS ADJUSTED
-----------------------------
ACTUAL MINIMUM MAXIMUM
------------ ------------ ------------
<S> <C> <C> <C>
Short-term debt:
Current maturities of long-term debt(1)........ $ 274,370 $ 274,370 $ 274,370
=========== =========== ===========
Common Stock subject to repurchase commitment
(682,494 shares and 62,500 shares as
adjusted)(2)................................... 2,729,976 250,000(3) 250,000(3)

Stockholders' equity:
Preferred Stock, par value $.01 per share,
5,000,000 shares authorized; none issued and
outstanding................................. -- -- --
Common Stock, par value $.01 per share,
40,000,000 shares authorized; 21,023,774
shares issued and outstanding and 27,257,101
shares and 32,257,101 shares issued and
outstanding, as adjusted(4)................. 210,238 272,571 322,571
Capital in excess of par value................... 67,039,598 76,642,241 83,317,241
Accumulated deficit.............................. (64,586,010) (64,711,010) (64,711,010)
------------ ------------ ------------
Total stockholders' equity............. $ 2,663,826 $ 12,203,802 $ 18,928,802
------------ ------------ ------------
Total capitalization........................... $ 5,393,802 $ 12,453,802 $ 19,178,802
=========== =========== ===========
</TABLE>

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

(1) See Note 9 of "Notes to Consolidated Financial Statements." This loan was
repaid in April, 1995.

(2) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."

(3) Consists of 62,500 shares of Common Stock required to be repurchased from
Purdue in April 1995, which repurchase was completed in July 1995.

(4) Does not include (i) 3,155,320 shares of Common Stock reserved for issuance
upon the exercise of options currently outstanding under the Company's stock
option plan, (ii) 886,000 shares reserved for issuance upon the exercise of
currently outstanding warrants, and (iii) 1,000,000 shares reserved for
issuance upon the exercise of the Underwriter's Purchase Options. See
"Underwriting" and "Description of Securities."

The Company has no material long-term lease obligations.

18
<PAGE> 21

DILUTION

As of March 31, 1995, the net tangible book value of the Company was
$2,314,202 (after giving effect to the commitment to repurchase Common Stock
from Purdue), or $.11 per share of Common Stock outstanding. Net tangible book
value per share is determined by dividing the tangible net worth of the Company
(tangible assets less liabilities) by the number of shares of Common Stock
outstanding, net of shares of Common Stock subject to repurchase commitment.
After giving effect to the sale of the minimum number of shares in the Offering
and the transactions described in footnote 3 (assuming that the offering price
of the Common Stock is $1.50 per share and assuming no other changes in the net
tangible book value after March 31, 1995), the pro forma net tangible book value
of the Company as of March 31, 1995 would have been $11,854,178 ($18,579,178 if
the maximum number of shares are sold in the Offering) or $.43 ($.58 if the
maximum number of shares are sold in the Offering) per share. This represents an
immediate increase in pro forma net tangible book value of $.32 ($.47 if the
maximum number if shares are sold in the Offering) per share to current
stockholders and an immediate dilution of $1.07 ($.92 if the maximum number of
shares are sold in the Offering) per share to new investors purchasing shares of
Common Stock.

The following table summarizes such per share dilutive effect:

<TABLE>
<CAPTION>
MINIMUM MAXIMUM
-------------- --------------
<S> <C> <C> <C> <C>
Assumed offering price(1)..................................... $1.50 $1.50
Net tangible book value per share before the Offering....... $.11 $.11
Increase attributable to shares offered hereby(2)(3)........ .32 .47
---- ----
Pro forma net tangible book value per share after the Offering
and the transactions described in footnote 3................ .43 .58
----- -----
Dilution to new investors(4).................................. $1.07 $ .92
===== =====
</TABLE>

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

(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.

(2) After deduction of underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.

(3) Also gives effect to (i) the termination in July 1995 of the commitment to
repurchase 619,994 shares of Common Stock held by Purdue, (ii) the $125,000
writedown of March 31, 1995 inventory resulting from the July 1995 agreement
with Purdue that the transfer price for each vial of ALFERON N Injection
sold to Purdue will be paid $25 in cash and the balance as an offset to the
cash exercise price of the Company's option to reacquire certain marketing
rights from Purdue, and (iii) the sale for cash during the second quarter of
1995 of $920,000 principal amount of indebtedness of the Company to certain
of its principal stockholders, and the exchange at the closing of the
Offering of such indebtedness for 613,333 shares of Common Stock, assuming
that the offering price of the Common Stock is $1.50 per share. See
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue," and "Certain Transactions -- Other Transactions."

(4) Dilution represents the difference between the offering price per share and
the pro forma net tangible book value per share after giving effect to the
Offering and the transactions described in footnote 3.

19
<PAGE> 22

SELECTED FINANCIAL INFORMATION

The following table sets forth the selected financial data of the Company
as of March 31, 1995 and December 31, 1994, 1993, 1992, 1991, and 1990, and for
the three months ended March 31, 1995 and 1994 and for the years ended December
31, 1994, 1993, 1992, 1991, and 1990, and should be read in conjunction with the
consolidated financial statements and notes thereto contained elsewhere in this
Prospectus. The financial data as of March 31, 1995 and for the three months
ended March 31, 1995 and March 31, 1994 are unaudited and reflect all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary to present fairly the data as of such date
and for such periods. The results for interim periods are not necessarily
indicative of results to be expected for the year. The financial data as of and
for the five-year period ended December 31, 1994 have been derived from the
audited financial statements of the Company.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- -------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1)......................................... $ 180 $ 1 $ 1,166 $ 51 $ 3,306 $ 2,503 $ 622
Research and development costs, net................. 960 1,169 5,196 4,151 3,983 3,162 5,596
General and administrative expense.................. 446 740 4,974(2) 2,367 2,113 1,872 1,840
Loss from operations................................ (1,795) (2,371) (11,782) (8,347) (5,953) (5,087) (7,579)
Interest and other income (expense), net............ (3) 25 (295) (113) (44) (809) (735)
Net loss............................................ (1,798) (2,346) (12,078) (8,460) (5,997) (5,896) (8,314)
Net loss per share of common stock.................. (.08) (.12) (.62) (.55) (.42) (.62) (1.34)
Dividends........................................... -- -- -- -- -- -- --
Weighted average number of shares of Common Stock
outstanding....................................... 21,199 19,417 19,594 15,432 14,357 9,501 6,212
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ------------------------------------------------
1995 1994 1993 1992 1991 1990
------------- -------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $ 7,786 $ 8,182 $20,301 $21,096 $25,035 $12,001
Current maturities of long-term debt................... 274 409 1,999 2,001 1,188 195
Long-term debt, net of current maturities.............. -- -- 138 1,679 3,680 4,409
Common Stock subject to repurchase commitment(3)....... 2,730 2,730 -- -- -- --
Working capital (deficiency)........................... (907) (782) 7,985 7,706 12,002 (2,298)
Stockholders' equity................................... 2,664 2,979 17,131 16,157 19,045 608
</TABLE>

- ---------------
(1) Substantially all of the revenues in 1991, 1992, 1994 and the three months
ended March 31, 1995 were from sales of ALFERON N Injection to Purdue.
Purdue did not purchase ALFERON N Injection from the Company in 1993 or the
three months ended March 31, 1994. Purdue has informed the Company that
during 1993, 1994 and the three months ended March 31, 1995, Purdue sold
approximately 23,000, 25,000, and 6,800 vials, respectively, and distributed
as free samples approximately 2,800, 2,000, and 200 vials, respectively, of
ALFERON N Injection from its inventory. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Liquidity and
Capital Resources."

(2) Includes $2,100,000 resulting from the write-off of certain prepaid
royalties. See Note 4 of "Notes to Consolidated Financial Statements."

(3) Represents the Company's obligation to purchase an aggregate of 682,494
shares of Common Stock from Purdue, of which 62,500 shares were required to
be repurchased in April 1995 and 619,994 shares are required to be
repurchased in July 1995. The 62,500 shares have been repurchased and the
commitment to repurchase the 619,994 shares was terminated in July 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue."

20
<PAGE> 23

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

Since January 1981, the Company has been primarily engaged in the research
and development of pharmaceutical products containing Natural Alpha Interferon
for the treatment of viral diseases, cancers, and diseases of the immune system.
The Company has experienced significant operating losses since its inception.
Although the Company received FDA approval in October 1989 to market ALFERON N
Injection in the United States for the treatment of certain genital warts, it
has had limited revenues from the sale of ALFERON N Injection to date. ALFERON N
Injection currently is marketed and sold in the United States by Purdue and was
approved for sale in Mexico in December 1994. In order for the Company to
operate profitably, the Company must sell significantly more ALFERON N
Injection. Increased sales will depend primarily upon the expansion of existing
markets and/or successful attainment of FDA approval to market ALFERON N
Injection for additional uses. The Company has primarily financed its operations
to date through private placements and public offerings of the Company's
securities.

LIQUIDITY AND CAPITAL RESOURCES

As of July 17, 1995, the Company had an aggregate of $165,000 in cash.
Consequently, management is actively pursuing raising required additional
capital by taking one or more of the following actions: (i) issuing securities
in a public or private equity offering, (ii) licensing rights to its injectable,
topical, or oral formulations of alpha interferon (as it did with Fujimoto
Diagnostics, Inc. ("Fujimoto") as described below), or (iii) entering into
collaborative or other arrangements with corporate partners. Lack of funds has
caused the Company to delay or scale back some of its clinical activities and
continued lack of funding will require the Company to eliminate certain or all
of its activities or license third parties to commercialize products or
technologies that the Company would otherwise seek to develop itself.

On May 3, 1995, three principal stockholders of the Company committed to
loan the Company an aggregate of $920,000, all of which was received by July 6,
1995. Such loans bear interest at prime plus 2% and mature on the earlier of (i)
the first date that the Company receives gross proceeds of at least $7,500,000
from a public offering (the "Public Offering") of Common Stock and (ii) November
2, 1995. If the indebtedness matures as a result of a Public Offering, repayment
of principal of the indebtedness may be made, at the option of the Company
(which option the Company intends to exercise), by delivery of shares of Common
Stock valued at the public offering price per share in the Public Offering.

In April 1995, Amarillo Cell Culture Company, Incorporated and its licensee
agreed to purchase an aggregate of $750,000 of the Company's Common Stock at
$2.00 per share, all of which cash was received during the second quarter of
1995. See "Business -- Products Under Development -- ALFERON LDO."

On February 7, 1995, the Company concluded an agreement with Fujimoto, a
pharmaceutical company located in Osaka, Japan, for the commercialization of the
Company's ALFERON N Injection and ALFERON N Gel in Japan. In connection with the
agreement, Fujimoto purchased $1,500,000 of the Company's Common Stock at $1.45
per share (the then market price), all of which cash was received during the
first quarter of 1995, and is committed to purchase an additional $500,000 of
Common Stock in February 1996 at the then market price. See "Business -- ALFERON
N Injection -- Marketing and Distribution -- Other Marketing and Distribution
Arrangements."

In connection with the amendments to agreements with Purdue as described
below, during January 1994, Purdue ordered 45,000 vials of ALFERON N Injection
at an agreed upon price. With respect to this order, approximately
three-quarters of the purchase price of the vials was payable upon shipment by
the Company to Purdue and the balance was payable upon sale by Purdue. A portion
of the shipments to fill this order was made on a consignment basis, i.e. the
purchase was subject to a right of return until notification by Purdue that such
vials have been resold. In June and August 1994, the Company began to fill this
order by making shipments of 10,000 and 10,735 vials, respectively, of ALFERON N
Injection to Purdue on a consignment basis. In addition, shipments of 5,928 and
10,040 vials of ALFERON N Injection were made to Purdue in September 1994 and
April 1995, respectively, on a non-consignment basis. The 8,297 vial balance of
this order is expected to be shipped prior to the end of 1995.

21
<PAGE> 24

Purdue has informed the Company that from June 1994 through December 31,
1994, it had sold or distributed as free samples approximately 15,800 vials of
the 20,735 vials purchased on a consignment basis, and that as of March 1995,
Purdue had sold or distributed as free samples the balance of such consignment
inventory. Purdue has also informed the Company that during the three months
ended March 31, 1995 and the year ended December 31, 1994, it sold approximately
6,800 vials and 25,000 vials, respectively, and distributed as free samples
approximately 200 vials and 2,000 vials, respectively, of ALFERON N Injection
from its inventory.

In January 1994, the Company amended its marketing and distribution
agreements with Purdue and related parties. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." Pursuant to
such amended agreements, the Company assumed sole responsibility to conduct and
fund clinical trials required to obtain FDA approval for additional indications
for ALFERON N Injection. Prior to these amendments, Purdue was responsible for
the payment of the costs of such clinical trials. The Company anticipates that
the expansion of its research and development efforts and clinical trial
activities and its assuming responsibility for the conduct and funding thereof
will increase operating expenses. The Company intends to seek to enter into
joint venture or other arrangements with strategic partners who agree to bear
all or part of such expenses.

In connection with the amendments to the agreements with Purdue, the
Company agreed to purchase an aggregate of 994,994 shares of its Common Stock
for $3,979,976 ($4.00 per share) from Purdue and two related entities over a
period of 18 months. The Company purchased 62,500 of such shares of Common Stock
for $250,000 in January 1994 and was obligated to purchase an additional 250,000
shares of Common Stock for $1,000,000 in 1994. In 1994, the Company and Purdue
agreed to offset $700,000 owed to the Company by Purdue, for the purchase of
ALFERON N Injection during 1994, against the Company's obligation to purchase
$1,000,000 of the Company's Common Stock from Purdue in 1994. As of December 31,
1994, $300,000 of this obligation to Purdue had not been paid and was reflected
as a current liability on the balance sheet. In addition, as of March 31, 1995,
the Company had an additional $67,783 of offsets based upon additional sales of
ALFERON N Injection by Purdue. In April 1995, the Company was required to
purchase 62,500 shares of Common Stock for $250,000 and in July 1995 was
obligated to purchase 619,994 shares of Common Stock for $2,479,976. As of July
14, 1995, the Company had generated sufficient additional offsets based upon
additional sales of ALFERON N Injection to and by Purdue to repay the $232,217
owed to Purdue as of March 31, 1995 and to pay the $250,000 owed to Purdue for
the April 1995 stock repurchase. In July 1995, the Company entered into a
further amendment to the agreements with Purdue pursuant to which the Company
obtained an option, exercisable until December 31, 1996, to reacquire the
remaining marketing and distribution rights from Purdue. The exercise price of
the option is $5,000,000, subject to reduction as set forth below, plus 350,000
shares of Common Stock if exercised on or before December 31, 1995 or 750,000
shares of Common Stock if exercised after December 31, 1995. The option may not
be exercised unless the Company simultaneously purchases any of the 619,994
shares of Common Stock described above then held by Purdue for $4.00 per share.
The cash exercise price of the option will be reduced by the aggregate of (i)
the amount paid by the Company to Purdue to repurchase any of such 619,994
shares then held by Purdue, (ii) if Purdue sells any or all of such 619,994
shares, which may only be done with the consent of the Company, the amount
received by Purdue from such sale, and (iii) the amount by which the transfer
price for vials sold by the Company to Purdue exceeds $25 per vial. If the
option is not exercised, the Company will no longer have the obligation to
repurchase the 619,994 shares. In addition, the parties agreed that the transfer
price for each vial will be payable $25 in cash and the balance as an offset to
the cash exercise price of the option. If the option is not exercised, such
offsets will have no value. See "Business -- ALFERON N Injection -- Marketing
and Distribution -- Agreements with Purdue." In addition, as of March 31, 1995,
the Company was obligated to pay an aggregate of $286,000 to U.S. Capital
Corporation, which was past due. Such amount was paid in April 1995.

Management believes that if the cash currently available and the proceeds
from the Offering are not used to exercise the option to repurchase the
marketing right from Purdue and to repurchase certain shares of Common Stock
from Purdue, such cash will be sufficient to enable the Company to continue
operations for approximately eight months from the date of this Prospectus if
the minimum number of shares of Common Stock is sold in the Offering and 18
months if the maximum number is sold, although no assurance can be

22
<PAGE> 25

given in this regard. To fund the Company's operations beyond such periods, the
Company will require additional funding, whether from financial markets or
collaborative or other arrangements with corporate partners or from other
sources, which may not be available when needed, or on terms acceptable to the
Company. Insufficient funds will require the Company further to delay, scale
back, or eliminate certain or all of its research and development programs or
license third parties to commercialize products or technologies that the Company
would otherwise seek to develop itself and may cause the Company to be in
default under additional agreements with third parties.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1995 versus Three Months Ended March 31, 1994

For the three months ended March 31, 1995, the Company's revenue of
$179,619 included $174,710 from the sale of ALFERON N Injection and the balance
was derived from sales of research products. Revenue of $1,316 for the three
months ended March 31, 1994 was derived from sales of research products.
Notwithstanding the suspension of ALFERON N Injection production during a
portion of the three months ended March 31, 1995 and during all of the three
months ended March 31, 1994, the Company recorded cost of goods sold and ongoing
production facility costs of $568,095 and $462,786, respectively.

Research and development expenses during the three months ended March 31,
1995 of $960,152 decreased by $209,148 from $1,169,300 for the same period in
1994, principally because the Company reduced its level of research and product
development on ALFERON N Injection. The Company received $45,498 and $37,500
during the three months ended March 31, 1995 and 1994, respectively, as rental
income from NPDC for the use of a portion of the Company's facilities, which
offset research and development expenses.

General and administrative expenses for the three months ended March 31,
1995 were $446,392 as compared to $739,943 for the same period in 1994. The
decrease of $293,551 was principally due to decreases in payroll and other
expenses. NPDC provides certain administrative services for which the Company
paid NPDC $30,000 for each of the three month periods ended March 31, 1995 and
1994. In addition, NPDC provides to the Company, at its estimated cost, certain
personnel and services which the Company uses in its operations. For the three
months ended March 31, 1995 and 1994, such charges amounted to $274,654 and
$441,664, respectively.

Interest and other income for the three months ended March 31, 1995 was
$6,776 as compared to $90,224 for the same period in 1994. The decrease of
$83,448 was due to less funds available for investment in the current period.

Interest expense for the three months ended March 31, 1995 and 1994 was
$9,909 and $65,305, respectively. The decrease of $55,396 was due to reduced
long-term debt.

As a result of the foregoing, the Company incurred net losses of $1,798,153
and $2,345,794 for the three months ended March 31, 1995 and 1994, respectively.

Year Ended December 31, 1994 versus Year Ended December 31, 1993

For the year ended December 31, 1994 (the "1994 Period"), the Company's
revenues of $1,165,931 included $979,425 from the sale of ALFERON N Injection
and the balance from sales of research products, contract research and other
revenues. The revenues of $51,323 for the year ended December 31, 1993 (the
"1993 Period') were derived from sales of research products. Cost of goods sold
for the 1994 Period was the same as the sales of ALFERON N Injection since the
inventory which was sold had been written down to its net realizable value.
Notwithstanding the suspension of ALFERON N Injection production during a
portion of both the 1994 Period and the 1993 Period, the Company recorded
ongoing production facility costs of $1,798,684 and $1,880,563, respectively.
For the portion of the 1994 Period during which the facility was operating,
these costs primarily represented current production costs in excess of the
estimated net realizable value of inventory produced which resulted from limited
production volumes.

Research and development expenses during the 1994 Period of $5,195,699
increased by $1,044,541 from $4,151,158 for the 1993 Period, principally
because, effective January 1994, the Company took over the responsibility for
conducting and funding the hepatitis C clinical studies from Purdue and
increased its level of

23
<PAGE> 26

research and product development of ALFERON N Injection. The Company received
$150,000 and $138,996 during the 1994 Period and 1993 Period, respectively, as
rental income from NPDC for the use of a portion of the Company's facilities,
which offset research and development expenses.

General and administrative expenses for the 1994 Period were $4,974,224 as
compared to $2,366,897 for the 1993 Period. The increase of $2,607,327 was
principally due to the amortization and subsequent write-off of prepaid
royalties totalling $2,100,000, increases in payroll, and certain costs related
to a proposed public stock offering which was not consummated. NPDC provides
certain administrative services for which the Company paid NPDC $120,000 for
each of the 1994 Period and the 1993 Period. In addition, NPDC provides to the
Company, at its estimated cost, certain personnel and services which the Company
uses in its operations. For the 1994 Period and the 1993 Period, such charges
amounted to $1,194,380 and $895,700, respectively.

Interest and other income for the 1994 Period was $157,929 as compared to
$255,344 for the 1993 Period. The decrease of $97,415 was due to less funds
available for investment in the current year.

For the 1994 Period, the Company realized a net loss of $300,430 from sales
of marketable securities which resulted from declines in the fair value of the
Company's investments in obligations of agencies of the United States
Government. During the 1993 Period, the Company realized a net gain of $3,297
from sales of such investments.

Interest expense for the 1994 Period and 1993 Period was $152,935 and
$371,208, respectively. The decrease of $218,273 was due to reduced long-term
debt.

As a result of the foregoing, the Company incurred net losses of
$12,077,537 and $8,459,862 for the 1994 Period and the 1993 Period,
respectively.

Year Ended December 31, 1993 versus Year Ended December 31, 1992

For the 1993 Period, the Company's revenue of $51,323 was principally
derived from the sale of research products. Revenue of $3,306,397 for the year
ended December 31, 1992 (the "1992 Period") included $3,267,351 from sales of
ALFERON N Injection and the balance was derived from sales of research products.
ALFERON N Injection production was suspended during a portion of the 1993
Period; nevertheless, the Company recorded an idle production facility expense
of $1,880,563, which included a $486,000 write-down at December 31, 1993 of
finished goods inventories to their estimated net realizable value. Cost of
goods sold for the 1992 Period was $3,162,670 resulting in a positive gross
margin of $104,681 on sales of ALFERON N Injection.

Research and development expenses during the 1993 Period of $4,151,158
increased by $167,963 from $3,983,195 during the 1992 Period, principally
because the Company increased its level of research and product development. A
portion of the increase in research and development was also due to increased
activity in support of obtaining regulatory approvals for ALFERON N Injection.
The Company received $138,996 and $141,996 during the 1993 Period and 1992
Period, respectively, as rental income from NPDC for the use of a portion of the
Company's facilities.

General and administrative expenses for the 1993 Period were $2,366,897 as
compared to $2,113,493 for the 1992 Period. The increase of $253,404 was
principally due to increases in expenditures related to exploring foreign
marketing interest in ALFERON N Injection and increases in insurance and payroll
costs. NPDC provides certain administrative services for which the Company paid
NPDC $120,000 for each of the 1993 and 1992 Periods. In addition, NPDC provides
to the Company, at its estimated cost, certain shared personnel and services
which the Company uses in its operations. For the 1993 and 1992 Periods, such
charges amounted to $895,700 and $864,615, respectively. See "Certain
Transactions -- Agreements with NPDC."

Interest and other income for the 1993 Period was $255,344 as compared to
$544,322 for the 1992 Period. The decrease of $288,978 was due to a reduction in
cash available for investment as well as lower interest rates.

24
<PAGE> 27

Interest expense for the 1993 Period and 1992 Period was $371,208 and
$563,294, respectively. The decrease of $192,086 was due to a reduction in the
1993 Period in long-term debt.

As a result of the foregoing, the Company incurred net losses of $8,459,862
and $5,996,855 for the 1993 Period and 1992 Period, respectively.

Recent Tax and Accounting Developments

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"and effective
January 1, 1994, the Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
There was no material effect on the Company's financial condition, results of
operations, or cash flows as a result of the adoption of these principles.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Statement 121
requires the Company to estimate the future cash flows expected to result from
the use and eventual disposition of its property, plant and equipment, and if
the sum of such cash flows is less than the carrying amount of these assets, to
recognize an impairment loss to the extent, if any, that the carrying amount of
the assets exceeds their fair values. The Company is required to adopt Statement
121 not later than January 1, 1996. The Company believes that, although it has a
current period operating loss and a history of operating losses, expected future
cash flows derived from these assets will be at least equal to their carrying
values, and that no impairment loss will be indicated. The Company bases this
assessment both upon expected future product revenues and upon the fact that it
completed a major manufacturing facility expansion and purchase of manufacturing
equipment in 1991, the cost of which constitutes a major portion of the carrying
value of its property, plant and equipment. The Company believes that this
expanded facility will be suitable for a number of years without significant
repairs.

25
<PAGE> 28

BUSINESS

THE COMPANY

The Company is a biopharmaceutical company currently engaged in the
manufacture and sale of ALFERON N Injection, the only product approved by the
FDA that is based upon Natural Alpha Interferon. ALFERON N Injection is approved
for the treatment by injection of certain types of genital warts and is being
developed by the Company for the potential treatment of hepatitis C, hepatitis
B, HIV, multiple sclerosis, cancers, and other indications. The Company believes
that the existing FDA approval of ALFERON N Injection for one indication should
facilitate obtaining approvals for other indications. The Company also is
developing ALFERON N Gel and ALFERON LDO, the Company's topical and oral
formulations of Natural Alpha Interferon.

Interferons are a group of proteins produced and secreted by cells to
combat diseases. Currently, various alpha interferon products, approved for 17
different medical uses in over 60 countries, are, as a group, one of the largest
selling of all biopharmaceuticals with estimated 1994 sales in excess of $1.5
billion worldwide. A substantial majority of these sales are for the treatment
of hepatitis C, a liver disease affecting several million people worldwide,
including two to three million people in the United States and three million
people in Japan. As described below, the Company is presently conducting three
multi-center Phase 2 trials using Natural Alpha Interferon for the treatment of
hepatitis C.

Natural Alpha Interferon

Side effects. The principal side effects of alpha interferon are
flu-like symptoms, which are dose dependent. The approved treatment with
ALFERON N Injection utilizes lower doses than the treatment with
recombinant alpha interferon, which may account, in part, for fewer side
effects being observed in patients being treated with Natural Alpha
Interferon. Based on a double-blind study of normal healthy adults, the
Company believes there is evidence that even when given at the same
doses as recombinant alpha interferon, the side effects are lower with
Natural Alpha Interferon. Furthermore, in a Phase 1 clinical trial on 20
asymptomatic HIV-infected patients, investigators at Walter Reed
reported that significantly fewer of the typical side effects associated
with recombinant alpha interferon were observed with Natural Alpha
Interferon. In addition, interferon-neutralizing antibodies, which may
limit alpha interferon's therapeutic benefit, have not been observed to
date in clinical trials with Natural Alpha Interferon, even in HIV and
hepatitis C patients treated with high doses of such product three times
a week for up to six months.. There have been reports of these
antibodies developing in patients being treated with recombinant alpha
interferons.

26
<PAGE> 29

long-term agreements for the supply of such cells. Recombinant alpha interferon
products are not dependent on a source of human white blood cells and,
therefore, can be produced in greater volume and at a lower cost per unit than
the Company's formulations of Natural Alpha Interferon products. See
"Business -- Scientific Background."

Marketing, Distribution, and Production

ALFERON N Injection is approved for sale in the United States for the
intralesional treatment of adults with refractory (resistant to other treatment)
or recurring external genital warts, and is currently marketed and distributed
in the United States exclusively by Purdue. The Company has an option to
repurchase the marketing rights for ALFERON N Injection in the United States and
Canada from Purdue. See "Business -- ALFERON N Injection -- Approved Indication"
and "Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."

In February 1995, the Company entered into an agreement with Fujimoto for
the development and marketing of ALFERON N Injection and ALFERON N Gel in Japan.
Japan is currently the world's largest market for interferon products, with 1994
annual sales approaching $900 million. Under the terms of the agreement,
Fujimoto agreed to purchase $2,000,000 of the Company's Common Stock and to use
its best efforts to develop, and obtain Japanese regulatory approvals for,
ALFERON N Injection and ALFERON N Gel products. The Company believes that
Fujimoto's development effort will entail a substantial expense on Fujimoto's
part. In addition, the Company's Natural Alpha Interferon injectable product was
recently approved for sale in Mexico for the treatment of genital warts and will
be marketed under the trade name ALTEMOL(R) by Andromaco. See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Other
Marketing and Distribution Arrangements."

The purified drug concentrate utilized in the formulation of ALFERON N
Injection is manufactured in a Company-owned, FDA-approved facility located in
New Brunswick, New Jersey. ALFERON N Injection is formulated and packaged for
the Company by Sanofi at a production facility located in McPherson, Kansas. See
"Business -- ALFERON N Injection -- Manufacturing."

Recently Expanded License

As of March 31, 1995, the Company obtained a non-exclusive license from
Hoffmann and Roche which grants the Company the worldwide rights to make, use,
and sell, without a potential patent infringement claim from Hoffmann or Roche,
any formulation of Natural Alpha Interferon. The 1995 license replaced a 1988
non-exclusive license from Hoffmann which granted the Company the rights to
make, use, and sell in the United States, without a potential patent
infringement claim from Hoffmann, injectable formulations of Natural Alpha
Interferon for the treatment of genital warts or patients with diseases
refractory to recombinant interferon therapy. The 1995 license will enable the
Company, if successful in obtaining necessary regulatory approvals, to expand
the formulations of Natural Alpha Interferon it makes, uses, and sells in the
United States and the rest of the world and to market its products for the
treatment of additional indications. See "Risk Factors -- Potential Patent
Infringement Claims," "Business -- ALFERON N Injection -- Patents and Licenses,"
and "Business -- ALFERON N Injection -- Royalty Obligations."

Clinical Trials

The Company is conducting or planning various clinical trials in an effort
to obtain approval to market Natural Alpha Interferon for additional indications
in the United States and around the world.

ALFERON N Injection. The Company is presently conducting three
multi-center, randomized, open-label, dose-ranging Phase 2 clinical trials in
patients infected with hepatitis C virus (HCV). The objective of these HCV
clinical studies is to compare the safety and efficacy of different doses of
Natural Alpha Interferon injected subcutaneously in naive (previously
untreated), refractory (unsuccessfully treated with recombinant alpha
interferon), and relapsing (initially responded to recombinant alpha interferon
but later relapsed)

27
<PAGE> 30

patients. Enrollment of naive patients has been completed at six centers, and
all patients have now finished the six-month treatment and six-month follow-up
periods. Results from this study will be available later this year. Enrollment
of refractory patients has been completed at seven centers, and most patients
have finished the treatment period and entered the six-month follow-up period.
Results from this trial will be available in 1996. Enrollment is actively
continuing in five centers for relapsing patients. The Company believes that the
preliminary results of such trials are promising.

ALFERON N Gel. ALFERON N Gel is a topical Natural Alpha Interferon
preparation which the Company believes has potential in the treatment of
cervical dysplasia, recurrent genital herpes, other viral diseases, and cancers.

The Company has completed a Phase 2 dose ranging study using ALFERON N Gel
at the Columbia Presbyterian Medical Center in New York for the treatment of
mild cervical dysplasia. Based upon Pap Smears, identification tests for the
presence of virus and cervical biopsies, ALFERON N Gel appears to have the
potential for improving the course of cervical dysplasia in the majority of
patients who completed the treatment course. However, since this study utilized
small numbers of patients, there can be no assurance that these results will be
reproduced on a large scale placebo-controlled trial.

In light of the above results, a physician-sponsored study in HIV-infected
women with cervical dysplasia is expected to commence in 1995.

ALFERON LDO. ALFERON LDO is a low dose oral liquid Natural Alpha
Interferon preparation which the Company believes has potential for treating
certain symptoms of patients infected with the HIV virus and treating other
viral diseases.

At New York's Mount Sinai Hospital, the Company conducted two clinical
trials using ALFERON LDO on patients infected with the HIV virus. Based in part
upon information from these trials, The National Institute of Allergy and
Infectious Disease ("NIAID") is planning to conduct in 1995 a randomized,
double-blind, placebo-controlled clinical study with low dose alpha interferons
administered orally (including ALFERON LDO) to determine interferon's effect on
HIV-related symptoms. See "Business -- Products under Development."

28
<PAGE> 31

products for such uses by the FDA and foreign regulatory authorities.
Submissions for regulatory approval to sell ALFERON N Injection for the
treatment of genital warts have been filed in various other countries. See
"Business -- Governmental Regulation," "Risk Factors -- Regulatory Approvals,"
and "Risk Factors -- Foreign Regulatory Approvals."

Although the Company received FDA approval to market ALFERON N Injection in
1989, to date, it has had only limited revenue from the sale of ALFERON N
Injection. The Company has experienced significant operating losses since its
inception in 1980. As of March 31, 1995, the Company had an accumulated deficit
of approximately $64.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

CLINICAL TRIALS SUMMARY

The table appearing below summarizes the more detailed information
contained elsewhere in this Prospectus concerning clinical trials of ALFERON N
Injection, ALFERON N Gel, and ALFERON LDO being conducted or proposed to be
conducted and is qualified in its entirety by reference to that information.

<TABLE>
<CAPTION>
POTENTIAL STATUS OF CLINICAL
PRODUCT APPLICATION/INDICATIONS TRIALS(1) SPONSOR
- -------------------- ------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
ALFERON N Injection HIV-infected patients Initial Phase 1 completed Water Reed(2)
Phase 2/3 in final stages Company(3)
of planning
Comparison of side Phase 1 completed Purdue
effects in healthy
subjects with recombinant
alpha interferon
Hepatitis C Three multi-center Phase Company(3)(4)
2 in progress
Kaposi's sarcoma Phase 2 in progress Company
(in AIDS patients)
Small cell lung cancer Phase 2 to commence Investigator(5)
shortly
Multiple sclerosis Phase 2 being planned Company(3)
Hepatitis B Phase 2 proposed (6)

ALFERON N Gel Cervical dysplasia Phase 2 completed Company
Cervical dysplasia Phase 2 in progress Investigator(5)
(in HIV-infected
patients)
Mucocutaneous herpes in Phase 2 proposed (3)
immunocompromised
patients
Recurrent genital herpes Phase 2 proposed (6)

ALFERON LDO HIV-infected patients Initial Phase 2 completed Company
HIV-infected patients Phase 2 in final stages NIAID(5)
of planning
</TABLE>

- ---------------
(1) Generally, clinical trials for pharmaceutical products are conducted in
three phases. In Phase 1, studies are conducted to determine safety and
tolerance. In Phase 2, studies are conducted to gain preliminary evidence as
to the efficacy of the product as well as additional safety data. In Phase
3, studies are conducted to provide sufficient data to establish safety and
statistical proof of efficacy in a specific dose. Phase 3 is the final stage
of such clinical studies prior to the submission of an application for
approval of a new drug or licensure of a biological product or for new uses
of a previously-approved product. See "Business -- Governmental Regulation."

(2) Partially funded by Purdue and the Company.

(3) This trial may be funded in whole or in part from the proceeds of the
Offering. If not funded in whole from the proceeds of the Offering, the
timing of this trial will be dependent upon the Company's ability to obtain
additional funding or a sponsor.

(4) Previously funded by Purdue; currently funded by the Company.
(footnotes continued on next page)

29
<PAGE> 32

(5) Notice of Claimed Investigational Exemption for a New Drug has been filed .

(6) This trial will not be funded from the proceeds of the Offering. The timing
of this trial will be dependent upon the Company's ability to obtain
additional funding or a sponsor.

SCIENTIFIC BACKGROUND

Interferons are a group of proteins produced and secreted by cells to
combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma, and omega. The Company's three ALFERON products
contain a form of alpha interferon. The worldwide market for injectable alpha
interferon-based products has experienced rapid growth and various alpha
interferon injectable products are approved for 17 different medical uses in
more than 60 countries.

Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. In the United
States, only two types of alpha interferon are approved for commercial sale:
recombinant (genetically engineered) alpha interferon and Natural Alpha
Interferon, which is manufactured from human white blood cells. Outside of the
United States, sales of alpha interferon produced by cell culture account for a
significant portion of the market.

The Company believes that the potential advantages of Natural Alpha
Interferon over recombinant interferon may be based upon their respective
molecular compositions. An analysis of Natural Alpha Interferon shows that it is
composed of a family of proteins containing many different molecular species of
interferon. In contrast, recombinant alpha interferons each contain only a
single species. Researchers have reported that the various species of interferon
may have differing anti-viral activity depending upon the strain of virus.
Natural Alpha Interferon presents a broad complement of species which the
Company believes may account for its higher efficacy in laboratory studies with
the HIV virus compared with that of single species recombinant alpha interferon.
Natural Alpha Interferon is also glycosylated, or partially covered with sugar
molecules, which does not occur with recombinant alpha interferon. The Company
believes that the absence of glycosylation may be responsible for the production
of interferon-neutralizing antibodies seen in patients treated with recombinant
alpha interferon.

The production of Natural Alpha Interferon is dependent upon a supply of
human white blood cells and other essential materials. The Company currently
obtains white blood cells from FDA-licensed blood donor centers. The Company
currently has no long-term commitments for a supply of such white blood cells.

ALFERON N INJECTION

Approved Indication. On October 10, 1989, the FDA approved ALFERON N
Injection for the intralesional treatment of refractory (resistant to other
treatment) or recurring external genital warts in patients 18 years of age or
older. Substantially all of the Company's revenues, to date, have been generated
from the sale of ALFERON N Injection for such treatment. Genital warts, a
sexually transmitted disease, are caused by certain types of human papilloma
viruses. A published report estimates that approximately eight million new and
recurrent cases of genital warts occur annually in the United States alone.
Genital warts are usually treated using caustic chemicals or through physical
removal methods. These procedures can be quite painful and effective treatment
is often difficult to achieve.

Clinical Trials for New Indications. In an effort to obtain approval to
market Natural Alpha Interferon for additional indications in the United States
and around the world, the Company is focusing its research program on conducting
and planning various clinical trials for new indications.

Hepatitis C. Chronic viral hepatitis is a liver infection caused by
various hepatitis viruses. The United States Centers for Disease Control
estimates that approximately 2 to 3 million people in the United States are
presently infected with the hepatitis C virus ("HCV") and an estimated 170,000
persons become newly infected each year, a majority of whom become chronic
carriers and will suffer gradual deterioration of their liver and possibly
cancer of the liver. Several brands of recombinant and cell-cultured interferon
have been approved by various regulatory agencies worldwide for the treatment of
hepatitis C, including a recombinant product in the United States. See
"Business -- ALFERON N Injection -- Competition." However, reports have
indicated that many patients either do not respond to treatment with the
recombinant product or relapse after treatment. The Company presently is
conducting three multi-center, randomized, open-label, dose-

30
<PAGE> 33

ranging Phase 2 clinical trials utilizing ALFERON N Injection with patients
infected with HCV. The objective of the Company's HCV clinical studies is to
compare the safety and efficacy of different doses of Natural Alpha Interferon
injected subcutaneously in naive (previously untreated), refractory
(unsuccessfully treated with recombinant interferon), and relapsing (initially
responded to recombinant interferon but later relapsed) patients.

Enrollment of naive patients has been completed at six centers, and all
patients have now finished the six-month treatment and six-month follow-up
periods. Presently, the patients' records are being retrieved and prepared for
data entry and analysis. Results from this study are expected to be available
later this year.

Enrollment of refractory patients is now complete at seven centers, and
most patients have finished the treatment period and entered the six-month
follow-up period. Results from this trial are expected to be available in 1996.

Enrollment is actively continuing in five centers for relapsing patients.
The original study protocol only permitted patients who had been previously
treated with a single six-month course of recombinant interferon therapy.
However, since so many patients have a disease relapse after a single course of
recombinant interferon therapy, many of them had been treated with two or more
courses of this therapy, and therefore did not qualify for this study. The
inability to enroll qualified patients has delayed the trial and led the Company
recently to amend its protocol to allow for enrollment of patients who have
received up to three six-month courses of recombinant interferon therapy. This
protocol change should help to accelerate enrollment.

The purpose of these multi-center trials is to help determine the optimal
treatment dose and to study the treatment's utility in different patient
populations. These results will assist in the design of the next phase of these
investigations. The Company believes that the preliminary results of such trials
are promising.

HIV-infected patients. The Human Immunodeficiency Virus ("HIV") infection
is at epidemic levels in the world. The World Health Organization projects that
this virus will affect 40 to 100 million people by the year 2000. HIV infection
usually signals the start of a progressive disease that compromises the immune
systems, ultimately resulting in Acquired Immune Deficiency Syndrome or AIDS.
HIV-infected patients can be asymptomatic for many years before being afflicted
by opportunistic infections or cancer. The Company believes that slowing the
progression of the HIV infection in healthier patients may help fight against
the development of opportunistic infections and cancer.

An article published in AIDS Research and Human Retroviruses in 1993 by
investigators at Walter Reed in collaboration with the Company's scientists
indicated that the various interferon species display vast differences in their
ability to affect virus replication. Walter Reed researchers found that the
Company's Natural Alpha Interferon was 10 to 100 times more effective than
recombinant interferons in blocking the replication of HIV-1, the AIDS virus, in
infected human cells in vitro.

Moreover, the Company's scientists were able to separate members of the
interferon family in single protein fractions or clusters of proteins using
advanced fractionation techniques. The individual fractions were tested for
their ability to block HIV replication in the laboratory by researchers at
Walter Reed. They found that the unusual anti-HIV activity was attributable to
very specific fractions in the Company's product. The most active fractions are
not present in marketed recombinant interferon.

This information provided additional support for a long-held belief of the
Company that its Natural Alpha Interferon has unique anti-viral properties
distinguishing it from recombinant interferon products. These promising findings
led the Walter Reed researchers to conduct a Phase 1 clinical trial with the
Company's product in asymptomatic HIV-infected patients.

In March 1992, Walter Reed launched a Phase 1 clinical trial with
asymptomatic HIV-infected patients to investigate the safety and tolerance, at
several dose regimens, of Natural Alpha Interferon, self-injected subcutaneously
for periods of up to 24 weeks. The investigators concluded that the treatment
was "surprisingly" well tolerated by patients, at all dose regimens. Preliminary
findings were reported by Walter Reed at the IXth International Conference on
AIDS in Berlin in 1993. The investigators also reported that the expected
interferon side effects, such as flu-like symptoms and a drop in CD4 white blood
cell counts, were rare or absent in the majority of patients treated with the
Company's product.

31
<PAGE> 34

Although this Phase 1 clinical trial was designed primarily to provide
safety information on various doses of Natural Alpha Interferon used for
extended periods of time, there were encouraging indications that certain
disease parameters had stabilized or even improved in certain patients by the
end of the experimental treatment.

In a recent follow-up analysis of patients' blood testing data, it was
found that after an average of 16 months after treatment, CD4 lymphocyte levels
(the white blood cells which normally decline in HIV infected patients) remained
essentially unchanged or were higher than at the onset of the trial in 11 of 20
patients. In addition, the amount of HIV detectable in the patients' blood, as
measured by a quantitative PCR (Polymerase Chain Reaction) technique, declined
in a dose dependent manner (the greatest declines were observed in the highest
dose group). Also, none of the patients were found to have developed
neutralizing antibodies to Natural Alpha Interferon, even after being treated
three times weekly for many months. These results were reported at the Third
International Congress on Biological Response Modifiers held in Cancun, Mexico
in January 1995, and an extensive report has been prepared and submitted for
publication.

It is important to note that, because of the small number of study
participants and the absence of a control group, no firm conclusions can be
drawn from these observations. However, the information obtained from this trial
has been helpful in designing the next phase of the clinical program, which will
be initiated in the near future provided adequate funding is secured.

Kaposi's sarcoma (in AIDS patients). Kaposi's sarcoma is a cancerous
growth characterized by vascular skin tumors and affects approximately 10% of
AIDS patients. It is often the first notable manifestation of AIDS, and as the
tumors become more widely disseminated on the skin, it is associated with
visceral lesions and lymph node involvement. Traditional treatment involves
single agent or combination chemotherapy, but the typical side effects of
chemotherapy can be severe. In the United States, recombinant alpha interferon
has been approved for the treatment of Kaposi's sarcoma in AIDS patients.
However, response has been limited and often followed by relapse. The Company
presently is conducting a Phase 2 clinical trial in Mexico utilizing ALFERON N
Injection for the treatment of Kaposi's sarcoma in patients with AIDS.

Small Cell Lung Cancer. Small Cell Lung Cancer ("SCLC") represents
approximately 25% of all newly-diagnosed cases of lung cancer and affected
approximately 42,000 people in 1992. Although patients with SCLC initially
respond to high-dose combination chemotherapy regimens, the rate of relapse is
high and such patients have a median survival rate of only 7 to 16 months,
depending upon the extent of disease.

The Company has agreed to supply Natural Alpha Interferon for a
multi-center, physician-initiated, Phase 2 study which is being conducted at
Allegheny General Hospital and at the University of Pittsburgh. Patients who are
in remission following successful treatment with standard chemotherapy will be
entered into this study. They will first receive high dose combination
chemotherapy, followed by peripheral blood stem cell augmentation. One month
after hematologic recovery, patients will then be given Natural Alpha Interferon
injections until evidence of disease progression or intolerable toxicity occurs.
The expected duration of treatment is up to 12 months. The goal of this study is
to investigate Natural Alpha Interferon's potential to extend the disease-free
period and overall survival of these patients.

Multiple Sclerosis. Multiple sclerosis ("MS") is a chronic, sometimes
progressive, immune-mediated disease of the central nervous system that is
believed to occur in genetically predisposed individuals following exposure to
an environmental factor, such as virus infection. The disease affects an
estimated 250,000 to 350,000 people in the United States, primarily young
adults. Symptoms of MS, including vision problems, muscle weakness, slurred
speech, and poor coordination, are believed to occur when the patient's own
cells attack and ultimately destroy the insulating myelin sheath surrounding the
brain and spinal cord nerve fibers, resulting in improper transmission of
signals throughout the nervous system.

In the United States, a recombinant form of beta interferon has been
approved for the treatment of relapsing-remitting MS. However, reports in the
scientific literature and elsewhere have indicated that the significant adverse
reactions associated with the treatment may limit its usefulness. Once
sufficient funding

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has been obtained, the Company is planning to conduct a clinical trial in order
to investigate the potential use of Natural Alpha Interferon for MS.

Chronic Viral Hepatitis B. Hepatitis B ("HBV") is currently the most
common form of hepatitis virus. Approximately three and a half to four million
people in the United States are infected with this virus, with some 300,000 new
infections occurring annually and over 200 million infected people worldwide.
HBV is transmitted through contact with infected blood, sexual intercourse, and
needle-sharing among intravenous drug users. Infants born to infected mothers
may become infected as they pass through the birth canal. According to the
Centers for Disease Control, approximately 25% of hepatitis B patients develop
irreversible chronic liver conditions, and about 10% of all patients become
lifetime carriers and can transmit the virus to others. The Company is currently
planning clinical trials using ALFERON N Injection in persons infected with
hepatitis B; however, the Company does not anticipate starting the clinical
trials unless funding is secured.

Marketing and Distribution.

Agreements with Purdue. In 1988, the Company entered into exclusive
marketing and distribution agreements with Mundipharma Pharmaceutical Company
("Mundipharma"), a related entity of Purdue Pharma, with respect to ALFERON N
Injection, which agreements have been amended from time to time (as amended, the
"Purdue Marketing Agreements"). In 1991, Mundipharma assigned the right to
market and distribute ALFERON N Injection in the United States to Purdue Pharma
and retained the right to market and distribute ALFERON N Injection in Canada,
Western Europe, Israel, India, Japan, and Australia. In 1993, the Company
reacquired the right to market and distribute ALFERON N Injection in Japan.

In 1994, an amendment to these agreements was entered into (the "1994
Purdue Amendment") pursuant to which the Company reacquired the right to market
ALFERON N Injection in Western Europe and other countries and took over from
Purdue the conduct and funding of clinical trials. Specifically, the 1994 Purdue
Amendment provided, among other things, that (i) the Company reacquired the
right to market ALFERON N Injection in Western Europe, Israel, India, and
Australia (the "Returned Territories"), subject to the payment to Mundipharma of
a royalty equal to 3% of net sales (as defined) in the Returned Territories
until Mundipharma has received royalty payments equal to $3 million ($5 million
under certain circumstances) and 1% of net sales thereafter; (ii) the Company
assumed responsibility for the conduct and funding of clinical trials to develop
new indications for ALFERON N Injection; and Purdue was granted the right to
obtain marketing and distribution rights for each additional indication of
ALFERON N Injection at such time as the Company receives FDA approval for any
such additional indication, by reimbursing the Company for some or all of its
clinical costs plus an additional lump-sum payment; (iii) the Company agreed to
purchase for $4.00 per share 994,994 shares of Common Stock held by Purdue and
certain related parties over a period of 18 months; (iv) Purdue Pharma and
Mundipharma retained the right to market and distribute ALFERON N Injection in
the United States and Canada, respectively, subject to the Company's option (the
"First Option") to reacquire such rights at a price of $12 million until July
25, 1995 ($10 million if the First Option had been exercised before January
1995); provided that the First Option could not have been exercised unless the
Company simultaneously paid the unpaid balance of the purchase price for the
994,994 shares referred to above, which payment would have reduced the First
Option exercise price; and (v) Purdue ordered 45,000 vials of ALFERON N
Injection at an agreed upon price. Unless certain minimum purchase levels are
reached during certain annual periods, or minimum payments are made to the
Company in lieu of such minimum purchases, the Company can terminate Purdue
Pharma and Mundipharma's exclusive marketing and distribution rights. All
marketing and distribution costs are borne by Purdue Pharma and Mundipharma in
their respective territories.

In March 1995, the Company entered into an amendment to the 1994 Purdue
Amendment (the "March 1995 Purdue Amendment") pursuant to which the Company
obtained an option, exercisable until June 30, 1995 (the "Second Option"), to
reacquire the remaining marketing and distribution rights from Purdue Pharma and
Mundipharma. The exercise price of the Second Option was 2.5 million shares of
Common Stock; provided that the Option could not have been exercised unless the
Company simultaneously paid the unpaid balance of the purchase price for the
994,994 shares referred to above. If 18 months from the date of

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<PAGE> 36

exercise of the Second Option by the Company (the "Valuation Date"), the 2.5
million shares of Common Stock did not have a value of at least $9,037,807
(which value was calculated using the average of the closing bid and asked
prices of the Common Stock as quoted by the NASDAQ National Market System for
the ten trading days ending on the day prior to the Valuation Date), the Company
was required to issue a note for the shortfall. Such note was required to bear
interest at the prime rate and became due and payable 24 months from the
Valuation Date. The Company agreed that it would utilize its best efforts to
ensure that the 2.5 million shares of Common Stock would be registered and
freely tradeable 18 months from the date of exercise of the Second Option. If
the Second Option were exercised, the First Option, the royalty obligations, and
Purdue's right to obtain marketing and distribution rights for new indications
contained in the 1994 Purdue Amendment would have terminated.

In July 1995, the Company entered into an amendment to the 1994 Purdue
Amendment and the March 1995 Purdue Amendment (the "July 1995 Purdue Amendment")
pursuant to which the Company obtained an option, exercisable until December 31,
1996 (the "Third Option"), to reacquire the remaining marketing and distribution
rights from Purdue Pharma and Mundipharma. The exercise price of the Third
Option is $5,000,000, subject to reduction as set forth below, plus 350,000
shares of Common Stock if exercised on or before December 31, 1995 or 750,000
shares of Common Stock if exercised after December 31, 1995. The Company has
agreed that it will utilize its best efforts to ensure that such shares will be
registered and freely tradeable upon issuance. The Third Option may not be
exercised unless the Company simultaneously pays the unpaid balance of the
purchase price for any of the 994,994 shares referred to above then held by
Purdue. As of July 14, 1995, Purdue held 619,994 of such shares and such unpaid
balance was $2,479,976. The cash exercise price of the Third Option will be
reduced by the aggregate of (i) the amount paid by the Company to Purdue to
repurchase any of such 619,994 shares then held by Purdue, (ii) if Purdue sells
any or all of such 619,994 shares, which may only be done with the consent of
the Company, the amount received by Purdue from such sale, and (iii) the amount
by which the transfer price for vials sold by the Company to Purdue Pharma or
Mundipharma exceeds $25 per vial. If the Third Option is exercised, the royalty
obligations and Purdue's right to obtain marketing and distribution rights for
new indications contained in the 1994 Purdue Amendment will terminate. If the
Third Option is not exercised, the Company will no longer have the obligation to
repurchase the 619,994 shares.

The Company entered into the 1994 Purdue Amendment, the March 1995 Purdue
Amendment, and the July 1995 Purdue Amendment to provide it with greater
financial flexibility and control over the worldwide marketing and distribution
of ALFERON N Injection. The July 1995 Purdue Amendment provides the Company with
the flexibility to enter into a strategic alliance with a multinational
marketing partner if it elects to exercise the Third Option.

Under the terms of the Purdue Marketing Agreements, the Company receives a
transfer price for the sale of vials of ALFERON N Injection to Purdue Pharma or
Mundipharma. Such transfer price is calculated based on either a manufacturing
cost formula or a fixed price formula (subject to consumer price index
adjustments); provided, however, that if the Company chooses the fixed price
formula, the Company may be entitled to additional payments if the net sales
price received by Purdue Pharma or Mundipharma for ALFERON N Injection exceeds
certain levels. Pursuant to the July 1995 Purdue Amendment, the transfer price
for each vial will be payable $25 in cash and the balance as an offset to the
cash exercise price of the Third Option. If the Third Option is not exercised,
such offsets will have no value. The Company may choose the applicable formula
every six months. Except as described below, Purdue Pharma and Mundipharma have
no recourse against the Company in the event that they are unable to resell
ALFERON N Injection to third parties.

In January 1994, pursuant to the 1994 Purdue Amendment, Purdue ordered
45,000 vials of ALFERON N Injection at an agreed upon price. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." In addition, the Company agreed,
under certain circumstances, to replace up to 15,000 vials of ALFERON N
Injection from Purdue's existing inventory at an agreed upon discounted price.
The Company also granted Purdue an option, exercisable (in whole only) until
July 25, 1995, to purchase an additional 100,000 vials of ALFERON N Injection at
an agreed upon discounted price. The Company does not expect Purdue to exercise
this option.

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<PAGE> 37

Purdue Pharma utilizes its affiliate's, The Purdue Frederick Company's,
sales force in the United States. The Purdue Frederick Company's principal
products include BETADINE(R) antiseptics, UNIPHYL(R) controlled release
theophylline, TRILISATE(R) analgesic/anti-inflammatory products, and M.S.
CONTIN(R) tablets for the prolonged relief of pain in cancer patients.

Other Marketing and Distribution Arrangements. On February 7, 1995 the
Company concluded an agreement with Fujimoto for the commercialization of
ALFERON N Injection and ALFERON N Gel in Japan (the "Fujimoto Agreement").
Fujimoto is affiliated with Fujimoto Pharmaceutical Company, a 60-year old
company with facilities in central Japan. The Fujimoto Agreement grants Fujimoto
exclusive rights to develop, distribute, and sell ALFERON N Injection and
ALFERON N Gel in Japan. Pursuant to the terms of the Fujimoto Agreement,
Fujimoto agreed to fund and conduct all preclinical and clinical studies
required for Japanese regulatory approval. For the injectable product, ALFERON N
Injection, Fujimoto has advised the Company that it will initially focus on the
use of the product for the treatment of patients infected with the hepatitis C
virus. The Company will supply Fujimoto with ALFERON N Injection and will also
manufacture and supply Fujimoto with ALFERON N Gel. The first indication to be
developed for ALFERON N Gel has not yet been determined. Fujimoto will also
purchase certain quantities of ALFERON N Injection and ALFERON N Gel at
agreed-upon prices during the preclinical and clinical phases. In connection
with the Fujimoto Agreement, Fujimoto purchased $1,500,000 of Common Stock for
$1.45 per share (the then current market price), and agreed to purchase an
additional $500,000 of Common Stock on February 6, 1996 at the then current
market price.

In February 1994, the Company entered into an exclusive distribution
agreement for ALFERON N Injection in Mexico with Andromaco, a privately-held
pharmaceutical company headquartered in Mexico City which specializes in
oncology and immunology products. Under the agreement, Andromaco applied for and
recently obtained approval from the Mexican regulatory authorities to sell
ALFERON N Injection for the treatment of genital warts, which will be marketed
under the trade name ALTEMOL(R). Andromaco has also agreed to sponsor, under a
United States Notice of Claimed Investigational Exemption for a New Drug, a
clinical trial in Mexico of the use of ALFERON N Injection in patients infected
with the hepatitis C virus. The agreement establishes performance milestones for
the maintenance of distribution rights by Andromaco in Mexico. In addition, the
Company has a buy-out option to reacquire the marketing and distribution rights
in Mexico under certain terms and conditions. In March 1995, the agreement was
amended to provide that Andromaco would grant to a designee of the Company an
exclusive sublicense to market and distribute ALFERON N Injection in Mexico if
the Company exercised the Option and entered into a distribution agreement with
another pharmaceutical company prior to September 30, 1995.

Although the Company has exclusive marketing and distribution agreements
with Purdue Pharma, Mundipharma, Fujimoto, and Andromaco, and has the right to
sell ALFERON N Injection in the Returned Territories, no sales of ALFERON N
Injection can be made in Canada, Japan, or the Returned Territories until such
product is approved for sale in these countries. Submissions for regulatory
approval to sell ALFERON N Injection for treatment of genital warts have been
filed in a number of countries other than the United States and regulatory
approval has been obtained in Mexico. There can be no assurance, however, that
any additional approvals will be granted. See "Business -- Governmental
Regulation," "Risk Factors -- Regulatory Approvals," and "Risk
Factors -- Foreign Regulatory Approvals."

Manufacturing. The purified drug concentrate utilized in the formulation
of ALFERON N Injection is manufactured in the Company's facility located in New
Brunswick, New Jersey, and ALFERON N Injection is formulated and packaged at a
production facility located in McPherson, Kansas and operated by Sanofi pursuant
to a processing and supply agreement entered into in September 1994. Under the
terms of the agreement with Sanofi, the Company pays Sanofi an agreed price to
formulate and package ALFERON N Injection in accordance with specifications
provided by the Company. These facilities received FDA approval in October 1989.
Subsequently, the Company developed process improvements and completed an
expansion

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<PAGE> 38

of its manufacturing facility, both of which were approved by the FDA in June
1991. The process improvements and expanded facility enabled the Company to
reduce the manufacturing costs of ALFERON N Injection and gave the Company
increased production capacity for ALFERON N Injection. See "Risk
Factors -- Regulatory Approvals" and "Business -- Governmental Regulation."

Competition. Presently, INTRON(R) A, manufactured by Schering, is the one
other injectable interferon product approved by the FDA for the treatment of
genital warts. INTRON(R) A is made from recombinant alpha interferon. ALFERON N
Injection also competes with surgical, chemical, and other methods of treating
genital warts. The Company cannot assess the impact products developed by the
Company's competitors or advances in other methods of the treatment of genital
warts will have on the commercial viability of its product.

If and when the Company obtains approvals for additional indications of
ALFERON N Injection and its proposed products, it expects to compete primarily
on the basis of product performance and price with a number of pharmaceutical
companies (such as Hoffmann, Roche, Schering, Amgen Inc., and Burroughs Wellcome
Co.), both in the United States and abroad. In addition, the Company's potential
competitors have developed or may develop products (containing either alpha
interferon or other therapeutic compounds) or other treatment modalities which
may compete with the Company's products. For example, Schering's recombinant
interferon product is already approved for the treatment of hepatitis C and
hepatitis B in the United States and other markets, as well as for many other
medical uses, and there is no assurance that if the Company is able to obtain
regulatory approval of ALFERON N Injection for the treatment of those diseases,
it will be able to achieve any significant penetration into those markets. In
addition, since production of the competitive products is not dependent on a
source of human blood cells, such products may be able to be produced in greater
volume and at a lower cost than ALFERON N Injection. Many of the Company's
potential competitors are among the largest pharmaceutical companies in the
world, are well known to the public and the medical community, and have
substantially greater financial resources and product development,
manufacturing, and marketing capabilities than the Company or its marketing
partners.

Patents and Licenses. On March 5, 1985, the United States Patent and
Trademark Office issued a patent to Hoffmann claiming purified human alpha
(leukocyte) interferon (regardless of how it is produced). In 1988, the Company
obtained a non-exclusive license from Hoffmann which allowed the Company to
make, use, and sell in the United States, without a potential patent
infringement claim from Hoffmann, (i) ALFERON N Injection for the treatment of
genital warts and (ii) injectable formulations of interferon alfa-n3 (which is
the same active ingredient contained in ALFERON N Injection), for the treatment
of patients with diseases which are refractory to recombinant interferon
therapy. On May 6, 1994, the United States Patent and Trademark Office issued an
Office Action in Reexamination on the Hoffmann patent and rejected all of the 14
claims in the Hoffmann patent. Claims in a patent under reexamination are valid
and enforceable until such time as a final disposition on the claims is reached.
On July 11, 1994, Hoffmann filed a response objecting to the Patent Office's
rejection of such claims. The outcome of such reexamination of the Hoffmann
patent cannot be determined at this time. Roche also has been issued patents
covering human alpha interferon in many countries throughout the world. As of
March 31, 1995, the Company obtained a non-exclusive license from Hoffmann and
Roche (the "Hoffmann Agreement") which grants the Company the worldwide rights
to make, use, and sell, without a potential patent infringement claim from
Hoffmann or Roche, any formulation of Natural Alpha Interferon. The Hoffmann
Agreement permits the Company to grant marketing rights with respect to Natural
Alpha Interferon products to third parties, except that the Company cannot grant
marketing rights with respect to injectable products in any country in which
Hoffmann or Roche has patent rights covered by the Hoffmann Agreement (the
"Hoffmann Territory") to any third party not listed on a schedule of
approximately 50 potential marketing partners without the consent of Hoffmann
and Roche, which consent cannot be unreasonably withheld. The Hoffmann Agreement
will enable the Company, if it is successful in obtaining necessary regulatory
approvals, to expand the formulations of Natural Alpha Interferon it makes,
uses, and sells in the United States and the rest of the world and to market its
products for the treatment of additional indications. See "Risk
Factors -- Potential Patent Infringement Claims" and "Business -- ALFERON N
Injection -- Royalty Obligations."

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<PAGE> 39

Royalty Obligations. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of Natural Alpha Interferon products. Under the terms of the
Hoffmann Agreement, the Company is obligated to pay Hoffmann and Roche an
aggregate royalty on net sales (as defined) of Natural Alpha Interferon products
by the Company in an amount equal to (i) 8% of net sales in the Hoffmann
Territory, and 2% of net sales outside the Hoffmann Territory of products
manufactured in the Hoffmann Territory, up to $75,000,000 of net sales in any
calendar year and (ii) 9.5% of net sales in the Hoffmann Territory, and 2% of
net sales outside the Hoffmann Territory of products manufactured in the
Hoffmann Territory, in excess of $75,000,000 of net sales in any calendar year,
provided that the total royalty payable in any calendar year shall not exceed
$8,000,000. The Hoffmann Agreement can be terminated by the Company on 30 days'
notice with respect to the United States patent, any individual foreign patent,
or all patents owned by Hoffmann or Roche. If the Hoffmann Agreement is
terminated with respect to the patents owned by Hoffmann or Roche in a specified
country, such country is no longer included in the Hoffmann Territory. If
Hoffmann's United States patent is found to be invalid, the Company intends to
terminate the Hoffmann Agreement with respect to Hoffmann's United States
patent, which would eliminate the royalty payable to Hoffmann and Roche on net
sales in the United States of products manufactured in the United States. When
the Company received FDA approval for ALFERON N Injection for the treatment of
genital warts in 1989, the Company became obligated to issue shares of Common
Stock to Hoffmann as a prepaid royalty against future net sales by the Company.
Under the terms of the Hoffmann Agreement, certain payments previously made to
Hoffmann (including a portion of the value of the Common Stock previously issued
to Hoffmann) are available as offsets against 50% of the Company's future
royalty obligations to Hoffmann and Roche until the Company obtains an FDA
approval to market ALFERON N Injection for an additional indication. As of March
31, 1995, the Company had approximately $908,952 of credits available to offset
its future royalty obligations to Hoffmann and Roche.

Under the terms of the Purdue Marketing Agreements, unless the Third Option
is exercised and the royalty obligation is terminated as provided in the July
1995 Purdue Amendment, the Company is obligated to pay Mundipharma a royalty
equal to 3% of the net sales of ALFERON N Injection in the Returned Territories
until Mundipharma has received royalty payments equal to $3 million ($5 million
under certain circumstances) and 1% of the Company's net sales in the Returned
Territories thereafter. See "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."

In addition, the Company agreed to pay NPDC a royalty of $1 million in
connection with the acquisition of certain intellectual property and technology
rights from NPDC. Such amount is payable if and when the Company generates
income before taxes, limited to 25% of such income before income taxes per year
until the amount is paid in full. See "Risk Factors -- Royalty Obligations" and
"Certain Transactions -- Agreements with NPDC -- Transfer Agreement."

PRODUCTS UNDER DEVELOPMENT

ALFERON N Gel.

ALFERON N Gel is a topical interferon preparation which the Company has
developed and believes has potential in the treatment of cervical dysplasia,
vaginal human papilloma virus infection, recurrent genital herpes, other viral
diseases, and cancers.

Clinical Trials for ALFERON N Gel. The Company has completed one clinical
trial and plans to conduct various other clinical trials for its ALFERON N Gel
formulation to develop applications and obtain initial approvals for such
products.

Cervical Dysplasia. Affecting approximately 500,000 to one million women
each year in the United States alone, cervical dysplasia, or abnormal cervical
cells, has been identified as a potential precursor to cervical cancer, which
strikes approximately 13,000 women in the United States each year. Cervical
dysplasia is caused by certain strains of the human papilloma virus (HPV), the
same family of viruses that causes genital warts. The Company has completed a
Phase 2 dose-ranging study using ALFERON N Gel at the Columbia Presbyterian
Medical Center in New York for the treatment of mild cervical dysplasia. In this
pilot study, patients were treated with either a high or low dose of ALFERON N
Gel, both of which were well-

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tolerated. From both the high and low dose groups, cytological analyses of Pap
smears, identification tests for the presence of HPV, and cervical biopsies
indicated that ALFERON N Gel potentially improved the course of cervical
dysplasia in the majority of patients who completed the treatment course. Based
upon these initial results, a physician-sponsored study in HIV-infected women
with cervical dysplasia is expected to commence shortly, as described below.

Cervical Dysplasia (in HIV-infected patients). Cervical dysplasia is
particularly difficult to treat in HIV-infected women. These women have a high
recurrence rate of cervical dysplasia after their initially successful surgical
treatment. As a result of the preliminary results in the initial cervical
dysplasia study described above, the investigator at Columbia-Presbyterian
Medical Center is conducting this physician-sponsored study in which ALFERON N
Gel is being used as an adjuvant to surgical treatment in HIV-infected women
with mild and more severe forms of cervical dysplasia.

Other widespread dermatological lesions potentially treatable with ALFERON
N Gel therapy. Nearly 30 million people in the U.S. are infected with the
herpes simplex type II virus, which is the infectious virus that causes genital
herpes. Up to a half-million new cases are reported each year, according to the
U.S. Department of Health and Human Services. To date, there is no cure for
genital herpes. Preliminary findings with a previous formulation of recombinant
interferon in the Company's proprietary gel showed significant shortening of the
contagious period and relief of symptoms. ALFERON N Gel may also be of benefit
to immunocompromised patients with mucocutaneous herpes. Patients with this form
of herpes suffer from persistent skin lesions which have become resistant to
existing therapies. While these diseases represent important potential targets
for ALFERON N Gel treatment, additional studies in these areas are dependent
upon future funding.

Competition. The Company believes that only one product presently sold in
the United States is indicated for the treatment of recurrent genital herpes.
This product, ZOVIRAX(R), produced by Burroughs Wellcome Co., contains a drug
called acyclovir which is administered orally in either solution or capsule form
for the management of recurrent episodes of genital herpes. Two other ZOVIRAX(R)
formulations, one of which is an ointment and the other of which is an
intravenous product, also are sold by Burroughs Wellcome Co. in the United
States for this use.

ALFERON LDO.

ALFERON LDO is a low dose oral liquid alpha interferon preparation. In
October 1989, the Company entered into an agreement (as amended, the "ACC
Agreement") with Amarillo Cell Culture Company, Incorporated ("ACC"), a
privately-held company located in Amarillo, Texas, engaged in the research and
development of animal health products. Under the terms of the ACC Agreement, the
Company has a non-exclusive license under all of ACC's issued patents, patent
applications, and "know-how" relating to the treatment of humans by the oral
administration of Natural Alpha Interferon in low doses. The Company will be
obligated to pay ACC royalties on the sales of Natural Alpha Interferon products
using ACC's patented technology as determined under the ACC Agreement. In
addition, ACC has the right to purchase the Company's Natural Alpha Interferon
for use in the animal health market and is obligated to pay royalties to the
Company based upon sales using the Company's Natural Alpha Interferon. In April
1995, in connection with certain amendments to the ACC Agreement, ACC agreed to
purchase 312,500 shares of Common Stock at $2.00 per share and Pharma Pacific
Management Pty. Ltd. ("PPM"), a company which has also obtained a license from
ACC, agreed to purchase 62,500 shares of Common Stock at $2.00 per share, all of
which shares were purchased during the second quarter of 1995.

Clinical Trials for ALFERON LDO. The Company has conducted and plans to
conduct various clinical trials for its ALFERON LDO formulation to develop
applications and obtain initial approvals for such products.

HIV-infected patients. The Company has completed two studies at Mount
Sinai Medical Center in New York involving ALFERON LDO. One was a
placebo-controlled study in AIDS-related complex ("ARC") patients, and the other
was a dose ranging study in AIDS or ARC patients. The results from the
placebo-controlled study did not demonstrate a significant improvement or
alteration in the expected

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progression of the disease, although patients receiving ALFERON LDO reported
greater energy and appetite than those given the placebo. Preliminary results
from the dose ranging study indicate that one of the doses may promote weight
gain and increased energy.

At the insistence of AIDS groups and community-based physicians who had
been using low-dose formulations of interferon in their practice, the NIAID
agreed to launch a trial of low-dose oral interferon in the United States. An
advisory committee comprised of representatives from interferon manufacturers,
AIDS support groups, FDA, and National Institutes of Health was organized to
design a nationwide, controlled study. This study will investigate the effect of
a number of oral dosage forms of alpha interferon on several quality-of-life
parameters of importance to patients infected with the AIDS virus.

The Company has been active in helping plan this trial, and has agreed to
make clinical quantities of ALFERON LDO available for use in the study. In a
February 23, 1995 press release, the NIAID AIDS Research Advisory Committee
reaffirmed the need to conduct this study and stated that the NIAID will now
begin implementation of this trial. Based upon this press release, the Company
believes that this trial will begin later this year if the NIAID completes all
the necessary steps to initiate this trial.

Competition. Under the terms of the ACC Agreement, (i) the Company has the
exclusive right to sell ALFERON LDO, containing Natural Alpha Interferon, in the
United States and all foreign countries other than Japan, (ii) ACC and PPM each
has the right to sell any interferon other than Natural Alpha Interferon in the
United States and all foreign countries other than Japan, and (iii) Hayashibara
Biochemical Laboratory has the right to sell its low dose alpha interferon in
Japan. Therefore, with respect to low dose oral interferon products, the Company
will potentially compete with ACC and PPM in the United States and in the rest
of the world except Japan.

ALFERON N Gel and ALFERON LDO.

Sales and Marketing Staff. The Company does not have a marketing or sales
staff nor does it have a marketing agreement with respect to ALFERON N Gel
(other than the Fujimoto Agreement) or ALFERON LDO and, if FDA marketing
approval of ALFERON N Gel OR ALFERON LDO is obtained, no assurance can be given
that the Company will be able to enter into a marketing agreement for such
products on terms satisfactory to the Company. In February 1995, the Company
entered into the Fujimoto Agreement which, among other things, grants Fujimoto
the exclusive right to develop, distribute, and sell ALFERON N Gel in Japan. See
"Business -- ALFERON N Injection -- Other Marketing and Distribution
Agreements."

Patents and Licenses. The United States Patent and Trademark Office issued
two patents to the Company which disclose and claim topical interferon
preparations. The patents encompass interferon preparations for the topical
delivery of one or more interferons to the site of a disease which responds
therapeutically to interferon, and a system for delivering interferon topically
which prevents oxidation of the protein. The inventions specifically encompass
the topical treatment for treating viral diseases, such as herpes genitalis,
with alpha interferon. The Company has various other issued patents and patent
applications pending in the field of biotechnology, purification processes, and
therapeutics. See "Business -- ALFERON N Injection -- Patents and Licenses."

Royalty Obligations. The Company is a party to certain license agreements,
including the Hoffmann Agreement, pursuant to which it is obligated to pay
royalties based upon commercial exploitation of ALFERON N Gel and ALFERON LDO.
Under the terms of such license agreements, the Company would pay royalties of
up to 13.5% and 19.5% of net sales of ALFERON N Gel and ALFERON LDO,
respectively.

GOVERNMENTAL REGULATION

Regulations imposed by U.S. federal, state, and local authorities, as well
as their counterparts in other countries, are a significant factor in the
conduct of the research, development, manufacturing, and marketing activities
for present and proposed products developed by the Company.

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<PAGE> 42

The Company's or its licensees' potential products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human medical products are subject to rigorous pre-clinical and clinical testing
and other approval procedures by the FDA in the United States and similar health
authorities in foreign countries. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, recordkeeping, and marketing of such products, including the
use, manufacture, storage, handling, and disposal of hazardous materials and
certain waste products. The process of obtaining these approvals and the
subsequent compliance with applicable federal and foreign statutes and
regulations involves a time-consuming process and requires the expenditure of
substantial resources.

The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or impose costly procedures on the Company's activities, the result
of which may be to furnish an advantage to the Company's competitors. Any delay
in obtaining or failure to obtain such approvals would adversely affect the
marketing of the Company's products and the ability to earn product revenue.

Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements for
pre-clinical data must be satisfied. These data, obtained from studies in
several animal species, as well as from laboratory studies, are submitted in a
Notice of Claimed Investigational Exemption for a New Drug ("IND") or its
equivalent in countries outside the U.S. where clinical studies are to be
conducted. If the necessary authorizations are received, the Company then
conducts clinical tests of its products on human beings at various unaffiliated
medical centers and institutions. Initial trials (Phase 1) are conducted on a
small number of volunteers to determine whether the drug is safe for human
beings. If the initial trials demonstrate the safety of the product, trials
(Phase 2) are then conducted on patients affected with the disease or condition
under investigation to establish the proper dose and dosing interval. The
findings of these trials are then used to design and implement large-scale
controlled trials (Phase 3) to provide statistical proof of effectiveness and
adequate evidence of safety to meet FDA and/or foreign approval requirements.

The FDA closely monitors the progress of each of the phases of clinical
testing and may, at its discretion, re-evaluate, alter, suspend, or terminate
the testing based on the data which have been accumulated to that point and its
assessment of the risk/benefit ratio to the patient. Estimates of the total time
required for completing clinical testing vary between four and ten years. Upon
successful completion of clinical testing of a new drug, a company typically
submits a New Drug Application ("NDA"), or for biological products such as
Natural Alpha Interferon, a Product and Establishment License Applications
("PLA/ELA") to the FDA summarizing the results and observations of the drugs
during the clinical trials.

To the extent a portion of the manufacturing process for a product is
handled by an entity other than the Company, the Company must similarly receive
FDA approval for the other entity's participation in the manufacturing process.
The Company has entered into an agreement with Sanofi, pursuant to which Sanofi
formulates and packages ALFERON N Injection. The Company presently has a
biologic establishment license for the facilities in which it produces ALFERON N
Injection, which includes the facilities in which Sanofi formulates and packages
ALFERON N Injection. In addition, FDA approval would have to be obtained if the
Company should choose to use an outside formulator and/or packager for ALFERON N
Gel or ALFERON LDO.

Once the manufacture and sale of a product is approved, various FDA
regulations govern the production processes and marketing activities of such
product. A post-marketing testing, surveillance, and reporting program may be
required to continuously monitor the product's usage and effects. Product
approvals may be withdrawn, or other actions may be ordered, if compliance with
regulatory standards is not maintained.

Each individual lot of Natural Alpha Interferon produced must be tested for
compliance with specifications and released for sale by the FDA prior to
distribution in the marketplace. Even after initial FDA marketing approval for a
product has been granted, further studies may be required to provide additional
data on safety or efficacy; to obtain approval for marketing a product as a
treatment for specific diseases other than those for which the product was
originally approved; to change the dosage levels of a product; to support new
safety or efficacy claims for the product; or to support changes in
manufacturing methods, facilities, sources of raw materials, or packaging.

40
<PAGE> 43

In many markets, effective commercialization also requires inclusion of the
product in national, state, provincial, or institutional formularies or cost
reimbursement systems. The impact of new or changed laws or regulations cannot
be predicted with any accuracy. The Company uses its own staff of regulatory
affairs professionals and outside consultants to enable it to monitor
compliance, not only with FDA laws and regulations, but also with state and
foreign government laws and regulations. See "Risk Factors -- Regulatory
Approvals."

Promotional and educational communications by the Company and its
distributors also are regulated by the FDA and are governed by statutory and
regulatory restrictions and FDA policies regarding the type and extent of data
necessary to support claims that may be made. The Company currently does not
have data adequate to satisfy FDA requirements with respect to potential
comparative claims between Natural Alpha Interferon and competing recombinant
interferon products.

For marketing outside the United States, the Company will also be subject
to foreign regulatory requirements governing human clinical trials,
manufacturing, and marketing approval for drugs and other medical products. The
requirements governing the conduct of clinical trials, product licensing,
pricing, and reimbursement vary widely from country to country. See "Risk
Factors -- Foreign Regulatory Approvals" and "Risk Factors -- Uncertainty of
Pharmaceutical Pricing and Related Matters; Need for Reimbursement."

RESEARCH STAFF AND EMPLOYEES

As of July 14, 1995, the Company had approximately 54 full-time employees,
of whom approximately 10 hold Ph.D. degrees and 27 hold other degrees in
scientific or technical fields. Of such employees, approximately 18 were engaged
in research and product development, 19 were engaged in manufacturing and
quality control, and the remainder were general and administrative personnel.
Certain direct and indirect management services are provided to the Company by
employees of NPDC and its other subsidiaries pursuant to a Management Agreement
(the "Management Agreement") at a cost to the Company of $120,000 per annum. In
addition, the Management Agreement provides that certain other services which
are provided by approximately 15 NPDC employees, such as legal, maintenance,
shipping and receiving, purchasing, secretarial work, information retrieval, and
regulatory compliance, will be paid for by the Company on an "as used" basis at
NPDC's approximate cost. See "Certain Transactions -- Agreements with
NPDC -- Management Agreement."

PROPERTIES

The Company's executive offices and its research and production facilities
are located at 783 Jersey Avenue, New Brunswick, New Jersey 08901, and its
telephone number is (908) 249-3250. The Company also maintains offices at 9 West
57th Street, New York, New York 10019, the cost of which is included in the
Management Agreement.

The Company owns two free standing buildings comprising approximately
44,000 square feet located in New Brunswick, New Jersey. The Company occupies
approximately 24,000 square feet for staff offices, for the production and
purification of interferon, for quality control and research activities, and for
the storage of raw, in process, and finished materials. The Company completed
the expansion of its manufacturing facility in early 1991 and received FDA
approval to use this facility in June 1991. The Company also shares
approximately 9,000 square feet with NPDC and subleases approximately 11,000
feet to NPDC. See Note 1 of "Notes to Consolidated Financial Statements." The
Company believes that its current facilities are (i) suitable and adequate for
research and development and commercial production of purified interferon, (ii)
well maintained, and (iii) in good condition. Substantially all equipment owned
by the Company has been acquired over the past ten years and is in good working
condition.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings, the outcome of which
is believed by management to have a reasonable likelihood of having any material
adverse effect upon the Company's business, results of operations, or financial
condition.

41
<PAGE> 44

MANAGEMENT

As of July 14, 1995, the directors and officers of the Company and their
ages and positions are as set forth below.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- ------------------------------------------------------
<S> <C> <C>
Martin M. Pollak(1)(2)(3)........... 67 Chairman of the Board
Jerome I. Feldman(1)(2)(3).......... 66 Chairman of the Board's Executive Committee, Treasurer
and a Director
Samuel H. Ronel, Ph.D............... 59 President, Chief Executive Officer, and a Director
Stanley G. Schutzbank, Ph.D......... 49 Executive Vice President and a Director
Leon Botstein, Ph.D................. 47 Director
Sheldon L. Glashow, Ph.D............ 63 Director
Roald Hoffmann, Ph.D.(4)............ 57 Director
Ogden R. Reid(1)(3)(4).............. 70 Director
Donald W. Anderson.................. 46 Controller (Principal Accounting and Financial
Officer) and Secretary
Drew Stoudt......................... 48 Vice President, Regulatory Affairs and Quality
Mei-June Liao, Ph.D................. 44 Vice President, Research and Development
Lawrence M. Gordon.................. 41 Vice President and General Counsel
</TABLE>

- ---------------
(1) Member of the Executive Committee.

(2) Member of the Compensation Committee.

(3) Member of Stock Option Committee.

(4) Member of the Audit Committee.

All directors are serving a current term of office which continues until
the next annual meeting of stockholders, and all officers are serving a current
term of office which continues until the next annual meeting of directors.

Martin M. Pollak has been Chairman of the Board since 1981. He is a founder
of NPDC (a holding company) and has been Executive Vice President, Treasurer and
a director of NPDC since 1959. Mr. Pollak is Chief Executive Officer, President
and a director of American Drug Company ("ADC"), a subsidiary of NPDC which
markets American-made generic pharmaceutical products in Russia. He has been
Chairman of the Board and a director of General Physics Corporation ("GPC"), a
subsidiary of NPDC which provides personnel training and technical support
services to the domestic commercial nuclear power industry and to the United
States Department of Energy since 1988; and a director since 1987; Chairman of
the Executive Committee of GTS Duratek, Inc. ("Duratek"), a company which
provides environmental technology and consulting, and staff augmentation
services to various utility, industrial and commercial clients from 1985 to
January 1995 and a director since 1982; Chairman of the Board and a director of
SGLG, Inc. ("SGLG"), a subsidiary of NPDC, which is a holding company with a 35%
interest in GSE Systems, Inc. ("GSE"), a software simulator company, since May
1991; and a director of GSE since June 1995. Mr. Pollak is Chairman of the Czech
and Slovak United States Economic Council, a member of the Board of Trustees of
the Worcester Foundation for Experimental Biology and a director of Brandon
Systems Corporation, a personnel recruiting company, since 1986.

Jerome I. Feldman has been Chairman of the Board's Executive Committee and
a director of the Company since 1981. He has also been the Treasurer of the
Company since 1984. Mr. Feldman is a founder of, and since 1959 has been
President, Chief Executive Officer and a director of, NPDC. Mr. Feldman is
Chairman of the Board of and a consultant to ADC. He has been Chairman of the
Executive Committee of GPC since 1988 and a director of GPC since 1987; Chairman
of the Board of Duratek from 1985 to January 1995 and a director since 1982 and
Chairman of the Executive Committee and a director of SGLG since May 1991; and a
director of GSE since June 1995. He has been a director of Hamilton Financial
Services, Inc., a financial service company, since 1983. He is a trustee of the
New England Colleges Fund and of Bard College.

42
<PAGE> 45

Samuel H. Ronel, Ph.D. has been President, Chief Executive Officer, and a
director of the Company since 1981 and was responsible for the interferon
research and development program since its inception in 1979. Dr. Ronel joined
NPDC in 1970 and has served as the Vice President of Research and Development of
NPDC since 1976 and as the President of Hydro Med Sciences, a division of NPDC,
since 1976. Dr. Ronel served as President of the Association of Biotechnology
Companies, an international organization representing United States and foreign
biotechnology firms, from 1986-88 and has served as a member of its Board of
Directors until 1993. Dr. Ronel was elected to the Board of Directors of The
Biotechnology Industry Organization in 1993.

Stanley G. Schutzbank, Ph.D. has been Executive Vice President and a
director of the Company since 1981 and has been associated with the interferon
research and development program since its inception in 1979. He is involved
with all facets of administration and planning of the Company and has
coordinated compliance with FDA regulations governing manufacturing and clinical
testing of interferon, leading to the approval of ALFERON N Injection in 1989.
Dr. Schutzbank joined NPDC in 1972 and has served as the Corporate Director of
Regulatory and Clinical Affairs of NPDC since 1976 and as Executive Vice
President of Hydro Med Sciences since 1982. Dr. Schutzbank is a member of the
Regulatory Affairs Professionals Society and has served as Chairman of the
Regulatory Affairs Certification Board from its inception until 1994. Dr.
Schutzbank received the 1991 Richard E. Greco Regulatory Affairs Professional of
the Year Award for his leadership in developing the United States Regulatory
Affairs Certification Program.

Leon Botstein, Ph.D. has been a director of the Company since 1981 and has
been the President of Bard College, Annandale-on Hudson, New York since 1975.
Dr. Botstein has been a director of Intelogic Trace, Inc., a computer
maintenance and support service company since 1985.

Sheldon L. Glashow, Ph.D. has been a director of the Company since October
1991. He has been a director of GPS since January 1987, a director of GSE since
June 1995, a director of CalCol, Inc., a pharmaceutical company, since 1993, and
was a director of Duratek from 1985 to January 1995. Dr. Glashow is the Higgins
Professor of Physics of Harvard University and was a Distinguished Professor and
Visiting Professor of Physics at Boston University. In 1971, he received the
Nobel Prize in Physics.

Roald Hoffmann, Ph.D. has been a director of the Company since 1991 and a
director of NPDC since 1988. Dr. Hoffmann has been the John A. Newman Professor
of Physical Science at Cornell University since 1974 and is a member of the
National Academy of Sciences and the American Academy of Arts and Sciences. In
1981 he shared the Nobel Prize in Chemistry with Dr. Kenichi Fukui.

Ogden R. Reid has been a director of the Company since 1982, a director of
NPDC since 1979, a director of GPC since January 1988, and Vice Chairman of the
Board of GPS since 1992. He was Vice Chairman and a director of Duratek from
1991 to January 1995. He has also been a director of Royce Laboratories, Inc., a
generic drug company, since 1995. Mr. Reid was Editor and Publisher of the New
York Herald Tribune and of its International Edition, an United States
Ambassador to Israel, a six-term member of the United States Congress and a New
York State Environmental Commissioner.

Donald W. Anderson has been the Controller of the Company since 1981 and
Corporate Secretary of the Company since 1988. He has been an officer of various
subsidiaries of NPDC since 1976.

Drew Stoudt has been Vice President, Regulatory Affairs and Quality of the
Company since March 1991. He was Vice President, Quality Assurance and Quality
Control from February 1990 to March 1991. Mr. Stoudt has served as Director of
Quality Assurance for the Company and other divisions of National Patent from
1985 to 1990.

Mei-June Liao, Ph.D., has been Vice President, Research and Development of
the Company since March 1995. She has served as a Director, Research &
Development since 1987, and held senior positions in the Company's Research &
Development Department since 1983. Dr. Liao received her Ph.D. from Yale
University and completed a three-year post doctoral appointment at the
Massachusetts Institute of Technology under the direction of Nobel Laureate in
Medicine, Professor H. Gobind Khorana. Dr. Liao has authored many scientific
publications and invention disclosures.

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<PAGE> 46

Lawrence M. Gordon has been the General Counsel of the Company since 1984,
the General Counsel of NPDC since November 1986, and Vice President and General
Counsel of both companies since June 1991. He was Associate General Counsel of
NPDC from 1983 through November 1986. Mr. Gordon has been a director of GPC
since October 1994.

PRINCIPAL STOCKHOLDERS

The following table sets forth the number of shares of the Common Stock
beneficially owned as of July 14, 1995 by each person who is known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock.

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS(1)
- ------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
National Patent Development Corporation...................... 6,975,148(2)(3) 31.1%
Martin M. Pollak............................................. 7,467,648(2)(4) 33.2%
Jerome I. Feldman............................................ 7,481,598(2)(5) 33.3%
David Blech.................................................. 975,000(3)(6)(7) 4.3%
Nicholas L. Madonia, Trustee................................. 2,150,000(6)(8) 9.6%
Biotechnology Investment Group, L.L.C........................ 2,527,000(3)(6)(9) 11.3%
</TABLE>

- ---------------
(1) The percentage of class calculation assumes for each beneficial owner that
all of the warrants are exercised in full only by the named beneficial owner
and that no other options or warrants are deemed to be exercised by any
other stockholders.

(2) Includes (i) 4,800,148 shares of Common Stock owned by NPDC, (ii) 1,359,375
shares of Common Stock owned by Five Star Group, Inc. ("FSGI"), and (iii)
815,625 shares of Common Stock owned by MXL Industries, Inc. ("MXL"). FSGI
and MXL each is a wholly-owned subsidiary of NPDC. Based upon the common
stock and Class B Stock of NPDC outstanding at April 15, 1995, Martin M.
Pollak and Jerome I. Feldman, officers and directors of NPDC, and directors
of the Company, controlled in the aggregate approximately 11% of the voting
power of all voting securities of NPDC. This percentage for Mr. Pollak and
Mr. Feldman would increase to approximately 45% if they exercised all of the
presently outstanding and currently exercisable stock options to purchase
shares of the common stock and Class B Stock of NPDC held by them.
Accordingly, Messrs. Pollak and Feldman, through their ownership of NPDC
common stock, may be deemed to beneficially own the shares of Common Stock
beneficially owned by NPDC, FSGI, and MXL. However, Messrs. Pollak and
Feldman disclaim beneficial ownership of such 6,975,148 shares. All of the
shares of Common Stock owned by NPDC, FSGI, and MXL have been pledged to a
bank as collateral to secure indebtedness owed to such bank. The address of
NPDC and Messrs. Pollak and Feldman is 9 West 57th Street, Suite 4170, New
York, New York 10019.

(3) Does not include certain shares that may be issued in payment of the
principal amount of indebtedness of the Company to such stockholder. See
"Certain Transactions -- Other Transactions" and "Risk Factors -- Control by
Principal Stockholders; Conflicts of Interest."

(4) Includes (i) 6,975,148 shares of Common Stock beneficially owned by NPDC,
FSGI, and MXL, (ii) 1,000 shares of Common Stock held by Mr. Pollak's wife,
and (iii) 490,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options held by Mr. Pollak. Mr. Pollak disclaims
beneficial ownership of the shares of Common Stock owned by NPDC and his
wife.

(5) Includes (i) 6,975,148 shares of Common Stock beneficially owned by NPDC,
FSGI, and MXL, (ii) 2,950 shares of Common Stock held by certain members of
Mr. Feldman's family, and (iii) 490,000 shares of Common Stock issuable upon
exercise of currently exercisable stock options held by Mr. Feldman. Mr.
Feldman disclaims beneficial ownership of the shares of Common Stock owned
by NPDC and his family.

44
<PAGE> 47

(6) Based, in part, on a Schedule 13D filed by the beneficial owner with the
Securities and Exchange Commission.

(7) Includes 175,000 shares of Common Stock held by D. Blech & Company,
Incorporated ("DBC"). David Blech is the Chief Executive Officer, sole
shareholder and a director of DBC. Excludes (i) 1,240,000 shares of Common
Stock held by Freedom Charitable Remainder Trust ("Freedom") of which David
Blech is the income beneficiary but not the trustee, (ii) 480,000 shares of
Common Stock held by Frontier Charitable Remainder Trust ("Frontier") of
which David Blech is the income beneficiary but not the trustee, and (iii)
430,000 shares of Common Stock held by Sentinel Charitable Remainder Trust
("Sentinel") of which David Blech is the income beneficiary but not the
trustee. Mr. Blech disclaims beneficial ownership of the shares of Common
Stock held by Freedom, Frontier, and Sentinel. Mr. Blech's address is c/o D.
Blech & Company, Incorporated, 599 Lexington Avenue, New York, New York
10022.

(8) Includes 1,240,000 shares of Common Stock held by Freedom, 480,000 shares of
Common Stock held by Frontier, and 430,000 shares of Common Stock held by
Sentinel, of which trusts Mr. Blech is the income beneficiary but not the
trustee. As sole trustee of each of the trusts, Mr. Madonia has the right to
vote and dispose of the shares held by such trusts. Mr. Blech disclaims
beneficial ownership of such shares of Common Stock. Mr. Madonia's address
is c/o Madonia, Pilles & Co., P.A., 30 Outwater Lane, Garfield, New Jersey
07026.

(9) The members of Biotechnology Investment Group, L.L.C. ("BIG"), which is a
limited liability company, are: Schroder Venture Advisers, Inc. (Jeffrey J.
Collinson is its president and its sole director and owner); Mordechai
Jofen, 418 Avenue I, Brooklyn, New York 11231, as trustee of the Edward A.
Blech Charitable Remainder Trust; and Wilmington Trust Company, 1100 N.
Market Street, Wilmington, Delaware 19890, as voting trustee. Such persons
may have shared voting and dispositive power over these shares. The address
of BIG is 1055 Washington Blvd. Stamford, CT 06901.

45
<PAGE> 48

CERTAIN TRANSACTIONS

AGREEMENTS WITH NPDC

Transfer Agreement. As of January 1, 1981, NPDC entered into an agreement
(the "Transfer Agreement") with the Company pursuant to which NPDC (i) licensed
to the Company in perpetuity all of its right, title and interest in and to
certain intellectual property and technology rights (the "Intangible Assets")
relating to its programs in human leukocyte interferon and recombinant DNA and
hybridoma technology and (ii) transferred to the Company its rights under
certain consulting, supply, and research agreements (the "Agreements"). In
consideration of the license and transfer of the Intangible Assets and the
Agreements, the Transfer Agreement provides that the Company will pay to NPDC a
royalty of $1,000,000. Such amount is payable if and when the Company generates
income before income taxes, and is limited to 25% of such income before taxes
per year until the amount is paid in full. See "Risk Factors -- Royalty
Obligations."

Management Agreement. As of January 1, 1981, NPDC entered into the
Management Agreement with the Company pursuant to which certain legal,
financial, and administrative services have been provided by employees of NPDC.
The fee for such services is $120,000 per annum. In addition, the Management
Agreement provides that certain other services provided by NPDC's employees,
such as maintenance, shipping, and receiving, purchasing, secretarial work,
information retrieval, and regulatory compliance, will be paid for by the
Company on an "as used" basis at NPDC's approximate cost. During 1994, NPDC
charged $1,194,380 to the Company for such other services. The Company is also
covered under certain of NPDC's insurance policies and pays its proportionate
share of insurance costs.

Lease Agreement. The Company owns two free standing buildings aggregating
approximately 44,000 square feet located in New Brunswick, New Jersey. The
Company and NPDC have entered into an agreement for the sharing of the office,
warehouse, and laboratory facility. The Company occupies approximately 24,000
square feet, shares approximately 9,000 square feet with NPDC, and subleases
approximately 11,000 square feet of space to NPDC at such location. During 1994,
NPDC paid the Company as rent NPDC's proportionate share of such occupancy costs
(based on both square feet occupied and number of personnel), which amounted to
$150,000.

While the above-described agreements were negotiated with a principal
stockholder of the Company which was then its parent, the Company nevertheless
believes that such agreements are equivalent economically to arms-length
transactions with a third party.

AGREEMENTS WITH DAVID BLECH AND RELATED PARTIES

On May 28, 1993, David Blech, the Chief Executive Officer, sole
shareholder, and a director of DBC, and the Company entered into a Purchase
Agreement (the "Purchase Agreement"), pursuant to which Mr. Blech or his
designees purchased for $4.00 per unit, an aggregate of 2,500,000 units
("Units"), each Unit consisting of two shares of the Company's Common Stock, one
Class A Warrant (the "Class A Warrants") to purchase one share of Common Stock
at an exercise price of $3.25 per share, and one Class B Warrant (the "Class B
Warrants") to purchase one share of Common Stock at an exercise price of $5.00
per share. The Class A Warrants and the Class B Warrants expire on August 31,
2000. The following acquisitions were made in installments pursuant to the
Purchase Agreement: (i) two charitable remainder trusts, of which Mr. Blech is
the income beneficiary but not the trustee, purchased an aggregate of 1,050,000
Units, (ii) Mr. Blech purchased 1,187,500 Units, (iii) Mark S. Germain, a
Managing Director of DBC, purchased 250,000 Units, and (iv) an unaffiliated
purchaser purchased 12,500 Units. The purchasers have certain demand and
"piggyback" registration rights as to the securities acquired by them under the
Purchase Agreement. Under the Purchase Agreement, Mr. Blech had the right (which
was never exercised) to cause the Company to use its best efforts to nominate
two designees of Mr. Blech (the "Blech Nominees") to the Board of Directors of
the Company as long as Mr. Blech and the other purchasers under the Purchase
Agreement beneficially own, in the aggregate, at least 2,000,000 shares of
Common Stock. In 1993, the Company paid DBC a $500,000 fee for its services in
connection with the Purchase Agreement.

Pursuant to the Purchase Agreement, a 10-year Voting Agreement (the "Voting
Agreement") among David Blech, NPDC, FSGI, and MXL became effective as of May
28, 1993 pursuant to which NPDC, FSGI, and MXL agreed to (a) vote all their
shares of Common Stock (an aggregate of 6,975,148 shares as of the

46
<PAGE> 49

date hereof) for the election of the designees of Mr. Blech as directors of the
Company unless Mr. Blech and the other purchasers under the Purchase Agreement
dispose of more than 1,000,000 shares of Common Stock and (b) restrict transfer
of the Common Stock held by them for one year, subject to certain exceptions.
Pursuant to the Voting Agreement, Mr. Blech and the other purchasers under the
Purchase Agreement agreed to vote for the election of two nominees of NPDC as
directors of the Company unless NPDC, MXL and FSGI dispose of more than
2,000,000 shares of Common Stock. Concurrently with the execution of the
Purchase Agreement, the Company entered into a consulting agreement with DBC
under which the Company agreed to pay $100,000 per year, payable monthly, to DBC
for advisory services with respect to the Company's field of interest and
business, strategic, and commercial matters related to the biotechnology
industry. The term of the consulting agreement was for one year commencing on
June 1, 1993, and was renewed on the same terms for an additional one-year
period which expired on June 1, 1995. David Blech and the Company were
unaffiliated prior to the transactions described above, which were negotiated on
an arm's-length basis.

On May 13, 1994, the Company filed a registration statement with the
Securities and Exchange Commission, which statement was amended on July 1, 1994
and was subsequently amended again on August 10, 1994, covering a proposed
public offering of 2,000,000 shares of the Company's Common Stock to be managed
by DBC as underwriter. On September 22, 1994, DBC could not meet certain minimum
capital requirements and was forced to discontinue its operations. Consequently,
the Company had to cancel the proposed public offering of Common Stock.

On December 6, 1994, the Company entered into a Purchase and Exchange
Agreement with Mr. Blech and certain other parties pursuant to which Sentinel
Charitable Remainder Trust, a trust of which Mr. Blech is the income beneficiary
but not the trustee, purchased 430,000 shares of Common Stock for $1 per share
or an aggregate purchase price of $430,000. The purchase price was negotiated on
an arms-length basis and the shares were sold at a discount to market value as a
result of the Company's need for additional working capital. In addition,
pursuant to such agreement, David Blech and certain other parties agreed to
exchange 2,250,000 Class A Warrants and 2,250,000 Class B Warrants for 900,000
shares of Common Stock. The issuance and exchange of the shares of Common Stock
pursuant to the Purchase and Exchange Agreement were completed in April 1995. In
connection with and in consideration for the Purchase and Exchange Agreement
described above, Mr. Blech and certain other parties and the Company entered
into an agreement (i) terminating and cancelling the Voting Agreement discussed
above, (ii) deleting in its entirety a provision of the Purchase Agreement with
respect to conflicting "piggyback" registration rights, and (iii) deleting in
its entirety the provision of the Purchase Agreement with respect to Board
representation and nomination rights of the Blech Designees.

OTHER TRANSACTIONS

On May 3, 1995, NPDC, BIG, and David Blech committed to loan the Company
$600,000, $220,000, and $100,000, respectively. Such loans bear interest at
prime plus 2% and mature on the earlier of (i) the first date that the Company
receives gross proceeds of at least $7,500,000 from a public offering (the
"Public Offering") of Common Stock and (ii) November 2, 1995. If the
indebtedness matures as a result of a Public Offering, repayment of principal of
the indebtedness may be made, at the option of the Company (which option the
Company intends to exercise), by delivery of shares of Common Stock valued at
the public offering price per share in the Public Offering.

As of March 15, 1995, Lawrence M. Gordon, the Vice President and General
Counsel of the Company, had a principal balance outstanding on a loan from the
Company due July 9, 1997 of $150,000. Interest on the loan is payable quarterly
at a rate of 6% per annum.

47
<PAGE> 50

UNDERWRITING

The Company has entered into an underwriting agreement (the "Underwriting
Agreement") with Sunrise Securities Corp. to serve as the Underwriter in
connection with the Offering. Pursuant to the Underwriting Agreement, the
Company has retained the Underwriter to conduct, as its exclusive agent, an
offering of shares of its Common Stock on a 5,000,000 share minimum, 10,000,000
share maximum "best efforts" basis, for a period terminating 30 days from the
date hereof, unless extended for up to 30 additional days by the Underwriter. An
additional five days may be added solely for purposes of allowing checks to
clear. The Company's officers, directors, employees, and principal stockholders
may purchase shares of Common Stock in the Offering. All such purchases may be
used to satisfy the 5,000,000 share minimum. All funds received by the
Underwriter will be deposited in an escrow account with , as escrow
agent (the "Escrow Agent"), pursuant to an escrow agreement entered into by the
Company, the Underwriter and the Escrow Agent. Payments shall be made by either
check or wire transfer. All checks for subscriptions of the shares of Common
Stock should be made payable to , as Escrow Agent. If at least
5,000,000 shares offered hereby are sold within the initial 30 day period (or
extended period), all funds received, less the Underwriter's discounts and
commissions and expense allowance, will be delivered to the Company and
certificates representing the shares purchased promptly will be delivered to or
for the account of subscribers. In the event that the minimum number of shares
is not sold within the designated period, all funds will be returned to
subscribers without any deduction therefrom or interest thereon. Until such time
as funds have been released from escrow and the securities delivered to the
purchasers thereof, such purchasers will be deemed subscribers and not security
holders.

The Company and the Underwriter shall have an initial closing once at least
5,000,000 shares (and up to the maximum number of shares) have been sold in
order to disburse the proceeds therefrom. Once such shares are sold, the
Offering shall continue either until the Company and the Underwriter agree to
terminate the Offering or until up to the maximum 10,000,000 shares are sold or
until the Offering period terminates. If any additional shares are sold after
the initial closing, there shall be subsequent closings to disburse the
additional funds received.

The initial public offering price for the Common Stock has been determined
by negotiation between the Company and the Underwriter. Among the factors
considered in determining the initial public offering price were the Company's
results of operations, current financial condition, and future prospects, the
state of the markets for its products, the experience of its management, the
economics of its industry in general, the market price and trading history of
the Common Stock, the general condition of the equity securities markets, and
the demand for similar securities of companies considered comparable to the
Company.

The Underwriter has advised the Company that it proposes to offer the
shares to the public at the public offering price set forth on the cover page of
this Prospectus and that it may allow to certain dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD"), concessions of
not in excess of $ per share, of which not more than $ per share may be
reallowed to other dealers who are members of the NASD. After the initial
closing, the offering price, concession, and reallowance may be changed by the
Underwriter.

The Company has agreed to indemnify the Underwriter against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act.

The Company has agreed to pay the Underwriter (i) a 1.75% non-accountable
expense allowance, (ii) a non-accountable expense allowance for legal fees in an
amount not to exceed the lesser of (a) $100,000 and (b) 1% of the gross proceeds
of the Offering, and (iii) an accountable expense allowance for disbursements of
counsel to the Underwriter.

The Company also has agreed to sell to the Underwriter or its designees,
options to purchase a number of shares of Common Stock equal to 10% of the
number of shares of Common Stock sold in the Offering at a price of $.001 per
option. The Underwriter's Purchase Options will be exercisable for a period of
four years,

48
<PAGE> 51

commencing one year after the date hereof, at an initial exercise price per
share equal to 120% of the public offering price per share. The Underwriter's
Purchase Options cannot be sold, transferred, assigned, or hypothecated for one
year from the date of their issuance, except that they may be assigned, in whole
or in part, to any successor, officer or partner of the Underwriter.

The exercise price of, and the number of shares of Common Stock underlying,
the Underwriter's Purchase Options are subject to adjustment in the event of
stock splits, stock dividends, or other similar events. In the event of any
reclassification, capital reorganization, or other similar change of outstanding
Common Stock, any consolidation or merger involving the Company (other than a
consolidation or merger which does not result in any reclassification, capital
reorganization, or other similar change in the outstanding Common Stock), or a
sale, lease, or conveyance to another corporation of the property of the Company
as, or substantially as an entirety, the Underwriter's Purchase Options will
thereupon become exercisable only for the kind and number of shares of stock or
other securities, assets, or cash to which a holder of the number of shares of
Common Stock issuable (at the time of such reclassification, reorganization,
consolidation, merger, or sale) upon exercise of the Underwriter's Purchase
Options would have been entitled upon such reclassification, reorganization,
consolidation, merger, or sale.

The Company has agreed that it will, on any two occasions during the
five-year period commencing on the date hereof, register the sale of the
Underwriter's Purchase Options and the underlying shares of Common Stock at the
request of the holders of a majority of the shares of Common Stock issued or
issuable upon exercise of the Underwriter's Purchase Options. The Company also
has agreed, during the seven-year period commencing from the date hereof, to
register on a "piggyback" basis, on an unlimited number of occasions, such
securities whenever the Company files a registration statement. The Company will
bear the expenses of such registrations, except for any underwriting discounts
and commissions, and except that the holders will bear the expenses of the
second demand registration.

For the life of the Underwriter's Purchase Options, the holders are given,
at nominal cost, the opportunity to profit if the price of the Company's Common
Stock in the public market exceeds the exercise price of the Underwriter's
Purchase Options, without assuming the risks or benefits of ownership, with a
resulting dilution in the interest of other security holders. If the public
price of the Company's Common Stock does not rise above the exercise price of
the Underwriter's Purchase Options during the exercise period, then such Options
will expire worthless. As long as the Underwriter's Purchase Options remain
unexercised, the terms under which the Company could obtain additional capital
may be adversely affected. Moreover, the holders of the Underwriter's Purchase
Options might be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain capital by a new offering of its securities on
terms more favorable than those provided by the Underwriter's Purchase Options.

The Underwriter was registered as a broker-dealer and became a member of
the NASD in 1992 and has not participated in any public offerings as an
underwriter, though it has acted as syndicate member, sole placement agent,
co-placement agent, selected dealer, or sole participating broker in more than a
dozen public or private offerings.

On May 10, 1995, the Underwriter was retained by the Company to introduce
the Company to a specified pharmaceutical company. If the Company and such
pharmaceutical company enter into certain transactions during the six-month term
of the agreement, the Underwriter is entitled to specified fees. The Company
also agreed to indemnify the Underwriter against certain liabilities, and
reimburse the Underwriter for certain expenses, relating to the agreement.

The Company, subject to certain exceptions, for a period of 12 months; the
Company's directors and senior officers (who own in the aggregate 16,100 shares
of Common Stock and options and warrants to purchase 1,597,000 shares of Common
Stock), for a period of 12 months; the Company's other officers (who own in the
aggregate 1,500 shares of Common Stock and options and warrants to purchase
315,000 shares of Common Stock), for a period of six months; and the Company's
principal stockholders (who after consummation of the Offering will own in the
aggregate 13,240,482 shares of Common Stock and no options

49
<PAGE> 52

and warrants to purchase shares of Common Stock), for a period of 24 months
(except that each such principal stockholder will be permitted to sell not more
than 12.9% of its shares of Common Stock during the second 12 month period),
have agreed not to sell, directly or indirectly, any of their shares of Common
Stock, without the consent of the Underwriter and the Company. However, certain
of such principal stockholders have pledged an aggregate of shares
of Common Stock beneficially owned by them to their respective banks as
collateral to secure indebtedness owed to such banks. Any shares acquired by
lenders pursuant to such pledge arrangements would not be subject to any
agreements not to sell. Moreover, the Company and the Underwriter may, in their
sole discretion and any time without notice, release all or any portion of the
securities subject to agreements not to sell.

50
<PAGE> 53

DESCRIPTION OF SECURITIES

GENERAL

The Company is authorized to issue 40,000,000 shares of Common Stock. As of
July 14, 1995, 22,448,768 shares of Common Stock were outstanding. In addition,
4,041,320 shares of Common Stock were reserved for issuance upon exercise of
outstanding warrants and options.

COMMON STOCK

Each outstanding share of Common Stock entitles the holder to one vote on
all matters requiring a vote of stockholders. Since the Common Stock does not
have cumulative voting rights, the holders of shares having more than 50% of the
voting power, if they choose to do so, may elect all the directors of the
Company and the holders of the remaining shares would not be able to elect any
directors. See "Principal Stockholders."

Subject to the rights of holders of any series of preference stock that may
be issued in the future, the holders of the Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. See "Price Range of Common Stock and Dividend
Policy." In the event of a voluntary or involuntary liquidation of the Company,
all shareholders are entitled to a pro rata distribution of the assets of the
Company remaining after payment of claims of creditors and liquidation
preferences of any preferred stock.

The transfer agent for the Common Stock is Harris Trust Company of New
York, 77 Water Street, New York, New York 10005.

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of Preferred Stock,
none of which is outstanding, the terms of which may be fixed by the Board of
Directors. It is not possible to state the actual effect of any issuance of one
or more series of preferred stock upon the rights of holders of Common Stock
until the Board of Directors of the Company determines the respective rights of
the holders of one or more series of the preferred stock. Such effects might,
however, include: (a) reduction of the amount of funds otherwise available for
payment of cash dividends on Common Stock; (b) restrictions on the payment of
cash dividends on Common Stock; (c) dilution of the voting power of the Common
Stock, to the extent that any series of issued preferred stock has voting rights
or is convertible into Common Stock; and (d) the holders of Common Stock not
being entitled to share in the assets of the Company upon liquidation until
satisfaction of liquidation preferences, if any, in respect of any outstanding
series of preferred stock. Additionally, preferred stock may be issued through a
depositary mechanism thereby increasing the amount of preferred stock that could
be issued.

LEGAL MATTERS

The legality of the securities offered hereby will be passed on for the
Company by Lawrence M. Gordon, General Counsel of the Company. Mr. Gordon does
not own any shares of Common Stock but has options to purchase 212,500 shares of
Common Stock, 187,500 of which are currently exercisable. Certain other legal
matters will be passed on for the Company by Duane, Morris & Heckscher, New
York, New York. Certain legal matters relating to FDA regulations will be passed
on for the Company by Kleinfeld, Kaplan & Becker, Washington, D.C. Certain legal
matters in connection with the Offering have been passed upon for the
Underwriter by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York.

51
<PAGE> 54

EXPERTS

The audited consolidated financial statements of the Company and its
subsidiary at December 31, 1994 and 1993, and for each of the years in the three
year period ended December 31, 1994 included herein have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
auditing and accounting. The report of KPMG Peat Marwick LLP contains an
explanatory paragraph that states that the Company's recurring losses from
operations and accumulated deficit raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act with respect to the shares of Common Stock being
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Offering, reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at its
principal office upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance where such contract or other document
is an exhibit to the Registration Statement, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference.

52
<PAGE> 55

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements:
Consolidated Balance Sheets -- December 31, 1994 and 1993........................... F-3
Consolidated Statements of Operations -- Years ended December 31, 1994, 1993 and
1992............................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity -- Years ended December
31, 1994, 1993 and 1992.......................................................... F-5
Consolidated Statements of Cash Flows -- Years ended December 31, 1994, 1993 and
1992............................................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
Unaudited Financial Statements:
Consolidated Condensed Balance Sheets -- March 31, 1995 and December 31, 1994....... F-20
Consolidated Condensed Statements of Operations -- Three Months ended March 31, 1995
and 1994......................................................................... F-21
Consolidated Condensed Statement of Changes in Stockholders' Equity -- Three Months
ended March 31, 1995............................................................. F-22
Consolidated Condensed Statements of Cash Flows -- Three Months ended March 31, 1995
and 1994......................................................................... F-23
Notes to Consolidated Condensed Financial Statements.................................. F-24
</TABLE>

F-1
<PAGE> 56

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Interferon Sciences, Inc.:

We have audited the consolidated financial statements of Interferon
Sciences, Inc. and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Interferon
Sciences, Inc. and subsidiary at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
3 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As discussed in Note 7, the Company has adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", as of January 1, 1994.

KPMG Peat Marwick LLP

New York, New York
April 3, 1995

F-2
<PAGE> 57

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $ 330,617 $ 4,247,067
Marketable securities......................................... 4,294,391
Accounts and other receivables................................ 35,546 87,649
Inventories................................................... 1,029,158 2,159,005
Consignment inventory......................................... 220,410
Receivables from affiliated companies, net.................... 20,001 18,501
Prepaid expenses and other current assets..................... 55,221 210,179
------------ ------------
TOTAL CURRENT ASSETS............................................ 1,690,953 11,016,792
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land.......................................................... 140,650 140,650
Buildings and improvements.................................... 7,384,102 7,384,102
Equipment..................................................... 4,301,317 4,218,819
------------ ------------
11,826,069 11,743,571
Less accumulated depreciation and amortization................ (6,013,839) (5,247,568)
------------ ------------
5,812,230 6,496,003
------------ ------------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $1,300,000
AND $1,080,091
Patent and deferred financing costs........................... 355,019 313,842
PREPAID ROYALTIES............................................... 2,100,000
OTHER ASSETS.................................................... 323,900 373,900
------------ ------------
$ 8,182,102 $ 20,300,537
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.......................... $ 409,275 $ 1,999,313
Accounts payable.............................................. 882,090 610,451
Accrued expenses.............................................. 746,935 414,215
Amount due NPDC............................................... 134,347 8,050
Amount due Purdue for repurchase of common stock.............. 300,000
------------ ------------
TOTAL CURRENT LIABILITIES....................................... 2,472,647 3,032,029
------------ ------------
LONG-TERM DEBT LESS CURRENT MATURITIES.......................... 137,951
------------ ------------
COMMON STOCK SUBJECT TO REPURCHASE COMMITMENT (682,494
SHARES)....................................................... 2,729,976
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share;
authorized -- 5,000,000 shares; none issued and
outstanding................................................
Common stock, par value $.01 per share;
authorized -- 40,000,000 and 30,000,000 shares; issued and
outstanding -- 19,509,291 and 19,464,285 shares............ 195,093 194,643
Capital in excess of par value.................................. 65,572,243 67,646,234
Accumulated deficit............................................. (62,787,857) (50,710,320)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY...................................... 2,979,479 17,130,557
------------ ------------
$ 8,182,102 $ 20,300,537
=========== ===========
</TABLE>

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

F-3
<PAGE> 58

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Sales
Alferon N Injection.................................. $ 979,425 $ $ 3,267,351
Research products and other revenues................. 186,506 51,323 39,046
------------ ----------- -----------
Total revenues............................... 1,165,931 51,323 3,306,397
------------ ----------- -----------
COSTS AND EXPENSES
Cost of goods sold and excess/idle production
costs............................................. 2,778,109 1,880,563 3,162,670
Research and development (net of $150,000, $138,996
and $141,996 of rental income received from
NPDC)............................................. 5,195,699 4,151,158 3,983,195
General and administrative (includes $1,314,380,
$1,015,700 and $984,615 of charges from NPDC for
management fees and reimbursements of expenses)... 4,974,224 2,366,897 2,113,493
------------ ----------- -----------
Total costs and expenses..................... 12,948,032 8,398,618 9,259,358
------------ ----------- -----------
LOSS FROM OPERATIONS................................... (11,782,101) (8,347,295) (5,952,961)
Interest and other income............................ 157,929 255,344 544,322
Net (loss) gain on sales of marketable securities.... (300,430) 3,297 (24,922)
Interest expense..................................... (152,935) (371,208) (563,294)
------------ ----------- -----------
NET LOSS............................................... $(12,077,537) $(8,459,862) $(5,996,855)
=========== ========== ==========
NET LOSS PER SHARE..................................... $ (.62) $ (.55) $ (.42)
=========== ========== ==========
Weighted average number of shares outstanding.......... 19,594,285 15,432,287 14,356,718
=========== ========== ==========
</TABLE>

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

F-4
<PAGE> 59

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
--------------------- EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991.................................. 13,931,218 $139,312 $55,159,459 $(36,253,603) $ 19,045,168
Proceeds from exercise of common stock warrants............... 432,600 4,326 2,952,163 2,956,489
Proceeds from exercise of common stock options................ 47,300 473 151,933 152,406
Net loss...................................................... (5,996,855) (5,996,855)
---------- -------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1992.................................. 14,411,118 144,111 58,263,555 (42,250,458) 16,157,208
Net proceeds from issuance of common stock and warrants to D.
Blech....................................................... 5,000,000 50,000 9,200,501 9,250,501
Issuance of common stock as required by various agreements.... 40,967 410 142,975 143,385
Proceeds from exercise of common stock options................ 12,200 122 39,203 39,325
Net loss...................................................... (8,459,862) (8,459,862)
---------- -------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1993.................................. 19,464,285 194,643 67,646,234 (50,710,320) 17,130,557
Net proceeds from sale of common stock and warrants........... 610,000 6,100 1,470,335 1,476,435
Commitment to purchase common stock from Purdue Frederick,
Runham and Banela........................................... (994,994) (9,950) (3,970,026) (3,979,976)
Net proceeds from the sale of common stock to Sentinel
Charitable Remainder Trust.................................. 430,000 4,300 425,700 430,000
Net loss...................................................... (12,077,537) (12,077,537)
---------- -------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1994.................................. 19,509,291 $195,093 $65,572,243 $(62,787,857) $ 2,979,479
========== ======== =========== ============ ============
</TABLE>

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

F-5
<PAGE> 60

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS USED FOR OPERATIONS:
Net loss......................................... $(12,077,537) $(8,459,862) $(5,996,855)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization................. 2,926,439 1,017,949 1,039,114
Reduction of other assets..................... 50,000
Net loss (gain) on sales of marketable 300,430 (3,297) 24,922
securities....................................
Retirements of property, plant and equipment..... 14,271
Change in operating assets and liabilities:
Receivables from affiliated companies......... (1,500) 1,500 (3,861)
Inventories................................... 1,129,847 (49,752) (831,091)
Consignment inventory......................... (220,410)
Accounts and other receivables................ (647,897) 12,023 1,209,682
Prepaid expenses and other current assets..... 154,958 (162,338) (38,025)
Accounts payable and accrued expenses......... 604,359 (148,859) 213,843
------------ ----------- -----------
Net cash used for operations............. (7,781,311) (7,792,636) (4,368,000)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities................... 6,490,406 4,153,719 5,455,958
Purchases of marketable securities............... (2,496,445) (3,891,422) (3,062,531)
Additions to property, plant and equipment....... (82,498) (87,412) (251,511)
Additions to intangible and other assets......... (101,345) (84,537) (208,216)
------------ ----------- -----------
Net cash provided by investing
activities............................. 3,810,118 90,348 1,933,700
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from purchase agreement with D.
Blech......................................... 430,000 9,355,500
Net proceeds from sale of common stock and
warrants...................................... 1,476,435
Increase (decrease) in advances from NPDC........ 126,297 (38,627) (77,888)
Reduction of long-term debt...................... (1,727,989) (1,542,481) (1,187,895)
Purchase of common stock from Runham and
Banela........................................ (250,000)
Proceeds from exercise of common stock options... 39,325 152,406
Proceeds from exercise of common stock
warrants...................................... 2,956,489
------------ ----------- -----------
Net cash provided by financing
activities............................. 54,743 7,813,717 1,843,112
------------ ----------- -----------
Net (decrease) increase in cash and cash
equivalents...................................... (3,916,450) 111,429 (591,188)
Cash and cash equivalents at beginning of year..... 4,247,067 4,135,638 4,726,826
------------ ----------- -----------
Cash and cash equivalents at end of year........... $ 330,617 $ 4,247,067 $ 4,135,638
------------ ----------- -----------
Cash paid for interest expense..................... $ 205,190 $ 329,643 $ 505,385
------------ ----------- -----------
NON CASH INVESTING AND FINANCING ACTIVITIES:
Issuances of common stock in payment of
liabilities................................... $ $ 143,385 $
Commitment to purchase common stock.............. $ 3,729,976 $ $
Offset of receivables in settlement of obligation
to repurchase stock........................... $ 700,000 $ $
</TABLE>

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

F-6
<PAGE> 61

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION, BUSINESS, TRANSACTIONS WITH NPDC AND OTHER BUSINESS

Since January 1981, Interferon Sciences, Inc. (the "Company") has been
primarily engaged in the research and development of pharmaceutical products
containing alpha interferon for the treatment of viral diseases, cancers and
diseases of the immune system. ALFERON N Injection is a preparation for the
treatment of genital warts by local injection. In October 1989, the Company
received from the Food and Drug Administration ("FDA") approval to market
ALFERON N Injection for the intralesional treatment of refractory or recurring
external genital warts in patients 18 years of age or older. Nationwide
distribution of ALFERON N Injection commenced during July 1991 (See Note 5).
Additional products under development by the Company include ALFERON LDO and
ALFERON N Gel. ALFERON LDO is a low dose oral liquid alpha interferon
preparation which the Company believes has potential for treating HIV-infected
individuals and possibly other viral diseases. ALFERON N Gel is a topical
interferon preparation which the Company believes has potential in the treatment
of cervical dysplasia, recurrent genital herpes, other viral diseases and
cancers (See Note 6).

The Company is a party to a management agreement with National Patent
Development Corporation ("NPDC") pursuant to which certain legal, financial and
administrative services have been provided by employees of NPDC. The fee for
such services in 1994, 1993 and 1992 was $120,000 annually. In addition, NPDC
provides to the Company, at its estimated cost, certain personnel and services
which the Company uses in its operations. For the years ended December 31, 1994,
1993 and 1992, such charges amounted to $1,194,380, $895,700 and $864,615,
respectively. The Company is also covered under NPDC's insurance policies except
for certain policies which the Company has in its own name beginning in 1994.
The Company's allocated portion of insurance costs was $114,000, $291,000 and
$210,000 for the years ended December 31, 1994, 1993 and 1992, respectively.

The Company owns the buildings which contain its offices and laboratories
and presently leases out a portion of the buildings to NPDC. The Company and
NPDC have entered into an agreement for the sharing of the office, warehouse and
laboratory facilities. Total occupancy costs for the years ended December 31,
1994, 1993 and 1992 were approximately $760,000, $686,000 and $751,000,
respectively. NPDC paid to the Company as rent NPDC's proportionate share of
such occupancy costs (based on both square feet occupied and number of
personnel), which amounted to $150,000, $138,996 and $141,996, respectively.

On June 19, 1990, the Company and NPDC entered into an agreement pursuant
to which the Company agreed to issue warrants to purchase up to approximately
1.1 million shares of Common Stock in connection with NPDC's Exchange Offer (the
"Offer"). For each warrant issued by the Company, NPDC agreed to reduce by $.80
the debt owed it by the Company. On August 10, 1990, the Offer expired and the
Company issued warrants to purchase 465,900 shares of Common Stock exercisable
at a price of $6.88 per share until August 16, 1992 and the debt owed by the
Company to NPDC was reduced by $372,720. During February 1992 the warrants were
called by the Company resulting in net proceeds to the Company of $2,956,000
from the issuance of 432,600 shares of the Company's Common Stock upon exercise
of the warrants.

See Note 15 for information with respect to royalty obligations to NPDC.

TRANSACTIONS WITH DAVID BLECH

On May 28, 1993, David Blech, the Chief Executive Officer, sole shareholder
and a director of D. Blech & Company, Incorporated ("DBC"), and the Company
entered into a Purchase Agreement (the "Purchase Agreement"), pursuant to which
David Blech or his designees purchased for $4.00 per unit, an aggregate of
2,500,000 units ("Units"), each Unit consisting of two shares of Common Stock,
one Class A Warrant (the "Class A Warrants") to purchase one share of Common
Stock at an exercise price of $3.25 per share and one Class B Warrant (the
"Class B Warrants") to purchase one share of Common Stock at an exercise price
of $5.00 per share. The Class A Warrants and the Class B Warrants expire on
August 31, 2000. The purchasers

F-7
<PAGE> 62

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

have certain registration rights as to the securities acquired by them under the
Purchase Agreement. Under the Purchase Agreement, Mr. Blech has the right to
cause the Company to use its best efforts to nominate two designees of Mr. Blech
to the Board of Directors of the Company as long as Mr. Blech and the other
purchasers under the Purchase Agreement beneficially own, in the aggregate, at
least 2,000,000 shares of Common Stock. To date, Mr. Blech has not exercised
such nomination rights. The Company paid DBC a $500,000 fee for its services in
connection with the Purchase Agreement, and incurred $100,000 in legal and other
fees. In addition, fees totalling approximately $105,000 relating to this
transaction were paid by issuance of Common Stock to another party.

Concurrently with the execution of the Purchase Agreement, the Company
entered into a consulting agreement with DBC under which the Company agreed to
pay $100,000 per year, payable monthly, to DBC for advisory services with
respect to the Company's field of interest and business, strategic and
commercial matters related to the biotechnology industry. The term of the
consulting agreement was one year and commenced on June 1, 1993.

On May 13, 1994, the Company filed a registration statement with the
Securities and Exchange Commission, which statement was amended on July 1, 1994
and was subsequently amended again on August 10, 1994, covering a proposed
public offering of 2,000,000 shares of Common Stock through DBC as underwriter.
On September 22, 1994, DBC could not meet certain minimum capital requirements
and was forced to discontinue its operations. Consequently, the Company had to
cancel the proposed public offering of Common Stock.

On December 6, 1994, the Company entered into a Purchase and Exchange
Agreement with David Blech and certain other individuals pursuant to which
Sentinel Charitable Remainder Trust purchased 430,000 shares of the Common Stock
for $430,000. In addition, pursuant to such agreement David Blech and another
individual agreed to exchange an aggregate of 462,500 Class A Warrants and
1,200,000 Class B Warrants for an aggregate of 332,500 shares of Common Stock.
The issuance and exchange of the shares of Common Stock pursuant to the Purchase
and Exchange Agreement were completed during the first quarter of 1995.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation -- The financial statements include the
operations of the Company and Interferon Sciences Development Corporation (ISD),
its wholly owned subsidiary.

Statements of cash flows -- For purposes of the statements of cash flows,
the Company considers all highly liquid instruments with maturities of three
months or less from purchase date to be cash equivalents.

Property, plant and equipment -- Property, plant and equipment are carried
at cost. Major additions and betterments are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed currently.

Depreciation -- The Company provides for depreciation and amortization of
plant and equipment following the straight-line method over the estimated useful
lives of such assets as follows:

<TABLE>
<CAPTION>
ESTIMATED
CLASS OF ASSETS USEFUL LIVES
-------------------------------------------------------------- --------------
<S> <C>
Buildings and Improvements.................................... 15 to 30 years
Equipment..................................................... 5 to 10 years
</TABLE>

Intangible assets -- The Company capitalizes costs to obtain and maintain
patents and licenses. Patent costs are amortized over 17 years and license costs
are amortized over 5 years, each on a straight-line basis. To the extent a
patent is determined to be worthless, the related capitalized cost is
immediately expensed. The Company also capitalizes costs incurred to obtain
long-term debt financing. Such costs are amortized on the straight-line basis
over the term of the related debt and are classified as interest expense.

F-8
<PAGE> 63

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue recognition -- Sales are recorded generally upon shipment of
product. However, when a sale is made subject to a right of return, revenues are
not recognized until notification by the customer that the product has been
resold, and the related product is recorded as consignment inventory until such
notification.

Collaborative agreement research and development revenues and costs -- The
costs of performing research and development are reported when incurred and are
included in research and development expenses and the purchase of equipment in
accordance with the nature of the costs incurred. Generally, the Company matches
its collaborative research and development revenues in the same accounting
periods in which the related research costs are incurred. However, when the
revenues are exhausted, the Company has the option to continue the research
activities at its own expense.

Inventories -- Inventories, consisting of raw materials, work in process
and finished goods, are stated at the lower of cost or market on a FIFO basis.
Inventories, if any, which are expected to become obsolete before sale or use in
research are written off.

Pension plan -- The Company's employees are included in NPDC's pension
plan. The Company provides for its allocable share of such costs as they accrue.
Effective December 31, 1991, the plan benefits were frozen (See Note 12).

Net loss per share -- Net loss per share is based on the weighted average
number of shares of Common Stock outstanding during the period.

NOTE 3. LIQUIDITY

The Company has experienced significant operating losses since its
inception in 1980. As of December 31, 1994, the Company had an accumulated
deficit of approximately $62.8 million. For the years ended December 31, 1994,
1993 and 1992, the Company had losses from operations of approximately $11.8
million, $8.3 million, and $6.0 million, respectively. Although the Company
received FDA approval to market ALFERON N Injection in October 1989, it has had
only limited revenue from the sale of ALFERON N Injection. In order for the
Company to operate profitably, the Company must sell significantly more ALFERON
N Injection. Increased sales will depend primarily upon the expansion of
existing markets and/or successful attainment of FDA approval to market ALFERON
N Injection for additional uses, of which there can be no assurance. There can
be no assurance that sufficient quantities of ALFERON N Injection will be sold
to allow the Company to operate profitably.

The Company has limited financial resources as of December 31, 1994 with
which to support future operating activities and to satisfy its financial
obligations as they become payable, including the repurchase of 682,494 shares
of Common Stock from Purdue for $2,729,976. Consequently, management is
continuing to actively pursue raising additional capital by either (i) issuing
securities in a public or private equity offering, (ii) licensing rights to its
injectable, topical or oral formulations of alpha interferon, or (iii) entering
into collaborative or other arrangements with corporate partners. Insufficient
funds will require the Company to delay, scale back, or eliminate certain or all
of its activities or license third parties to commercialize products or
technologies that the Company would otherwise seek to develop itself and may
cause the Company to be in default under its agreements with Purdue and other
parties.

NOTE 4. AGREEMENTS WITH HOFFMANN-LAROCHE

In June 1988, Hoffmann-LaRoche, Inc. ("Roche") and the Company entered into
an agreement (the "1988 License Agreement") pursuant to which the Company
received a license from Roche, under a U.S. Patent held by Roche, which enables
the Company to sell ALFERON N Injection in the United States for the treatment
of genital warts. As part of the 1988 License Agreement, Roche received 100,000
shares of Common Stock in June 1988, the value of which was recorded as a
license cost on the balance sheet in 1988. In addition, when the Company granted
marketing rights to an affiliate of The Purdue Frederick Company

F-9
<PAGE> 64

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(Purdue Frederick, and together with its affiliates, "Purdue") for the
distribution of ALFERON N Injection (See Note 5), the Company became obligated
to pay Roche $250,000, payable in two equal installments of $125,000. The first
installment was paid in May 1989 and the second was paid in May 1990. Such
obligation was recorded by the Company as an additional license cost in 1988.
The 1988 License Agreement also requires the Company to pay Roche a royalty of
8% on Purdue's net sales of ALFERON N Injection.

In January 1991, the 1988 License Agreement was amended to require the
Company to pay Roche a royalty of 8% on the Company's net sales (as defined) of
ALFERON N Injection up to $20,000,000 and 9.5% of net sales in excess of
$20,000,000 in any calendar year and the license was expanded to allow the
Company to sell ALFERON N Injection for diseases which are refractory to
recombinant interferon therapy.

Finally, as a result of receiving FDA approval for ALFERON N Injection in
1989, the Company was obligated to issue 484,262 shares to Roche as a prepaid
royalty against future net sales by the Company. Such shares, valued at
$2,100,000, were issued in February 1990. The value of the Common Stock
previously issued for the license as well as the additional license cost of
$250,000 recorded in 1988 are also to be credited against future royalties
payable to Roche. Through December 31, 1994, the Company had incurred $614,794
of royalties due Roche resulting from sales of ALFERON N Injection. However, the
Company applied $575,617 of the prepayments previously made to Roche against the
amount due. The value of the Company's Common Stock which may be credited
against royalties payable is the lesser of its value on the date of issuance and
on the date the Company exercises its right to credit such stock against its
royalty obligations. As of December 31, 1994, based upon the market value of the
Common Stock, the Company had approximately $459,485 of credits available to
offset its future royalty obligations to Roche.

In January 1991, the Company and Roche signed an agreement (the "Roche Gel
Agreement") pursuant to which the Company can obtain supplies of Roche's bulk
purified recombinant interferon for use in the Company's topical products,
thereby eliminating the need for the Company to build a recombinant interferon
manufacturing facility. Alternatively, under the Roche Gel Agreement, the
Company can use its own natural alpha interferon in ALFERON Gel under a license
from Roche.

In March 1992, the Company obtained a non-exclusive license from Roche,
which allows the Company to make, have made, use and sell in the United States,
without a potential patent infringement claim from Roche, natural alpha
interferon for the oral treatment of human diseases.

On May 6, 1994, the United States Patent and Trademark Office issued an
Office Action in Reexamination on the Roche patent and rejected all of the 14
claims in the Roche patent. Claims in a patent under reexamination are valid and
enforceable until such time as a final disposition on the claims is reached. On
July 11, 1994, Roche filed a response objecting to the Patent Office's rejection
of such claims. The outcome of such reexamination of the Roche patent cannot be
determined at this time. Accordingly, the Company is unable to determine the
expected impact of such reexamination of the Roche patent on the Company's
liquidity and capital resources.

During the second quarter of 1994, the Company adopted a policy of
amortizing prepaid royalties at the greater of the straight line rate over a
five-year period or the amount of royalties incurred based upon sales. During
the third quarter of 1994, the Company, in its quarterly evaluation of whether
the unamortized balance of prepaid royalties is realizable, determined that it
was prudent to write off such prepaid royalties. The Company based this decision
on the reduced market price during the third quarter of the Company's Common
Stock, the uncertainty created by the decision of the United States Patent and
Trademark Office in May 1994 to reexamine the claims of the Hoffmann patent and
upon sales of ALFERON N Injection. During 1994, the amortization and writeoff of
prepaid royalties totalling $2,100,000 were included as general and
administrative expense in the statements of operations and reflected as
depreciation and amortization in the statements of cash flows.

F-10
<PAGE> 65

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. AGREEMENTS WITH THE PURDUE FREDERICK COMPANY

As of November 1, 1988, the Company and Purdue entered into a marketing
agreement pursuant to which ALFERON N Injection would be manufactured by the
Company and marketed by Purdue in the United States subsequent to FDA approval,
which was received in October 1989, and certain foreign countries upon receipt
of foreign regulatory approval. The Company manufactures and sells the product
to Purdue on an exclusive basis. Pursuant to the terms of the agreement, the
Company: (a) records the sale of the product upon transfer to Purdue and (b) may
receive a royalty from Purdue based upon the net sales price received by Purdue
for the resale of ALFERON N Injection. In November 1990, the Company and Purdue
entered into an amendment to the original marketing agreement.

In December 1991, Purdue agreed to purchase an aggregate of 45,000 vials of
ALFERON N Injection from the Company over approximately a six-month period which
commenced in March 1992 and was completed in September 1992. During the year
ended December 31, 1992, the Company completed this order and the balance of a
prior order for approximately 19,500 vials of ALFERON N Injection. Purdue did
not order any ALFERON N Injection from the Company during 1993.

On January 27, 1994, the Company reacquired marketing and distribution
rights for ALFERON N Injection from Mundipharma Pharmaceutical Company
("Mundipharma"), an affiliate of Purdue Frederick, for Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Greece, India, Ireland, Israel,
Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland
and the United Kingdom. Mundipharma and its affiliate, Purdue Pharma L.P.
("Purdue Pharma"), retained exclusive marketing and distribution rights for
Canada and the United States, respectively, subject to an 18-month option
granted to the Company to reacquire the United States and Canadian marketing and
distribution rights under certain terms and conditions. Purdue gave the Company
a new purchase order for 45,000 vials of ALFERON N Injection at an agreed upon
price. In addition, the Company will pay Mundipharma a 3% royalty on sales in
the reacquired territories. This rate will be reduced to 1% after certain
aggregate royalty payments have been made. The Company is also obligated to
provide Purdue with up to 15,000 vials of ALFERON N Injection, at an agreed upon
reduced price, to replace any inventory of Purdue existing on the date of the
amendment which goes out of date. The Company also granted Purdue an option,
exercisable until July, 1995, to purchase an additional 100,000 vials of ALFERON
N Injection at an agreed upon reduced price.

Under the amended agreements, the Company will take over responsibility for
the clinical development of all additional potential uses of ALFERON N
Injection. Upon the Company obtaining approval in the United States for
additional uses of ALFERON N Injection, Purdue Pharma and Mundipharma will be
obligated, in order to maintain their exclusive license, to repay certain of the
Company's research and development costs and make certain additional payments to
the Company for the rights for the first five of any such new uses.

The Company also agreed to buy back 994,994 shares of the Common Stock then
held by Purdue at an agreed upon price of $4.00 per share (the "Company Purchase
Obligation"). These shares were to be paid for over an 18-month period. In
January 1994, the Company purchased 62,500 shares for $250,000 and such shares
were cancelled by the Company. The Company was to pay an additional $1,000,000
to purchase 250,000 shares during 1994 and $2,729,976 to purchase 682,494 shares
during 1995, which shares would also be cancelled by the Company. In 1994, the
Company and Purdue agreed to offset $700,000 owed to the Company by Purdue, for
the purchase of ALFERON N Injection during 1994, against the Company's
obligation to purchase $1,000,000 of Common Stock from Purdue in 1994. The
Company has reflected the Common Stock subject to repurchase commitment as
temporary equity, and the $300,000 not paid when due in 1994 as a current
liability. The Company's right to market ALFERON N Injection in the Returned
Territories may be forfeited if the Company does not pay for the shares of
Common Stock which it is obligated to purchase in accordance with the terms of
the 1994 Purdue Amendment.

F-11
<PAGE> 66

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the amended agreements, the Company also was granted an option (the
"Repurchase Option"), exercisable at a price of $10 million until January 1995
and $12 million until July 1995, to reacquire the right to market and distribute
ALFERON N Injection in the United States and Canada. In the event that the
Company exercises the Repurchase Option, any amounts which have not become due
under the Company Purchase Obligation are cancelled.

In March 1995, the Company entered into an amendment of the 1994 Purdue
Amendments (the "1995 Purdue Amendment") pursuant to which the Company obtained
an option, exercisable until June 20, 1995, (the "Option") to reacquire the
marketing and distribution rights from Purdue Pharma and Mundipharma. The 1995
Amendment provides upon exercise of the Option for (i) the payment of
approximately $3 million in cash (less any amounts paid after March 29, 1995 for
the repurchase of Common Stock under the Company's Purchase Obligation) and (ii)
the issuance of 2.5 million shares of Common Stock. If 18 months from the date
of exercise of the Option by the Company (the "Valuation Date"), the 2.5 million
shares of Common Stock do not have a value of at least $9,037,807 (which value
will be calculated using the average of the closing bid and asked prices of the
Common Stock as quoted by the NASDAQ National Market System for the ten trading
days ending two days prior to the Valuation Date), the Company must issue a note
for the shortfall. Such note will bear interest at the prime rate and will
become due and payable 24 months from the Valuation Date. The Company agreed
that it will utilize its best efforts to ensure that the 2.5 million shares of
Common Stock will be registered and freely tradeable 18 months from the date of
exercise of the Company's option. The Option, if exercised, would replace in its
entirety the royalty obligations and the Repurchase Option described above
contained in the 1994 Amendments with Purdue Pharma and Mundipharma.

Purdue has informed the Company that during the 12-month period ended
December 31, 1994, it sold (including free samples) approximately 27,000 vials
of ALFERON N Injection from its inventory. At December 31, 1994, the Company had
available for sale approximately 14,000 vials of ALFERON N Injection which were
awaiting final release from quality control/assurance.

All of the Company's sales of ALFERON N Injection in 1994 and 1992 were
made to Purdue.

NOTE 6. RESEARCH AND DEVELOPMENT AGREEMENT WITH INTERFERON SCIENCES RESEARCH
PARTNERS, LTD.

During January 1984, the Company organized ISD to act as the sole general
partner of Interferon Sciences Research Partners, Ltd., a New Jersey limited
partnership (the "Partnership"). The Company and the Partnership entered into a
development contract whereby the Company received substantially all of the net
proceeds ($4,414,475) of the Partnership's public offering of limited
partnership interests. The Company used the proceeds to perform research,
development and clinical testing on behalf of the Partnership for the
development of ALFERON Gel containing recombinant interferon (See Note 1).

In connection with the formation of the Partnership, ISD agreed to make
additional cash contributions for purposes of continuing development of ALFERON
Gel if the Partnership exhausted its funds prior to development of such product.
ISD is wholly dependent upon the Company for capital to fund such commitment.
The Partnership exhausted its funds during 1986, and the Company contributed a
total of $1,997,000 during the period from 1986 to 1990, for the continued
development of ALFERON Gel. During May 1987, the Company filed a Product License
Application with the FDA for approval to market ALFERON Gel. At a meeting with
the FDA in February, 1990, the FDA indicated that additional process development
and clinical trials would be necessary prior to approval of ALFERON Gel. The
Company believed, at that time, that the costs to complete the required process
development and clinical trials would be substantial, and there could be no
assurance that the clinical trials would be successful.

As a result of the above events, in March 1992, the Company withdrew its
FDA Product License Application for ALFERON Gel containing recombinant
interferon. In place of single species recombinant interferon, previously
ALFERON Gel's active ingredient, the Company commenced, in 1992, further

F-12
<PAGE> 67

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

development of ALFERON Gel using the Company's natural source multi-species
alpha interferon ("ALFERON N Gel"). Assuming successful development and
commercial exploitation of ALFERON N Gel, the Company may be obligated to pay
the Partnership royalties equal to 4% of the Company's net sales of ALFERON N
Gel and 15% of revenues received from sublicensing ALFERON N Gel.

NOTE 7. MARKETABLE SECURITIES

As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). There was no material effect on the
consolidated financial statements as a result of the adoption of this principle.
The Company's marketable securities consist of United States Government
obligations. Under SFAS No. 115, the Company classifies these debt securities as
available-for-sale and records the securities at their fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized. The effect of the change in accounting was not material to the Company
and all of the Company's marketable equity securities were sold by December 31,
1994.

A decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.

Realized gains and losses for securities classified as available-for-sale
are included in earnings and are derived using the specific identification
method for determining the cost of securities sold.

Proceeds from the sale of investment securities were $6,490,406 for the
year ended December 31, 1994. Net realized losses on such sales for the year
ended December 31, 1994 were $300,430.

The market value and face value of marketable securities at December 31,
1993 was $4,310,000 and $4,300,000, respectively. The Company did not own any
such securities at December 31, 1994.

NOTE 8. INVENTORIES

Inventories, consisting of material, labor and overhead, are classified as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Finished goods........................................................ $ 342,330 $1,221,630
Work in process....................................................... 303,111 431,119
Raw materials......................................................... 383,717 506,256
---------- ----------
$1,029,158 $2,159,005
========= =========
</TABLE>

Finished goods inventories at December 31, 1994 and 1993, are stated net of
a 1993 write-down of $300,000 to reflect the Company's continuing obligation to
Purdue to replace up to 15,000 vials of ALFERON N Injection at an agreed upon
reduced price.

Finished goods inventory consists of approximately 14,000 vials of ALFERON
N Injection and is scheduled to expire in October 1996.

Consignment inventory consists of ALFERON N Injection shipped to Purdue;
however such shipment is subject to a right of return until notification by
Purdue that the product has been resold. Such inventory is scheduled to expire
in September 1995.

Cost of goods sold and excess/idle production costs for 1994, 1993 and 1992
includes the write-down of December 31, 1994, 1993 and 1992 inventories to their
estimated net realizable value.

F-13
<PAGE> 68

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. LONG TERM DEBT

Long-term debt is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
--------- -----------
<S> <C> <C>
Note payable in connection with marketing agreement(a)....... $ -- $ 458,640
Note payable for manufacturing facility and equipment(b)..... 409,275 1,678,624
--------- -----------
409,275 2,137,264
Less current maturities...................................... 409,275 1,999,313
--------- -----------
$ -- $ 137,951
======== =========
</TABLE>

- ---------------
(a) Pursuant to the marketing agreement with Purdue, on December 31, 1991, the
Company issued a note to Purdue Pharma for $458,640 in advances received
from Purdue Pharma during 1991. The note accrued interest at 7.5% per annum.
The payment of both principal and accrued interest for $538,179 was made to
Purdue on April 25, 1994.

(b) On March 13, 1990, the Company borrowed $4.2 million from United States
Capital Corporation, an indirect subsidiary of The Hong Kong and Shanghai
Bank, at an effective interest rate of approximately 12.4%. The proceeds of
the loan were used to finance (i) the expansion of the Company's
manufacturing facility and (ii) the purchase of additional equipment for the
facility.

During December 1994, the Company renegotiated the terms of the loan such
that the loan was extended for an additional two months with interest, however,
not all the payments were made by the Company in 1995 and the loan is in
default.

The loan is secured by certain equipment of the Company and is guaranteed
by NPDC.

Aggregate annual maturities of long-term debt outstanding at December 31,
1994 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
----- ---------
<S> <C>
1995.. $ 409,275
</TABLE>

NOTE 10. INCOME TAXES

On May 30, 1991, NPDC exchanged the Company's Class B Common Stock for an
equal number of shares of the Company's Common Stock. As a result, on that date
the Company ceased to be included in NPDC's consolidated Federal income tax
return. For periods subsequent to May 30, 1991, the Company will file its own
consolidated Federal income tax return, including its wholly-owned subsidiary.
The Company's tax net operating loss for the first five months of 1991 was
included in the consolidated Federal income tax return of NPDC.

As a result of the loss allocation rules contained in the Federal income
tax consolidated return regulations, approximately $5,500,000 of net operating
loss carryforwards are available to the Company upon ceasing to be a member of
NPDC's consolidated return group. In addition, the Company has net operating
loss carryforwards from tax years prior to joining the NPDC consolidated return
group of approximately $2,100,000 which expire in 1996-1998. For the seven
months ended December 31, 1991, the Company had a net operating loss of
approximately $3,600,000, which will expire December 31, 2006.

At present, the Company believes that the events culminating with the
closing of the public offering, on October 29, 1991, resulted in an "ownership
change" under Internal Revenue Code Section 382 with respect to its stock. The
Company believes that as a result of the ownership change, the future utility of
its pre-change net operating losses were limited to an annual amount of
approximately $3,700,000. To the extent not used in

F-14
<PAGE> 69

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

any given year, such limitation carries forward and is cumulative. Due to the
limitation cumulatively being carried forward, the Company believes that
effective December 31, 1994, the annual pre-change net operating loss limitation
of $3,700,000 will no longer be in effect. Therefore, the full pre-change net
operating loss of $11,200,000 is no longer restricted to $3,700,000 annually,
and is fully available to offset future taxable income until the loss
carryforward expires through 2006. In addition, the Company has approximately
$116,000 of investment tax credit carryforwards and $973,000 of research and
development credit carryforwards which expire in 1997-2002. These credits are
also now available to offset any future tax liability, and their use is no
longer restricted by Code Section 382.

The following table summarizes the tax net operating loss carryforwards of
the Company as of December 31, 1994:

<TABLE>
<CAPTION>
YEARS
DESCRIPTION AMOUNT EXPIRE
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Subject to Section 382:
Pre-NPDC Group................................................. $ 2,100,000 1996 - 1998
NPDC Group Years............................................... 5,500,000 2004 - 2005
Post-NPDC Group................................................ 3,600,000 2006
Not Subject to Section 382:
Post-NPDC Group................................................ 25,700,000 2006 - 2009
-----------
$36,900,000
==========
</TABLE>

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
This statement requires that deferred income taxes be recorded following the
liability method of accounting and adjusted periodically when income tax rates
change. Adoption of the new Statement did not have any effect on the Company's
financial condition or results of operations since the Company does not carry
any deferred tax accounts on its balance sheet.

A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
determined, based on the Company's recent history of annual net losses, that a
full valuation allowance is appropriate.

The Company has, as of December 31, 1994, deferred tax assets of
approximately $13,635,000, deferred tax liabilities of approximately $332,000
and a valuation allowance of approximately $13,303,000. At January 1, 1994, the
valuation allowance was $7,742,000. The increase to the valuation allowance is
due primarily to net operating losses. The tax effects that give rise to these
deferred tax assets and liabilities consist of the following as of December 31,
1994:

<TABLE>
<S> <C>
DEFERRED TAX ASSET
Net operating loss carryforwards....................................... $ 12,546,000
Tax credit carryforwards............................................... 1,089,000
------------
13,635,000
DEFERRED TAX LIABILITIES
Property and equipment, principally due to differences in
depreciation......................................................... (332,000)
------------
Net deferred tax asset................................................. 13,303,000
Valuation allowance.................................................... (13,303,000)
------------
Net deferred tax asset after valuation allowance....................... $ 0
===========
</TABLE>

F-15
<PAGE> 70

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. STOCK OPTIONS, WARRANTS AND OTHER SHARES RESERVED

In 1981, the Company adopted the 1981 Stock Option Plan (the "Plan"),
authorizing a committee of the Board of Directors to grant options, over a
10-year period, to purchase not more than 500,000 shares of Common Stock to
officers, directors, employees and consultants of the Company. Since 1981, the
Plan has been amended several times to increase the number of shares issuable
under the Plan to 3,500,000 and to extend the Plan until 2001. Pursuant to the
terms of the Plan, no option may be exercised after 10 years from the date of
grant. The exercise price for any option issued may not be less than 85 percent
of the market price of the Common Stock on the date of issuance.

Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1991, include warrants to purchase 465,900 shares of
Common Stock pursuant to NPDC's Exchange Offer (see Note 1). Warrants to
purchase 432,600 shares of Common Stock were exercised in February 1992 and the
remaining warrants to purchase 33,300 shares expired unexercised.

Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1994, 1993 and 1992, include 20,000 shares under a
warrant agreement with U.S. Capital Corporation.

Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1993 and 1992, include 375,000 shares under warrant
agreements with Purdue. Such warrants were terminated in 1994 as a result of the
amended marketing and distribution agreements with Purdue (see Note 5).

Options and warrants outstanding and shares reserved for issuance at
December 31, 1994, 1993 and 1992, and options and warrants exercisable at
December 31, 1994 and 1993, include 200,000 shares under warrant agreements with
the underwriter of the October 1991 public offering of Common Stock.

Options and warrants outstanding and shares reserved for issuance at
December 31, 1994 and 1993, and options and warrants exercisable at December 31,
1994, include 125,000 shares under a warrant agreement with Strategic Growth
International, the Company's outside public relations advisor.

Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1994 and 1993 include 5,000,000 shares under a warrant
agreement with David Blech and certain other individuals. During the first
quarter of 1995, these individuals exchanged an aggregate of 1,200,000 Class A
Warrants and 1,200,000 Class B Warrants for an aggregate of 480,000 shares of
Common Stock.

Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1994 include 61,000 shares under a warrant agreement
issued as a commission in connection with the sale of shares of Common Stock to
an institutional investor.

F-16
<PAGE> 71

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in options and warrants outstanding during the years ended December
31, 1994, 1993 and 1992, options and warrants exercisable and shares reserved
for issuance at December 31, 1994, 1993 and 1992 are as follows:

<TABLE>
<CAPTION>
PRICE RANGE NUMBER OF
PER SHARE SHARES
------------ ----------
<S> <C> <C>
Options and Warrants
Outstanding at December 31, 1991................................ $2.25 -- $ 9.00 3,355,450
Granted......................................................... 3.50 -- 10.00 736,500
Exercised....................................................... 2.25 -- 6.88 (479,900)
Terminated...................................................... 2.25 -- 6.88 (109,500)
------------ ----------
Outstanding at December 31, 1992................................ 2.25 -- 10.00 3,502,550
Granted......................................................... 2.13 -- 5.00 5,138,250
Exercised....................................................... 2.25 -- 4.25 (12,200)
Terminated...................................................... 3.50 -- 9.00 (28,750)
------------ ----------
Outstanding at December 31, 1993................................ 2.13 -- 10.00 8,599,850
Granted......................................................... 2.00 -- 2.70 2,318,700
Exercised....................................................... --
Terminated...................................................... 3.13 -- 10.00 (2,638,200)
------------ ----------
Outstanding at December 31, 1994................................ 2.00 -- 6.50 8,280,350
=========
Exercisable
December 31, 1992............................................... 2.25 -- 10.00 2,131,350
=========
December 31, 1993............................................... 2.13 -- 10.00 7,738,950
=========
December 31, 1994............................................... 2.00 -- 6.50 7,841,200
=========
Shares reserved for issuance
December 31, 1992............................................... 3,772,520
=========
December 31, 1993............................................... 8,885,320
=========
December 31, 1994............................................... 8,571,320
=========
</TABLE>

NOTE 12. PENSION AND INVESTMENT PLANS

NPDC had a Defined Benefit Pension Plan (the "Plan") for employees of
certain divisions and subsidiaries including those of the Company. Benefits were
based primarily on years of service and a fixed rate of benefits per year of
service. Contributions were intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.

Effective December 31, 1991, the Plan benefits were frozen. In the future,
accrued vested benefits will be paid to terminated participants in the form of a
lump sum distribution in cases where the accrued vested benefit is less than
$3,500. Terminated participants can elect a lump sum distribution if the accrued
vested benefit is greater than $3,500 but less than $7,500.

In the event that the accrued vested benefit exceeds the $7,500 payable
limit as outlined in the Plan, payment will be deferred until a terminated
vested participant reaches age 65 or elects early retirement, at age 60 or
later. As of December 31, 1994, 1993 and 1992, the projected benefit obligation
of the NPDC Plan was $4,469,000, $4,917,000 and $3,976,000 and the fair value of
plan assets was $3,405,000, $3,528,000 and

F-17
<PAGE> 72

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$3,120,000. The discount rate used in determining the actuarial present value of
the projected benefit obligation was 8.25%. The expected long-term rate of
return on assets was 10 percent.

Effective March 1, 1992, NPDC adopted the 1992 401(k) Savings Plan (the
"Savings Plan"). Effective December 31, 1991, the Plan participants would no
longer accrue benefits under the Defined Benefit Pension Plan, but became
eligible to participate in NPDC's Savings Plan.

NPDC's Savings Plan is for employees who have completed one year of
service; however, past vesting service credit was recognized for employees who
participated in the Savings Plan at the date of initial enrollment, March 1,
1992.

The Savings Plan permits pre-tax contributions to the Savings Plan by
participants pursuant to Section 401(k) of the Internal Revenue Code of 2% to 6%
of base compensation. The Company matches 40% of the participants' eligible
contributions based on a formula set forth in the Savings Plan. For 1994 and
1993, the Company's contribution to the Savings Plan was $53,000 and $49,000,
respectively. Participants are fully vested in their contributions and may
withdraw such contributions at time of employment termination, or at age 59 1/2,
or earlier in the event of financial hardship. Amounts otherwise are paid at
retirement or in the event of death or disability. Employer contributions vest
at a rate of 20% per year.

The Savings Plan is administered by a trustee appointed by the Board of
Directors of NPDC and all contributions are held by the trustee and invested at
the participants' direction in various mutual funds.

The Company does not provide any post-retirement benefits, other than
pensions, to its employees.

NOTE 13. PROFIT SHARING PLAN

Effective June 6, 1988, the Company adopted the 1988 Profit Sharing Plan
(the "Profit Sharing Plan") providing key employees and consultants with an
opportunity to share in the profits of the Company. The Profit Sharing Plan is
administered by the Company's Compensation Committee.

Pursuant to the terms of the Profit Sharing Plan, the Compensation
Committee, in its sole discretion, based upon the significance of the employee's
contributions to the operations of the Company, selects certain key employees
and consultants of the Company who are entitled to participate in the Profit
Sharing Plan and determines the extent of their participation. The amount of the
Company's profits available for distribution to the participants (the
"Distribution Pool") is the lesser of (a) 10% of the Company's income before
taxes and profit sharing expense and (b) an amount equal to 100% of the base
salary for such year of all the participants in the Profit Sharing Plan. A
number of key employees are eligible to participate in the Profit Sharing Plan.

The Compensation Committee may require as a condition to participation that
a participant remain in the employ of the Company until the end of the fiscal
year for which payment is to be made. Payments required to be made under the
Profit Sharing Plan must be made within 10 days of the filing of the Company's
tax return. To date, there have been no contributions by the Company under the
Profit Sharing Plan.

NOTE 14. NON-CASH FINANCING AND INVESTING ACTIVITIES

During the years ended December 31, 1994, 1993 and 1992 the following
noncash financing and investing activities occurred:

1994:

The Company committed to purchase 932,494 shares, valued at $3,729,976, of
the Common Stock from Purdue.

Offset of receivables of $700,000 in settlement of obligation to repurchase
Common Stock.

F-18
<PAGE> 73

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1993:

The Company issued 40,967 shares, valued at $143,385, of Common Stock as
required by various agreements.

1992:

None occurred.

NOTE 15. COMMITMENTS AND CONTINGENCIES

As consideration for the transfer to the Company of certain licenses,
rights and assets upon the formation of the Company by NPDC, the Company agreed
to pay NPDC royalties of $1,000,000, but such payments will be made only with
respect to those years in which the Company has income before income taxes, and
will be limited to 25% of such income.

See Notes 4 and 6 for information relating to royalties payable to Roche
and the Partnership, respectively.

In October 1989, the Company entered into a license agreement with a
non-affiliated party for co-exclusive rights to certain low dose oral
formulations of interferon. The Company will be required to pay a royalty of 10%
of net sales, as defined, of products produced and marketed by the Company that
may be developed under the license agreement.

NOTE 16. SUBSEQUENT EVENT

On February 7, 1995, the Company concluded an agreement with Fujimoto
Diagnostics, Inc. (Fujimoto) of Osaka, Japan, for the commercialization of the
Company's alpha interferon in Japan. In connection with the agreement, Fujimoto
purchased 1,034,483 shares of the Company's Common Stock for $1,500,000 and
committed to purchase an additional $500,000 of Common Stock in February, 1996.
The agreement grants Fujimoto exclusive rights to develop, distribute and sell
the Company's injectable and topical formulations of Interferon Alfa-n3 in
Japan. Under the agreement, Fujimoto will fund and conduct all preclinical and
clinical studies required for regulatory approval in Japan. Fujimoto will
purchase quantities of the Company's natural alpha interferon at agreed-upon
prices during the preclinical and clinical phases and upon commercialization.

F-19
<PAGE> 74

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994*
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $ 105,248 $ 330,617
Accounts and other receivables................................ 140,064 35,546
Inventories................................................... 1,151,590 1,029,158
Consignment inventory......................................... 220,410
Receivables from affiliated companies, net.................... 20,001 20,001
Prepaid expenses and other current assets..................... 68,586 55,221
------------ ------------
TOTAL CURRENT ASSETS............................................ 1,485,489 1,690,953
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST.......................... 11,826,069 11,826,069
Less accumulated depreciation and amortization................ (6,199,111) (6,013,839)
------------ ------------
5,626,958 5,812,230
------------ ------------
INTANGIBLE ASSETS, NET OF AMORTIZATION.......................... 349,624 355,019
OTHER ASSETS.................................................... 323,900 323,900
------------ ------------
TOTAL ASSETS.................................................... $ 7,785,971 $ 8,182,102
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.......................... $ 274,370 $ 409,275
Accounts payable and accrued expenses......................... 1,641,469 1,629,025
Amount due NPDC............................................... 244,113 134,347
Amount due Purdue for repurchase of common stock.............. 232,217 300,000
------------ ------------
TOTAL CURRENT LIABILITIES....................................... 2,392,169 2,472,647
------------ ------------
COMMON STOCK SUBJECT TO REPURCHASE COMMITMENT (682,494
SHARES)....................................................... 2,729,976 2,729,976
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share;
authorized -- 5,000,000 shares; none issued and
outstanding................................................
Common stock, par value $.01 per share;
authorized -- 40,000,000 shares; issued and
outstanding -- 21,023,774 and
19,509,291 shares.......................................... 210,238 195,093
Capital in excess of par value.................................. 67,039,598 65,572,243
Accumulated deficit............................................. (64,586,010) (62,787,857)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY...................................... 2,663,826 2,979,479
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $ 7,785,971 $ 8,182,102
=========== ===========
</TABLE>

- ---------------
* The condensed balance sheet as of December 31, 1994 has been summarized from
the Company's audited balance sheet as of that date.

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

F-20
<PAGE> 75

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Sales
Alferon N Injection............................................. $ 174,710 $
Research products and other revenues............................ 4,909 1,316
----------- -----------
Total revenues.......................................... 179,619 1,316
----------- -----------

COSTS AND EXPENSES
Cost of goods sold and excess/idle production costs............. 568,095 462,786
Research and development (net of $45,498 and $37,500 of rental
income received from NPDC)................................... 960,152 1,169,300
General and administrative (includes $304,654 and $471,664 of
charges from NPDC for management fees and reimbursements of
expenses).................................................... 446,392 739,943
----------- -----------
Total costs and expenses................................ 1,974,639 2,372,029
----------- -----------
LOSS FROM OPERATIONS.............................................. (1,795,020) (2,370,713)
Interest and other income....................................... 6,776 90,224
Interest expense................................................ (9,909) (65,305)
----------- -----------
NET LOSS.......................................................... $(1,798,153) $(2,345,794)
========== ==========
NET LOSS PER SHARE................................................ $ (.08) $ (.12)
========== ==========
Weighted average number of shares outstanding..................... 21,199,027 19,417,410
========== ==========
</TABLE>

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

F-21
<PAGE> 76

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
---------------------- EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994...... 19,509,291 $ 195,093 $65,572,243 $(62,787,857) $ 2,979,479
Net proceeds from the sale of
common stock to Fujimoto
Diagnostics, Inc................ 1,034,483 10,345 1,472,155 1,482,500
Issuance of common stock in
exchange for warrants to
purchase common stock........... 480,000 4,800 (4,800)
Net loss.......................... (1,798,153) (1,798,153)
----------- --------- ----------- ------------ ------------
BALANCE AT MARCH 31, 1995......... 21,023,774 $ 210,238 $67,039,598 $(64,586,010) $ 2,663,826
========= ======== ========== =========== ==========
</TABLE>

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

F-22
<PAGE> 77

INTERFERON SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS USED FOR OPERATIONS:
Net loss........................................................ $(1,798,153) $(2,345,794)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................ 194,015 201,023
Net gain on sales of marketable securities................... (9,102)
Change in operating assets and liabilities:
Inventories................................................ (122,432) 158,440
Consignment inventory...................................... 220,410
Receivables from affiliated companies...................... (93,913)
Accounts and other receivables............................. (172,301) 30,226
Prepaid expenses and other current assets.................. (13,365) (158,161)
Accounts payable and accrued expenses...................... 12,444 (3,855)
----------- -----------
Net cash used for operations............................ (1,679,382) (2,221,136)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities.............................. (2,496,445)
Sales of marketable securities.................................. 2,006,797
Additions to property, plant and equipment...................... (54,805)
Additions to intangible and other assets........................ (3,348) (13,329)
----------- -----------
Net cash used for investing activities.................. (3,348) (557,782)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock.......................... 1,482,500
Increase (decrease) in advances from NPDC....................... 109,766 (8,050)
Reduction of long-term debt..................................... (134,905) (366,037)
Purchase of common stock from Runham and Banela................. (250,000)
----------- -----------
Net cash provided by (used for) financing activities.... 1,457,361 (624,087)
----------- -----------
Net decrease in cash and cash equivalents......................... (225,369) (3,403,005)

Cash and cash equivalents at beginning of period.................. 330,617 4,247,067
----------- -----------

Cash and cash equivalents at end of period........................ $ 105,248 $ 844,062
========== ==========

Cash paid for interest expense.................................... $ 8,564 $ 52,463
========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Offset of receivables in settlement of obligation to repurchase
stock........................................................ $ 67,783 $
========== ==========
Reductions in marketable securities............................. $ $ 152,666
========== ==========
Commitment to purchase common stock............................. $ $ 3,729,976
========== ==========
</TABLE>

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

F-23
<PAGE> 78

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. AMENDED AGREEMENTS WITH THE PURDUE FREDERICK COMPANY

On January 27, 1994, the Company reacquired marketing and distribution
rights for ALFERON N Injection from Mundipharma Pharmaceutical Company
("Mundipharma"), an affiliate of The Purdue Frederick Company (together with its
affiliates, "Purdue"), in Western Europe, Israel, India and Australia.
Mundipharma and its affiliate, Purdue Pharma L.P. ("Purdue Pharma"), retained
exclusive marketing and distribution rights for Canada and the United States,
respectively, subject to the Company's option to reacquire the United States and
Canadian marketing and distribution rights at a price of $12 million until July
26, 1995 (the "Repurchase Option"). Purdue gave the Company a new purchase order
for 45,000 vials of ALFERON N Injection at an agreed upon price. In addition,
the Company will pay Mundipharma a 3% royalty on net sales in the reacquired
territories. This rate will be reduced to 1% after certain aggregate royalty
payments have been made. The Company was also obligated to provide Purdue with
up to 15,000 vials of ALFERON N Injection, at an agreed upon price, to replace
any inventory of Purdue existing on the date of the amendment which goes out of
date. The Company also granted Purdue an option, exercisable until July, 1995,
to purchase an additional 100,000 vials of ALFERON N Injection at an agreed upon
price.

Under the amended agreements (the "1994 Purdue Amendments"), the Company
assumed responsibility for the conduct and funding of clinical trials to develop
new indications of ALFERON N Injection. Upon the Company obtaining approval in
the United States for additional indications of ALFERON N Injection, Purdue
Pharma and Mundipharma were obligated, in order to maintain their exclusive
license, to repay certain of the Company's research and development costs and
make certain additional payments to the Company for the rights for the first
five of any such new uses.

The Company also agreed to buy back 994,994 shares of Common Stock then
held by Purdue at an agreed upon price of $4.00 per share (the "Company Purchase
Obligation") over an 18-month period. In January 1994, the Company purchased
62,500 of such shares for $250,000 and such shares were cancelled by the
Company. The Company was obligated to pay an additional $1,000,000 to purchase
250,000 shares during 1994. In 1994, the Company and Purdue agreed to offset
$700,000 owed to the Company by Purdue, for the purchase of ALFERON N Injection
during 1994, against the Company's obligation to purchase $1,000,000 of Common
Stock from Purdue in 1994. The Company has reflected the Common Stock subject to
repurchase commitment as temporary equity, and $300,000 of this obligation to
Purdue that was not paid in 1994 as a current liability on the balance sheet at
December 31, 1994. In addition, as of March 31, 1995 the Company had applied an
additional $67,783 of offsets based upon additional sales of ALFERON N Injection
by Purdue. In April 1995, the Company was required to purchase 62,500 shares of
Common Stock for $250,000 and in July 1995 is obligated to purchase 619,994
shares of Common Stock for $2,479,976. As of May 4, 1995, the Company had
generated sufficient additional offsets based upon additional sales of ALFERON N
Injection to and by Purdue to repay the $232,217 owed to Purdue as of March 31,
1995 and to pay $140,000 of the $250,000 owed to Purdue for the April 1995 stock
repurchase. The Company anticipates that the $110,000 unpaid balance of the
purchase price for the 62,500 shares required to be repurchased in April 1995
will be paid through additional offsets or working capital or both. The Company
currently anticipates repurchasing certain marketing rights from Purdue.

F-24
<PAGE> 79

INTERFERON SCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

"Valuation Date"), the 2.5 million shares of Common Stock do not have a value of
at least $9,037,807 (which value will be calculated using the average of the
closing bid and asked prices of the Common Stock as quoted by the NASDAQ
National Market System for the ten trading days ending two days prior to the
Valuation Date), the Company must issue a note for the shortfall. Such note will
bear interest at the prime rate, and will become due and payable 24 months from
the Valuation Date. The Company agreed that it will utilize its best efforts to
ensure that the 2.5 million shares of Common Stock will be registered and freely
tradeable 18 months from the date of exercise of the Company's option. If the
Option is exercised, the Repurchase Option, the royalty obligations, and
Purdue's right to obtain marketing and distribution rights for new indications
contained in the 1994 Purdue Amendment will terminate and the cash component of
the Option exercise price will be deemed to constitute payment for the remainder
of the shares of Common Stock subject to the repurchase obligation, and the
Company will receive such shares for no additional consideration.

NOTE 2. AGREEMENT WITH FUJIMOTO DIAGNOSTICS, INC.

On February 7, 1995, the Company concluded an agreement with Fujimoto
Diagnostics, Inc. (Fujimoto) of Osaka, Japan, for the commercialization of the
Company's ALFERON N Injection and ALFERON N Gel in Japan. In connection with the
agreement, Fujimoto purchased 1,034,483 shares of the Company's Common Stock for
$1,500,000 ($1.45 per share, the then current market price) and committed to
purchase an additional $500,000 of Common Stock in February 1996 based on the
then current market price. The agreement grants Fujimoto exclusive rights to
develop, distribute and sell ALFERON N Injection and ALFERON N Gel in Japan.
Under the agreement, Fujimoto agreed to fund and conduct all preclinical and
clinical studies required for regulatory approval in Japan. Fujimoto will
purchase quantities of ALFERON N Injection and ALFERON N Gel at agreed-upon
prices during the preclinical and clinical phases.

NOTE 3. INVENTORIES

Inventories, consisting of material, labor and overhead, are classified as
follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- ------------
<S> <C> <C>
Finished goods........................................... $ 387,330 $ 342,330
Work in process.......................................... 389,118 303,111
Raw materials............................................ 375,142 383,717
---------- ------------
$1,151,590 $1,029,158
========= ==========
</TABLE>

Finished goods inventories at March 31, 1995 and December 31, 1994, are
stated net of a 1993 write-down of $300,000 to reflect the Company's continuing
obligation to Purdue to replace up to 15,000 vials of ALFERON N Injection at an
agreed upon reduced price.

Finished goods inventory consists of approximately 15,000 vials of ALFERON
N Injection and is scheduled to expire in October 1996.

F-25
<PAGE> 80

INTERFERON SCIENCES, INC. AND SUBSIDIARY

QUALIFICATION RELATING TO FINANCIAL INFORMATION
MARCH 31, 1995

The financial information included herein is unaudited. Such information,
however, reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods. The results for interim
periods are not necessarily indicative of results to be expected for the year.

F-26
<PAGE> 81

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

NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH
SUCH INFORMATION IS GIVEN.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
The Company......................... 8
Risk Factors........................ 8
Use of Proceeds..................... 17
Price Range of Common Stock and
Dividend Policy................... 17
Capitalization...................... 18
Dilution............................ 19
Selected Financial Information...... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 21
Business............................ 26
Management.......................... 42
Principal Stockholders.............. 44
Certain Transactions................ 46
Underwriting........................ 48
Description of Securities........... 50
Legal Matters....................... 50
Experts............................. 51
Additional Information.............. 51
Index to Consolidated Financial
Statements........................ F-1
</TABLE>

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

INTERFERON SCIENCES, INC.

10,000,000 SHARES

COMMON STOCK

------------------
PROSPECTUS
------------------

SUNRISE LOGO

, 1995

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 82

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered hereby other than the SEC and NASD fees.

<TABLE>
<S> <C>
SEC registration fee...................................................... $ 5,793
NASD fee.................................................................. 2,180
NASDAQ listing fee........................................................ 17,500
Accounting fees and expenses.............................................. 35,000
Legal fees and expenses................................................... 110,000
Blue sky expenses and counsel fees........................................ 35,000
Cost of printing and engraving............................................ 150,000
Transfer agent's fees..................................................... 1,000
Miscellaneous............................................................. 43,527
--------
Total........................................................... $400,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's By-laws provide that the Company shall, to the full extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto. In addition, Article 4, Section 10 of the Company's
Restated Certificate of Incorporation eliminates personal liability of its
directors to the full extent permitted by Section 102(b)(7) of the General
Corporation Law of the State of Delaware, as amended from time to time.

Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or officers acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification may be
made only for expenses actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.

Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.

II-1
<PAGE> 83

Section of the Underwriting Agreement (filed as Exhibit 1.1) provides
that the Underwriter will indemnify and hold harmless the Company and each
director, officer, or controlling person of the Company from and against any
liability caused by any statement or omission in the Registration Statement or
Prospectus based upon information furnished in writing to the Company by the
Underwriter expressly for use therein.

The Company currently has a $1,000,000 directors' and officers' liability
insurance policy.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<S> <C>
(a) -- Exhibits
1.1 -- Form of Underwriting Agreement between the Registrant and Sunrise Securities Corp.*

1.2 -- Form of Subscription Agreement*

1.3 -- Form of Escrow Agreement*

1.4 -- Form of Master Selected Dealer Agreement*

3.1 -- Restated Certificate of Incorporation of the Registrant. Incorporated herein by
reference to Exhibit 3B of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988.

3.2 -- Certificate of Amendment to the Restated Certificate of Incorporation of the
Registrant. Incorporated herein by reference to Exhibit 3.2 of Registration
Statement No. 33-78952.

3.3 -- By-Laws of the Registrant, as amended. Incorporated herein by reference to Exhibit
3.2 of Registration Statement No. 2-7117.

4.1 -- Form of Underwriter's Purchase Options.*

4.2 -- Underwriter's Warrant dated October 29, 1991 between the Registrant and
Commonwealth Associates. Incorporated herein by reference to Exhibit 4.2 of
Registration Statement No. 33-40902.

4.3 -- Agam Warrant dated October 29, 1991 between the Registrant and Jacob Agam.
Incorporated herein by reference to Exhibit 4.3 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991.

5.1 -- Opinion of Lawrence M. Gordon, Esq., General Counsel, Registrant, as to the
legality of the securities being registered.**

10.1 -- Transfer and License Agreement among National Patent, Hydron Laboratories, Inc. and
the Registrant dated as of January 1, 1981. Incorporated herein by reference to
Exhibit 10.8 of the Registrant's Registration Statement No. 2-71117.

10.2 -- Management Services Agreement dated January 1, 1981 between the Registrant and
National Patent. Incorporated herein by reference to Exhibit 10.9 of the
Registration Statement No. 2-71117.

10.3 -- Registrant's 1981 Stock Option Plan, as amended. Incorporated herein by reference
to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.

10.4 -- Cross License Agreement dated October 26, 1984 between the Registrant and the
Partnership. Incorporated herein by reference to Exhibit 10V of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1984.

10.5 -- Development Agreement dated October 26, 1984 between the Registrant and the
Partnership. Incorporated herein by reference to Exhibit 10T of the Registrant's
Annual Report on 10-K for the year ended December 31, 1984.

10.6 -- Interim License Option Agreement dated October 26, 1984 between the Registrant and
the Partnership. Incorporated herein by reference to Exhibit 10U of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1984.

10.7 -- Purchase Option Agreement dated October 26, 1984 between the Registrant and the
Partnership. Incorporated herein by reference to Exhibit 10V of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1984.

10.8 -- Amended and Restated Agreement of Limited Partnership dated October 26, 1984 among
the Registrant, Interferon Sciences Development Corporation, National Patent and
the limited partners of the Partnership. Incorporated herein by reference to
Exhibit 10-X of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1984.
</TABLE>

II-2
<PAGE> 84

<TABLE>
<S> <C>
10.9 -- Supply Agreement dated September 25, 1992 between the Registrant and Celltech
Limited. Incorporated herein by reference to Exhibit 10.27 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.

10.10 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc. dated June 30,
1988. Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1988.

10.11 -- Profit Sharing Plan of the Registrant. Incorporated herein by reference to Exhibit
10X of the Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.

10.12 -- License Agreement dated October 20, 1989 between the Registrant and Amarillo Cell
Culture Company, Incorporated. Incorporated herein by reference to Exhibit 10Y of
the Registrant's Annual Report on Form 10K for the year ended December 31, 1989.(1)

10.13 -- Agreement dated January 3, 1991 between the Registrant and Hoffmann-La Roche, Inc.
Incorporated herein by reference to Exhibit 10.30 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1990.

10.14 -- Amendment dated January 16, 1991 to License Agreement dated as of June 30, 1988
between the Registrant and Hoffmann-La Roche, Inc. Incorporated herein by reference
to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1990.

10.15 -- Distribution Agreement dated June 14, 1991 between Purdue Pharma L.P. and the
Registrant. Incorporated herein by reference to Exhibit 10.26 of Registration
Statement No. 33-40902.

10.16 -- Amended and Restated Distribution Agreement dated June 14, 1991 between Mundipharma
Pharmaceutical Corporation and the Registrant. Incorporated herein by reference to
Exhibit 10.27 of Registration Statement No. 33-40902.

10.17 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc. dated as of
March 31, 1992. Incorporated herein by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31, 1992.

10.18 -- NPDC 401(k) Savings Plan dated January 9, 1992, effective March 1, 1992.
Incorporated herein by reference to Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1992.

10.19 -- Amendment dated January 26, 1994 to the Distribution Agreement dated June 14, 1991
between the Registrant and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1993.***

10.20 -- Amendment dated January 26, 1994 to the Amended and Restated Distribution Agreement
dated June 14, 1991 between the Registrant and Mundipharma Pharmaceutical Company.
Incorporated herein by reference to Exhibit 10.19 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1993.

10.21 -- Amended and Restated RS Agreement dated January 26, 1994 among the Registrant,
Mundipharma Pharmaceutical Company and Purdue Pharma L.P. Incorporated herein by
reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.***

10.22 -- Agreement dated January 26, 1994 between the Registrant and The Purdue Frederick
Company. Incorporated herein by reference to Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1993.

10.23 -- Agreement dated January 26, 1994 among the Registrant, Banela Corporation and
Runham Corporation. Incorporated herein by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31, 1993.

10.24 -- Release dated January 26, 1994 among the Registrant, National Patent Development
Corporation, Purdue Pharma L.P., Mundipharma Pharmaceutical Company, The Purdue
Frederick Company, Banela Corporation and Runham Corporation. Incorporated herein
by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for
the Year ended December 31, 1993.

10.25 -- Purchase Agreement dated as of May 28, 1993 between the Registrant and David Blech.
Incorporated herein by reference to Exhibit 10.26 of Registration Statement No.
33-78952.

10.26 -- Form of Warrant to be issued pursuant to the Purchase Agreement. Incorporated
herein by reference to Exhibit 10.28 of Registration Statement No. 33-78952.
</TABLE>

II-3
<PAGE> 85

<TABLE>
<S> <C> <C>
10.27 -- Distribution Agreement dated as of February 3, 1994 between Registrant and
Industria Farmaceutica Andromaco, S.A. Incorporated herein by reference to Exhibit
6(a) to the Registrant's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994.***
10.28 -- Processing and Supply Agreement dated as of September 1, 1994 between Registrant
and Sanofi Winthrop L.P. Incorporated herein by reference to Exhibit 6(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
10.29 -- Amendment dated March 29, 1995 to Distribution Agreement dated as of February 3,
1995 between Registrant and Industria Farmaceutica Andromaco S.A. Incorporated
herein by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.30 -- Purchase and Exchange Agreement dated as of December 6, 1994 between the
Registrant, David Blech and certain designated purchases. Incorporated herein by
reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.31 -- Purchase and Exchange Agreement dated as of January 31, 1995 between the Registrant
and Neoprobe Corp. Incorporated herein by reference to Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.32 -- Stock Purchase Agreement dated as of January 24, 1995 between the Registrant and
Fujimoto Diagnostics, Inc. Incorporated herein by reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.33 -- Agreement dated as of February 6, 1995 between the Registrant and Fujimoto
Diagnostics, Inc. Incorporated herein by reference to Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.34 -- Form of Stock Purchase Agreement dated as of August 31, 1994 between the Registrant
and Dimensional Funds Advisors, Inc. Incorporated herein by reference to Exhibit
10.35 to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
10.35 -- Form of Warrant Agreement dated as of August 31, 1994 between the Registrant and
Capello Capital Corp. Incorporated herein by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.36 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994 between the
Registrant and Purdue Frederick Company. Incorporated herein by reference to
Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.37 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994 between the
Registrant, Banela Corporation and Runham Corporation. Incorporated herein by
reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.38 -- Amendment dated March 29, 1995 to Distribution Agreement dated June 14, 1991
between the Registrant and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.39 -- Amendment dated March 29, 1995 to Amended and Restated Distribution Agreement dated
June 14, 1991 between the Registrant and Mundipharma Pharmaceutical Company.
Incorporated herein by reference to Exhibit 10.40 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.40 -- Amendment dated March 29, 1995 to Amended and Restated RS Agreement dated January
26, 1994 among the Registrant, Mundipharma Pharmaceutical Company and Purdue Pharma
L.P. Incorporated herein by reference to Exhibit 10.41 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.41 -- Letter dated March 29, 1995 between the Registrant and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.42 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.42 -- License Agreement, dated as of March 31, 1995, among the Registrant, Hoffmann - La
Roche, Inc., and F. Hoffmann - La Roche Ltd.**
10.43 -- Agreement, dated April 27, 1995, between Registrant and Amarillo Cell Culture
Company, Incorporated.**
10.44 -- Form of note issued by the Registrant to National Patent Development Corporation,
Biotechnology Investment Group, L.L.C., and David Blech.**
</TABLE>

II-4
<PAGE> 86

<TABLE>
<C> <C> <S>
23.1 -- Consent of Independent Auditors.**
23.2 -- Consent of Lawrence M. Gordon (to be included in Exhibit 5.1).**
</TABLE>

(b) Financial Statement Schedules:

None
- ---------------

* Previously filed.

** Filed herewith.

*** Confidential treatment has been granted for portions of this exhibit.

ITEM 17. UNDERTAKINGS.

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

A. The undersigned Registrant hereby undertakes that:

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

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

B. The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remains unsold at the
termination of the offering.

II-5
<PAGE> 87

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and the State of New York, on this
18th day of July, 1995.

INTERFERON SCIENCES, INC.

By: /s/ SAMUEL H. RONEL, PH.D.
------------------------------------
Samuel H. Ronel, Ph.D.
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities on July 18, 1995.

<TABLE>
<C> <S>
/s/ MARTIN M. POLLAK Chairman of the Board
- ---------------------------------------------
Martin M. Pollak

/s/ JEROME I. FELDMAN Chairman of the Board's Executive Committee,
- --------------------------------------------- Treasurer and Director
Jerome I. Feldman

/s/ SAMUEL H. RONEL, PH.D. President, Chief Executive Officer, and
- --------------------------------------------- Director
Samuel H. Ronel, Ph.D. (Principal Executive Officer)

/s/ STANLEY G. SCHUTZBANK, PH.D. Executive Vice President and Director
- ---------------------------------------------
Stanley G. Schutzbank, Ph.D.

Director
- ---------------------------------------------
Leon Botstein, Ph.D.

Director
- ---------------------------------------------
Sheldon L. Glashow, Ph.D

Director
- ---------------------------------------------
Roald Hoffmann, Ph.D

/s/ OGDEN R. REID Director
- ---------------------------------------------
Ogden R. Reid

/s/ DONALD W. ANDERSON Controller (Principal Accounting and Financial
- --------------------------------------------- Officer)
Donald W. Anderson
</TABLE>

The foregoing constitute a majority of the members of the Board of
Directors.

II-6
<PAGE> 88

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement between the Registrant and Sunrise
Securities Corp.*

1.2 -- Form of Subscription Agreement*

1.3 -- Form of Escrow Agreement*

1.4 -- Form of Master Selected Dealer Agreement*

3.1 -- Restated Certificate of Incorporation of the Registrant. Incorporated
herein by reference to Exhibit 3B of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.

3.2 -- Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant. Incorporated herein by reference to Exhibit 3.2 of
Registration Statement No. 33-78952.

3.3 -- By-Laws of the Registrant, as amended. Incorporated herein by reference
to Exhibit 3.2 of Registration Statement No. 2-7117.

4.1 -- Form of Underwriter's Purchase Options.*

4.2 -- Underwriter's Warrant dated October 29, 1991 between the Registrant and
Commonwealth Associates. Incorporated herein by reference to Exhibit 4.2
of Registration Statement No. 33-40902.

4.3 -- Agam Warrant dated October 29, 1991 between the Registrant and Jacob
Agam. Incorporated herein by reference to Exhibit 4.3 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.

5.1 -- Opinion of Lawrence M. Gordon, Esq., General Counsel, Registrant, as to
the legality of the securities being registered.**

10.1 -- Transfer and License Agreement among National Patent, Hydron
Laboratories, Inc. and the Registrant dated as of January 1, 1981.
Incorporated herein by reference to Exhibit 10.8 of the Registrant's
Registration Statement No. 2-71117.

10.2 -- Management Services Agreement dated January 1, 1981 between the
Registrant and National Patent. Incorporated herein by reference to
Exhibit 10.9 of the Registration Statement No. 2-71117.

10.3 -- Registrant's 1981 Stock Option Plan, as amended. Incorporated herein by
reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.

10.4 -- Cross License Agreement dated October 26, 1984 between the Registrant
and the Partnership. Incorporated herein by reference to Exhibit 10V of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1984.

10.5 -- Development Agreement dated October 26, 1984 between the Registrant and
the Partnership. Incorporated herein by reference to Exhibit 10T of the
Registrant's Annual Report on 10-K for the year ended December 31, 1984.

10.6 -- Interim License Option Agreement dated October 26, 1984 between the
Registrant and the Partnership. Incorporated herein by reference to
Exhibit 10U of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1984.

10.7 -- Purchase Option Agreement dated October 26, 1984 between the Registrant
and the Partnership. Incorporated herein by reference to Exhibit 10V of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1984.
</TABLE>
<PAGE> 89

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
10.8 -- Amended and Restated Agreement of Limited Partnership dated October 26,
1984 among the Registrant, Interferon Sciences Development Corporation,
National Patent and the limited partners of the Partnership.
Incorporated herein by reference to Exhibit 10-X of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1984.

10.9 -- Supply Agreement dated September 25, 1992 between the Registrant and
Celltech Limited. Incorporated herein by reference to Exhibit 10.27 of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1992.

10.10 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc.
dated June 30, 1988. Incorporated herein by reference to the
Registrant's Form 10-Q for the quarter ended June 30, 1988.

10.11 -- Profit Sharing Plan of the Registrant. Incorporated herein by reference
to Exhibit 10X of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.

10.12 -- License Agreement dated October 20, 1989 between the Registrant and
Amarillo Cell Culture Company, Incorporated. Incorporated herein by
reference to Exhibit 10Y of the Registrant's Annual Report on Form 10K
for the year ended December 31, 1989.(1)

10.13 -- Agreement dated January 3, 1991 between the Registrant and Hoffmann-La
Roche, Inc. Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31,
1990.

10.14 -- Amendment dated January 16, 1991 to License Agreement dated as of June
30, 1988 between the Registrant and Hoffmann-La Roche, Inc. Incorporated
herein by reference to Exhibit 10.31 to the Registrant's Annual Report
on Form 10-K for the Fiscal Year ended December 31, 1990.

10.15 -- Distribution Agreement dated June 14, 1991 between Purdue Pharma L.P.
and the Registrant. Incorporated herein by reference to Exhibit 10.26 of
Registration Statement No. 33-40902.

10.16 -- Amended and Restated Distribution Agreement dated June 14, 1991 between
Mundipharma Pharmaceutical Corporation and the Registrant. Incorporated
herein by reference to Exhibit 10.27 of Registration Statement No.
33-40902.

10.17 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc.
dated as of March 31, 1992. Incorporated herein by reference to Exhibit
10.26 to the Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1992.

10.18 -- NPDC 401(k) Savings Plan dated January 9, 1992, effective March 1, 1992.
Incorporated herein by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1992.

10.19 -- Amendment dated January 26, 1994 to the Distribution Agreement dated
June 14, 1991 between the Registrant and Purdue Pharma L.P. Incorporated
herein by reference to Exhibit 10.18 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1993.***

10.20 -- Amendment dated January 26, 1994 to the Amended and Restated
Distribution Agreement dated June 14, 1991 between the Registrant and
Mundipharma Pharmaceutical Company. Incorporated herein by reference to
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.

10.21 -- Amended and Restated RS Agreement dated January 26, 1994 among the
Registrant, Mundipharma Pharmaceutical Company and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1993.***
</TABLE>
<PAGE> 90

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
10.22 -- Agreement dated January 26, 1994 between the Registrant and The Purdue
Frederick Company. Incorporated herein by reference to Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K for the Year ended December
31, 1993.

10.23 -- Agreement dated January 26, 1994 among the Registrant, Banela
Corporation and Runham Corporation. Incorporated herein by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.

10.24 -- Release dated January 26, 1994 among the Registrant, National Patent
Development Corporation, Purdue Pharma L.P., Mundipharma Pharmaceutical
Company, The Purdue Frederick Company, Banela Corporation and Runham
Corporation. Incorporated herein by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31,
1993.

10.25 -- Purchase Agreement dated as of May 28, 1993 between the Registrant and
David Blech. Incorporated herein by reference to Exhibit 10.26 of
Registration Statement No. 33-78952.

10.26 -- Form of Warrant to be issued pursuant to the Purchase Agreement.
Incorporated herein by reference to Exhibit 10.28 of Registration
Statement No. 33-78952.

10.27 -- Distribution Agreement dated as of February 3, 1994 between Registrant
and Industria Farmaceutica Andromaco, S.A. Incorporated herein by
reference to Exhibit 6(a) to the Registrant's Quarterly Report on Form
10-Q/A for the quarter ended September 30, 1994.***

10.28 -- Processing and Supply Agreement dated as of September 1, 1994 between
Registrant and Sanofi Winthrop L.P. Incorporated herein by reference to
Exhibit 6(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.

10.29 -- Amendment dated March 29, 1995 to Distribution Agreement dated as of
February 3, 1995 between Registrant and Industria Farmaceutica Andromaco
S.A. Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.

10.30 -- Purchase and Exchange Agreement dated as of December 6, 1994 between the
Registrant, David Blech and certain designated purchases. Incorporated
herein by reference to Exhibit 10.31 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.

10.31 -- Purchase and Exchange Agreement dated as of January 31, 1995 between the
Registrant and Neoprobe Corp. Incorporated herein by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.

10.32 -- Stock Purchase Agreement dated as of January 24, 1995 between the
Registrant and Fujimoto Diagnostics, Inc. Incorporated herein by
reference to Exhibit 10.33 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.

10.33 -- Agreement dated as of February 6, 1995 between the Registrant and
Fujimoto Diagnostics, Inc. Incorporated herein by reference to Exhibit
10.34 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.

10.34 -- Form of Stock Purchase Agreement dated as of August 31, 1994 between the
Registrant and Dimensional Funds Advisors, Inc. Incorporated herein by
reference to Exhibit 10.35 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.

10.35 -- Form of Warrant Agreement dated as of August 31, 1994 between the
Registrant and Capello Capital Corp. Incorporated herein by reference to
Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
</TABLE>
<PAGE> 91

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
10.36 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994
between the Registrant and Purdue Frederick Company. Incorporated herein
by reference to Exhibit 10.37 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.37 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994
between the Registrant, Banela Corporation and Runham Corporation.
Incorporated herein by reference to Exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.38 -- Amendment dated March 29, 1995 to Distribution Agreement dated June 14,
1991 between the Registrant and Purdue Pharma L.P. Incorporated herein
by reference to Exhibit 10.39 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.39 -- Amendment dated March 29, 1995 to Amended and Restated Distribution
Agreement dated June 14, 1991 between the Registrant and Mundipharma
Pharmaceutical Company. Incorporated herein by reference to Exhibit
10.40 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.40 -- Amendment dated March 29, 1995 to Amended and Restated RS Agreement
dated January 26, 1994 among the Registrant, Mundipharma Pharmaceutical
Company and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.41 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.41 -- Letter dated March 29, 1995 between the Registrant and Purdue Pharma
L.P. Incorporated herein by reference to Exhibit 10.42 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
10.42 -- License Agreement, dated as of March 31, 1995, among the Registrant,
Hoffmann - La Roche, Inc., and F. Hoffmann - La Roche Ltd.**
10.43 -- Agreement, dated April 27, 1995, between Registrant and Amarillo Cell
Culture Company, Incorporated**
10.44 -- Form of note issued by the Registrant to National Patent Development
Corporation, Biotechnology Investment Group, L.L.C., and David Blech.**
23.1 -- Consent of Independent Auditors.**
23.2 -- Consent of Lawrence M. Gordon (to be included in Exhibit 5.1).**
</TABLE>

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

* Previously filed.

** Filed herewith.

*** Confidential treatment has been requested for portions of this exhibit.

<PAGE> 1
NATIONAL PATENT DEVELOPMENT CORPORATION [LOGO] [LETTERHEAD]

EXHIBIT 5.1

July 17, 1995

Interferon Sciences, Inc.
783 Jersey Avenue
New Brunswick, New Jersey 08901

Gentlemen:

Reference is made to the Registration Statement on Form S-2 of Interferon
Sciences, Inc. (the "Company") relating to the registration of 8,000,000 shares
of the Company's common stock, par value $.01 per share (the "Common Stock").

I am General Counsel of the Company, and have examined such corporate
records and other documents as I have deemend relevant. Based upon the above,
I am of the opionion that the Common Stock to be sold pursuant to the
Registration Statement has been duly authorized and, when issued, assuming
compliance with all federal and state securities laws, will be legally issued,
fully paid, and non-assessable.

I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of my name in the Prospectus.

Very truly yours,

Lawrence M. Gordon

<PAGE> 1

EXHIBIT 10.42

LICENSE AGREEMENT

License Agreement, dated as of March 31, 1995, among Interferon
Sciences, Inc., a Delaware corporation with offices at 783 Jersey Avenue, New
Brunswick, New Jersey 08901 ("ISI"), Hoffmann-La Roche Inc., a New Jersey
corporation with offices at 340 Kingsland Street, Nutley, New Jersey 07110
("HL") and F. Hoffmann-La Roche Ltd, a Swiss corporation with offices at
Grenzacherstrasse 124, CH-4002 Basle, Switzerland ("FHL").

W I T N E S S E T H

WHEREAS, HL is the owner of certain patent rights (the "HL Patent
Rights") in the field of alpha interferon, including without limitation U.S.
Patent No. 4,503,035 (the "Patent") expiring March 5, 2002, (the "Patent
Expiration Date") and FHL is the owner of the foreign counterparts thereto (the
"FHL Patent Rights") (a list of such foreign counterparts and their respective
expiration dates and any extensions thereof as set forth in Section 2 (the
"Foreign Patent Expiration Dates") is set forth on Schedule 1 attached hereto)
relating to homogeneous alpha interferon, and

WHEREAS, HL, FHL, or their respective affiliates (as defined herein)
may from time to time acquire additional patent rights which cover the Product
(as defined below) (all such specified United States patent rights or foreign
patent rights now owned or hereafter acquired by HL, FHL, or their

1
<PAGE> 2
respective affiliates are hereinafter collectively referred to as the "Roche
Patent Rights");

WHEREAS, ISI desires to obtain a license under the Roche Patent Rights
to make, have made, use, and sell human leukocyte- derived alpha interferon
preparation in any dosage form for the treatment of human and animal diseases
(the "Product"), and HL and FHL are agreeable to grant such a license to ISI;
and

WHEREAS, nothing contained in this Agreement shall constitute an
admission by ISI that this license is necessary for ISI to make, have made,
use, and sell the Product.

NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agrees as follows:

1. Grant of License.

HL and FHL hereby grant to ISI a non-exclusive and, subject to
the terms of this Agreement, irrevocable and perpetual, right and license,
under the Roche Patent Rights (including the Patent) to make, have made, use,
and sell the Product. HL and FHL hereby agree that ISI shall have the right to
grant marketing or promotion rights for (i) injectable uses of the Product to
any third party (or their affiliates) listed on Scedule 2 attached hereto and
(ii) any other uses of the Product to any third party. In the event that ISI
desires to grant marketing or promotion rights for injectable uses of the
Product in the Territory to any third party not listed on Schedule 2, the

2
<PAGE> 3
consent of HL and FHL will not be unreasonably withheld. Notwithstanding
anything to the contrary contained herein, this Agreement shall not be
construed to grant any rights under the Roche Patent Rights to make any
recombinant products.

2. Royalties

(a) (i) ISI shall pay to HL a percentage fee (the
"Percentage Fee") based upon Net Sales (as hereinafter defined) of Product in
the countries covered by the HL Patent Rights during each Annual Period (as
hereinafter defined) and shall pay to FHL a Percentage Fee based upon Net Sales
(as hereinafter defined) of Product in the countries covered by the FHL Patent
Rights during each Annual Period (as hereinafter defined). The countries
covered by the HL Patent Rights and the FHL Patent Rights are referred to as
the "Territory." In addition, if ISI manufactures a Product covered by the
Roche Patent Rights but sells such Product in a country which is not covered by
the Roche Patent Rights, ISI shall also pay a Percentage Fee to HL based upon
Net Sales (as hereinafter defined ) of the Product. Net Sales of the Product
manufactured under the Roche Patent Rights but sold outside the Territory shall
be referred to as Outside Net Sales. "Net Sales" (or "Outside Net Sales")
shall mean the invoiced amount of Product sold by ISI in the Territory (or
outside the Territory in the case of Outside Net Sales), less actual trade
discounts, actual returns, allowances (directly related to sales), charges for
outbound custom duty and freight, and

3
<PAGE> 4
sales, use, and other similar taxes (except income taxes), if any. The "Annual
Period" shall be the calendar year, except that the first Annual Period shall
be from the date hereof to December 31, 1995 (or to the date of termination of
this Agreement, if earlier), and (i) with respect to Net Sales of the Product
in the United States, the last Annual Period shall be from the last January 1
during the term of this Agreement to the earlier of (A) the Patent Expiration
Date and (B) the date of termination of this Agreement and (ii) with respect to
Net Sales of the Product in countries outside the United States, the last
Annual Period shall be from the last January 1 during the term of this
Agreement to the earlier of (A) the Foreign Patent Expiration Date with respect
to any specific country and (B) the date of termination of this Agreement. For
the purposes of this Agreement, the Foreign Patent Expiration Date with respect
to any country shall be extended beyond the date set forth on Schedule 1 by an
amount of time equal to the difference between (i) the original Foreign Patent
Expiration Date with respect to such country and (ii) the date on which ISI or
its representative files for regulatory approval in such country with respect
to the Product. For example, if the Foreign Patent Expiration Date in Italy was
September 15, 1997, and ISI filed for approval to market a Product in Italy on
September 15, 1995 (two years prior to the expiration date), ISI would be
obligated to pay a Percentage Fee for sales of such Product made in Italy until
September 15, 1999.

4
<PAGE> 5

(ii) The Percentage Fee that ISI shall pay to HL
and FHL for each Annual Period shall be an amount equal to 8% of the Net Sales
in the Territory and 2% of the Outside Net Sales during such Annual Period up
to $75,000,000 and 9.5% of the Net Sales in the Territory and 2% of the Outside
Net Sales during such Annual Period in excess of $75,000,000; provided,
however, that the maximum amount payable to HL and FHL in any Annual Period
shall be $8,000,000. If the Percentage Fee payable HL or FHL would exceed
$8,000,000 for any Annual Period, ISI shall pay the Percentage Fee to HL and
FHL on a pro rata basis in an amount not to exceed $8,000,000 in any Annual
Period, based upon the Net Sales of the Product in countries covered by the HL
Patent Rights and the FHL Patent Rights. Notwithstanding anything to the
contrary contained herein, in the event that the Percentage Fee per million
units of Product paid by ISI to HL in any Annual Period is less than 6.4% of
the per million unit price of Roferon (the "Minimum Percentage Fee") as
reported by the Red Book (or other similar book if the Red Book is no longer
available), ISI shall be obligated to pay to HL an additional Percentage Fee
such that HL receives an aggregate Percentage Fee for the Annual Period at the
rate of the Minimum Percentage Fee. If HL or FHL shall grant a license to a
third party relating to alpha interferon with a royalty rate lower than the
Percentage Fee, (other than a license granted in settlement of a litigation)
the Percentage Fee

5
<PAGE> 6
shall be adjusted to that lower rate if ISI shall accept the other financial
terms or other less favorable obligations or limitations of such other license.

(iii) ISI shall deliver to HL and FHL within 45
days following the end of each three month period (other than the last three
month period) during each Annual Period, a statement signed by the chief
financial officer of ISI and certified as accurate, indicating the amount of
Net Sales and Outside Net Sales during such three month period in the United
States and outside the United States. Each such statement shall also
indicate the number, description, and invoice price of Product sold during the
period covered, the amount of actual trade discounts, returns, allowances,
charges for customs duty, freight, and sales, use, and other similar taxes
which may be deducted therefrom, and a computation of the amount of the
Percentage Fee payable hereunder in respect of such Net Sales and Outside Net
Sales for such period. Such statement shall be furnished to HL and FHL whether
or not any Products have been sold during the period for which such statement
is due.

(iv) ISI shall deliver to HL and FHL within 45
days following the end of each Annual Period, a report certified by the chief
financial officer of ISI covering such Annual Period and containing the same
information required to be contained in the statements referred to in Section 2
(e) (iii).

<PAGE> 7
(v) The Percentage Fee shall be paid quarterly
for each Annual Period to HL for Net Sales in the United States and to FHL for
Net Sales outside the United States. The Percentage Fee for each three month
period (other than the last three month period) during each Annual Period shall
be paid simultaneously with the delivery of the statement referred to in
Section 2(e) (iii) relating to such three month period during such Annual
Period, and the Percentage Fee for the last three month period of each Annual
Period shall be paid simultaneously with the delivery of the report referred to
in Section 2(e)(iv) relating to such Annual Period. The Percentage Fee for
each such three month period shall be computed on the basis of Net Sales and
Outside Net Sales from the beginning of such Annual Period through the last day
of the most recent three month period, with a credit for the Percentage Fee
theretofore paid to HL for such Annual Period.

(vi) Under the terms of the License Agreement
dated as of June 30, 1988 (the "1988 Agreement"), ISI had an unused credit
which was available to be used to offset the Percentage Fee payable under the
1988 Agreement. The parties agree that the 1988 Agreement shall remain in full
force and effect with respect to the unused credit available to ISI and ISI may
utilize the credit against 50% of any Percentage Fee payable to HL under this
Agreement until the earlier of (A) the date on which the credit is fully
utilized and (B) the date on which ISI obtains regulatory

7
<PAGE> 8
approval in the United States to market the Product for an indication other
than genital warts.

(b) ISI shall prepare and maintain complete and accurate
books of account and records covering all transactions relating to this
Agreement. HL, FHL and their duly authorized representatives shall have the
right, at the sole cost and expense of HL or FHL, during regular business
hours, on not more than one occasion during any 12 month period, to examine
such books of account and records with respect to the subject matter and the
terms of this Agreement. In the event that it is determined that ISI has
underpaid HL or FHL by 5% or more, ISI shall, in addition to paying the
underpayment, pay for the costs of examination in an amount not to exceed
$100,000. All such books of account and records shall be kept available by ISI
for at least three years after the Annual Period to which they relate.

3. Miscellaneous.

(a) All reports, approvals, and notices required or
permitted by this Agreement to be given to a party shall be in writing and
shall be deemed to be duly given if personally delivered or mailed by certified
or registered mail, return receipt requested, to the party concerned at its
address as set forth on page 1 above (or at such other address as a party may
specify by notice to the other). All reports, approvals, and notices given to
ISI shall be addressed to the attention of its President with a copy

8
<PAGE> 9
to ISI's General Counsel, c/o National Patent Development Corp., 9 West 57th
Street, Suite 4170, New York, New York 10019. All reports, approvals, and
notices given to HL shall be addressed to the attention of HL Corporate
Secretary and all payments in cash made to HL shall be sent to Hoffmann-La
Roche Inc., P.O. Box Pittsburgh, Pennsylvania 15251-6138 and all reports,
approvals, and notices given to FHL shall be addressed to the attention of the
Law Department. All payments in cash made to FHL hereunder shall be paid in
U.S. Dollars, in each case by wire transfer for value on the due date thereof
(with twenty-four hours' advance notice of each such wire transfer) to FHL at
such address as FHL shall designate in writing within a reasonable period of
time prior to such due date. The rate of exchange to be used for calculating
the U.S. Dollar amount due hereunder for sales made in currencies other than
U.S. Dollars shall be the rate of exchange in effect for the purchase of U.S.
Dollars with such other currency (middle rate) as quoted by The Wall Street
Journal (or, if The Wall Street Journal ceases to publish such information,
Reuters Information Service, or, if neither publishes such information, another
similar service or source reasonably acceptable to FHL) on the last business
day of each calendar quarter.

(b) Except as otherwise provided herein, neither party made sell,
assign, transfer, or otherwise convey any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the other,

9
<PAGE> 10
except to a corporation which has succeeded to substantially all the business
and assets of the assignor and assumed in writing its obligations under this
Agreement or to a corporation surviving a merger or consolidation to which the
party of this Agreement is a party and this Agreement shall be binding upon and
inure to the benefit of the parties hereto and such respective successors and
assigns. Any attempted sale, assignment, transfer, conveyance, or delegation
in violation of this Section 3(b) shall be void.

(c) This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and except for the provisions of the 1988 Agreement relating to the unused
credit, supersedes all prior oral and written understandings and agreements
relating thereto and may not be modified, discharged, or terminated orally.

(d) Nothing herein contained shall be construed to
constitute the parties hereto as partners or as joint venturers, or either as
agent of the other.

(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, with giving effect to
principles of conflict of laws.

(f) Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any breach of such provision or of any breach of any other provision of this

10
<PAGE> 11
Agreement. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.

(g) If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in
effect, and if any provision is inapplicable to any person or circumstances, it
shall nevertheless remain applicable to all other persons and circumstances.

(h) This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.

(i) ISI shall have the right to terminate this Agreement
with respect to (i) the HL Patent Rights, (ii) any individual Foreign patent
rights or (iii) the Roche Patent Rights at any time upon at least 30 days'
written notice, after which time this Agreement (or any portion terminated)
shall be of no further force or effect other than the obligation of ISI to pay
HL or FHL any Percentage Fee payable (or remaining by virtue of a portion of
this Agreement being terminated) as of the date of termination.

(j) If ISI shall fail to perform in any material respect
any material term, condition, or covenant in this Agreement on its part to be
performed and such default shall continue uncured for a period of 30 days

11
<PAGE> 12
after a notice of default specifying the nature of the default has been given
to ISI by HL or FHL, HL or FHL shall have the right to terminate this Agreement
upon written notice, at which time this Agreement shall be of no further force
or effect other than the obligation of ISI to pay HL or FHL any Percentage Fee
payable as of the date of termination.

(k) ISI does hereby indemnify and agrees to save and hold
HL and FHL harmless of and from any and all liabilities, claims, causes of
action, suits, losses, damages, and reasonable expenses (including, but not
limited to, reasonable attorneys' fees and expenses) for which HL or FHL may
become liable or may incur or be compelled to pay in any action or claim
(including, but not limited to, any action or claim relating to product
liability) against HL or FHL for or by reason of the manufacture, use, or sale
of the Product by ISI. HL or FHL shall give ISI prompt written notice of any
such action or claim and ISI may then, in its sole discretion, take such action
as it deems advisable to defend such action or claim on behalf of HL or FHL.
In the event appropriate action is not taken by ISI within 20 days of its
receipt of notice from HL or FHL, HL or FHL shall have the right to defend such
action or claim, but no settlement thereof may be made without the approval of
ISI. In any case, ISI and HL and FHL shall keep each other fully advised of
all developments and shall cooperate fully with each other in respects in
connection with any such defense as is made.

12
<PAGE> 13

(l) For purposes of this Agreement, the term "Affiliate"
shall be have the meaning ascribed to it under the Securities Act of 1933,
provided, however, that it shall not include Genetech, Inc., a Delaware
corporation, or any business of Syntex, including Syva Company, a Delaware
Corporation, that is engaged in the development, manufacture, sale,
distribution and/or marketing in the United States, of drugs of abuse reagent
products or in vitro diagnostic products. HL and FHL represent and warrant to
ISI that ALFERON N Injection does not infringe any patent owned or controlled by
Genetech, Syntex or Syva. IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement the day and year first above written.

INTERFERON SCIENCES, INC.

By:
----------------------

HOFFMANN-LA ROCHE INC.

By:
----------------------

F. HOFFMANN-LA ROCHE LTD

By:
----------------------

13
<PAGE> 14

S C H E D U L E 1

<TABLE>
<CAPTION>
Country Appl.-Nr. Patent-N Expiry Date Status
- ------- --------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Algeria 5656 20.11.1999 pending
Argentina 278993 222359 15.05.1996 patent
Australia 53136/79 535936 23.11.1995 patent
Australia 15866/83 561672 23.11.1995 patent
Austria A 7453/79 367769 15.12.1999 patent
Austria SPC SZ 132/94 02.07.2001 pending
Barbados 1025 11.10.1997 patent
Belgium 198235 880201 22.11.1999 patent
Belgium SPC 093C0086 093C0086 02.07.2001 patent
Bermuda 477/UK 23.11.1999 patent
Bophuthatswana 178/79 178/79 22.11.1995 patent
Canada 340387 1129409 10.08.1999 patent
Chile 799/78 32099 24.06.1995 patent
Denmark 4967/79 161048 22.11.1999 patent
El Salvador 175/84 11.06.1999 patent
Finland 793649 69476 21.11.1999 patent
France 7928699 7928699 21.11.1999 patent
France CCP 92C0121 92C0121 24.11.2003 patent
Germany 2954574.2 2954574. 22.11.1999 patent
Germany P2954747.5 22.11.1999 pending
Great Britain 7940634 2037296 23.11.1999 patent
Great Britain SPC SPC/GB93/0 SPC/GB93 02.07.2001 patent
Guatemala pending
Hong Kong 266/84 23.11.1999 patent
Hungary HO 2197 182500 23.11.1999 patent
Iran 24437 24091 22.05.2000 patent
Ireland 2247/79 48882 23.11.1999 patent
Ireland SPC SPC 44/93 02.07.2001 patent
Israel 58759 21.11.1999 pending
Italy 27524/79 1127253 23.11.1999 patent
Italy CCP 968169 92CCP152 10.02.2007 patent
Jamaica 18/1/2851 3058 28.02.2002 patent
Japan 150803/79 1482912 22.11.1999 patent
Japan 29632/83 1652163 22.11.1999 patent
Japan 310788/87 pending
Japan 328671/94 pending
Kenya P3347/8 23.11.1999 patent
Luxembourg 81918 81918 22.11.1999 patent
Luxembourg SPC 88314 88314 02.07.2001 patent
Malawi 33/79 MW 33/79 21.11.1995 patent
Malaya 222/85 23.11.1999 patent
Monaco 1416 80.1300 21.11.1999 patent
</TABLE>

<PAGE> 15

S C H E D U L E 1

<TABLE>
<CAPTION>
Country Appl.-Nr. Patent-N Expiry Date Status
- ------- --------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Netherlands 7908516 22.11.1999 pending
New Zealand 192201 192201 22.11.1999 patent
Nigeria 388/79 RP 4535 21.11.1999 patent
Norway 793819 151157 23.11.1999 patent
Philippines 23321 20763 10.04.2004 patent
Portugal 70495 70495 12.03.1996 patent
Singapore 711/83 23.11.1999 patent
South Africa 6175/79 6175/79 16.11.1999 patent
Spain 486263 486263 16.10.2000 patent
Sweden 7909721-8 7909721- 23.11.1999 patent
Sweden SPC 03.02.2004 pending
Switzerland 9589/79 653347 25.10.1999 patent
Switzerland 2099/85 654843 25.10.1999 patent
Switzerland 732/86 658459 25.10.1999 patent
Taiwan 12635/78 NI 13280 01.09.1995 patent
Tanganyika 2197/83 23.11.1999 patent
Transkei 146/79 146/79 22.11.1995 patent
Trinidad+Tobago 69/83 23.11.1999 patent
Uganda 13/83 23.11.1999 patent
Uruguay 20998 13070 27.04.2005 patent
Yemen-South 637 23.11.1999 patent
Zimbabwe 236/79 236/79 21.11.1999 patent
</TABLE>

2
<PAGE> 16

SCHEDULE 2

Johnson & Johnson
Bristol-Meyers Squibb Co.
Merck & Co. Inc.
SmithKline Beecham Plc.
Abbott Laboratories
Glaxo Holdings, Inc.
American Home Products, Inc.
Pfizer Inc.
Ell Lilly and Co.
Ciba
Sandoz
Hoechst Group
Bayer Group
Warner-Lambert Co.
Rhone-Poulenc Rorer Inc.
The Upjohn Co.
Pharmacis AB
Wellcome Plc.
AB Astra
American Cyanamid Co.
Marion Merrell Dow, Inc.
Zeneca Group
Schering AG
Fujisawa Pharmaceutical Co. Ltd.
Fisons Pic.
Amgen, Inc
Chiron
Institut Merieux
Novo Nordisk Group
Solvay Group
The Boots Co., Plc.
The Green Cross Co
The Ares-Sereno Group
Genentech Inc.
Teva Pharmaceutical Industries Ltd.
ICN Pharmaceuticals Inc.

<PAGE> 17

Menarini
Dompe
Alfa Wasserman
Waleta Sinapore Pte. Ltd.
Waleta Sdn. Berhad
Edward Keller Ltd. (Hong Kong)
Edward Keller Ltd. (Peoples' Rebuplic of China)
OLIC Thailand Ltd.
Fujimoto Diagnostic Company
Sanofi
Andromaco (Mexico)
(and any affiliates of the forgoing)

<PAGE> 1

EXHIBIT 10.43

AMENDMENT OF ACC/ISI LICENSE AGREEMENT

This Agreement is made and effective this 27th day of April, 1995, by
and between Amarillo Cell Culture Company, Incorporated, a Texas corporation
with its principal place of business at 800 West 9th Avenue, Amarillo, Texas
79101 (hereinafter "ACC") and Interferon Sciences, Inc., with its principal
place of business at 783 Jersey Avenue, New Brunswick, New Jersey 08901
(hereinafter "ISI") (ACC and ISI are hereinafter collectively referred to as
the "Parties").

Whereas ACC and ISI entered into a license agreement effective October
20, 1989, in which ACC granted a limited exclusive license to ISI, with right
to sublicense, to use the Licensed Patents, to make, use and sell the Licensed
Products in the Territory ("the ACC/ISI License Agreement").

ACC has instituted proceedings against Fernz Corporation Limited and
other companies (collectively referred to as "Fernz") in proceedings before the
High Court of New Zealand Auckland Registry being C.L. No. 52-93, alleging that
Fernz has infringed New Zealand Patent No. 222457, and Fernz has counterclaimed
alleging, inter alia, that the New Zealand Patent is not valid.

ISI is named as a counterclaim defendant in the New Zealand
proceedings.

Pharma Pacific Management Pty. Ltd. ("PPM"), a subsidiary of Fernz
Corporation Limited, has instituted opposition proceedings in Australia
opposing the grant of Australian Patent Application No 625431 (12227/88) in the
name of Texas A & M University System.
<PAGE> 2
PPM has instituted opposition proceedings in Europe opposing grant of
European Patent No. 0341258.

The patents and patent applications contested by Fernz and PPM are
among the Licensed Patents in the ACC/ISI License Agreement.

ACC alleges that ISI is in breach of certain material obligations
under the ACC/ISI License Agreement.

ISI has not yet sublicensed any rights under the ACC/ISI License
Agreement.

ISI, ACC and PPM have indicated willingness to settle the pending
litigation and opposition matters by grant of a sublicense to PPM and purchase
of shares of stock in ISI by ACC and PPM.

ACC desires that ISI grant back to ACC the right to sublicense
Licensed Patents under the ACC/ISI Agreement so that ACC can enter the
Sublicense Agreement, attached as Exhibit A, with PPM in settlement of the
pending litigation and patent opposition matters.

ACC, ISI and PPM have indicated willingness to execute the Settlement
Agreement attached as Exhibit B.

NOW, THEREFORE, in consideration of the premises and other valuable
consideration, ACC and ISI agree as follows:

1. ISI and ACC agree to execute the Settlement Agreement with PPM
attached as Exhibit B.

2. ACC shall purchase shares of stock in ISI to the value of Six Hundred
Twenty Five Thousand Dollars ($625,000.00) within two (2) business days of
receipt by ACC of collected funds

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<PAGE> 3
from payment by PPM under Paragraph 3 of the Sublicense Agreement. The per
share stock price shall be Two Dollars ($2.00) per share.

The issue and sale of the ISI Common Stock to ACC has not been and
will not be registered under the Securities Act of 1933, as amended (the
"Act"), in reliance upon the applicability of Section 4(2) of the Act to the
transaction contemplated hereby. In furtherance of such reliance, certificates
representing the ISI Common Stock will bear a restrictive legend to the effect
that the ISI Common Stock may not be sold without registration under the Act,
absent an available exemption from the registration provisions of the Act, and
appropriate "stop transfer" instructions will be issued to the transfer agent
for ISI Common Stock. ACC acknowledges that it has had access to such
knowledge about ISI as is customarily found in a registration statement filed
under the Act, agrees that it is acquiring the ISI Common Stock for investment
and not with a view to distribution, and acknowledges that ISI has no
obligation to register the ISI Common Stock under the Act. In addition, ACC
agrees that for a period of two years from the date hereof, it will not sell,
pledge, hypothecate or otherwise transfer the ISI Common Stock, without the
express prior written consent of ISI.

3. ISI hereby grants back to ACC ISI's right to grant sublicenses under
the license granted in Section 2.2 of the ACC/ISI License Agreement provided
that ISI shall retain the right to grant sublicenses under the ACC/ISI
agreement for use of ISI Interferon under Licensed Patents, and ISI
acknowledges that such grant back effectively converts its co-exclusive license
under Licensed Patents and under ACC Technical Information to a non-exclusive
license.

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<PAGE> 4

4. ACC shall pay ISI one-half (1/2) of all royalties in excess of ACC's
royalty obligations to ACC's licensor, Texas A&M University System (TAMUS),
received by ACC from PPM under Paragraph 4 of the PPM/ACC Sub-license
Agreement. After deduction of its obligations to TAMUS, ACC shall also pay ISI
one-half (1/2) all royalties, option fees, license fees or other payments
received by ACC from any other sublicensee of Licensed Patents except specific
research or patent expense reimbursements, and except payments received for
sale of its stock at the fair market value thereof.

5. ACC contends that ISI has breached its obligation under Section 3.6 of
the ACC/ISI License Agreement to expend at least One Hundred Thousand Dollars
($100,000.00) over the three-year period commencing on the date of that
Agreement for the use of non-human interferons for human indications. ACC
hereby forgives and releases ISI for any claim ACC has against ISI based on
that alleged breach of contract.

6. ISI hereby grants back to ACC all rights held by ISI under the ACC/ISI
License Agreement pertinent to use of non-human interferons in humans, thus
discharging ISI from additional payments with respect to such indications under
Paragraph 3.7 of the ACC/ISI License Agreement.

7. ACC hereby releases ISI from its obligation under Paragraph 3.7 of the
ACC/ISI Agreement to expend a minimum of Fifty Thousand Dollars ($50,000) per
year toward development of Licensed Products related to the use of human
interferon in humans.

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<PAGE> 5

8. Sections 1.8, and 1.9 of the ACC/ISI License Agreement shall be
revised as follows:

1.8 "Licensed Patent(s)" means those United States Patents and
patent applications listed in Exhibit "A" hereof, and any
continuations, continuations-in-part, divisions, reissues or
extensions thereof, and each foreign counterpart of each
United States Patent and patent application listed in Exhibit
"A" and any extensions thereof.

1.9 Licensed Product(s) means dose formulations or compositions
containing ISI Interferon and designated, detailed, or labeled
for oral use in human species, and which are within the scope
of a claim of a Licensed Patent in the country where such
products are manufactured or sold.

9. Paragraphs 6.1-6.5 under Article VI, Enforcement of Licensed Patents,
shall be deleted in their entirety and replaced with the following:

6.1 Each of the parties to this Agreement shall
immediately give notice in writing to the other
parties of any infringement or threatened
infringement of any of the Licensed Patents which at
any time comes to its knowledge.

6.2 Where an infringement of any Licensed Patent occurs
by a third party in a country where ISI or an
Affiliated Company or agent is selling Licensed
Products for use in that country then ACC and ISI
agree to meet and negotiate to define the most
practical business and economically feasible

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<PAGE> 6
strategy for action to address the matter. Facts
pertinent to such discussions shall include, but are
not limited to, whether or not the third party
infringing product is regulation compliant, and the
extent of negative impact sales of such product has
had or reasonably will have on the market for the
Licensed Product in the country.

6.3 ACC or ACC's licensor shall have the option, at their
own expense, to institute proceedings for
infringement. If the alleged infringing product is
not regulation compliant, ACC shall take reasonable
steps to stop such regulation noncompliant activity
by request or petition to the relevant policing
regulatory agency. If the infringing product is
being sold by a third party in compliance with
applicable drug regulations, ISI can request that ACC
bring an infringement action against that third party
at the equally shared cost of ISI and ACC. If ACC
institutes such infringement action, royalties
payable by ISI in the country of infringement shall
be paid into an interest bearing escrow account in
the joint names of ACC and ISI, established by ACC
and approved by ISI, until such time as the matter is
resolved or a court of appropriate authority finally
determines the validity or otherwise of the Licensed
Patent being asserted in the infringement action. If
the Licensed Patent is held invalid and the court's
decision is not or cannot be appealed and if the
Licensed Patent is the only basis for identifying
ISI's product as a Licensed Product, the royalties

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<PAGE> 7
paid into escrow shall be refunded to ISI with
accrued interest; otherwise the royalties paid into
escrow shall be paid to ACC with accrued interest.
ISI and ACC shall be entitled to recover their share
of the costs from any damages awarded in such action,
and any settlement shall be with the consent of ISI
which shall not be unreasonably withheld. If ACC
does not institute such action within ninety (90)
days of ISI's written request, ISI's obligation to
pay royalties on sales of Licensed Products in the
country of infringement shall be suspended for the
duration of the infringing activity.

6.4 In the event that proceedings are instituted by any
third party against ISI for infringement of any of
the Licensed Patents, then ACC shall indemnify ISI in
respect of all costs, claims, demands, proceedings or
liabilities (including all legal fees) made or
incurred by ISI as a consequence of defending such
infringement proceedings.

10. Paragraph 11.2, Arbitration, shall be amended to read as follows:

11.2 Dispute Resolution/Arbitration

The parties hereto desire to avoid and settle without
litigation any future disputes which may arise between them
relative to this Agreement. Accordingly, the parties agree to
engage in good faith negotiations to resolve any such dispute.
In the event they are unable to resolve any such dispute by
negotiation, such dispute shall be resolved as follows:

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<PAGE> 8
Any dispute between ACC and ISI regarding whether or
not an ISI product is a Licensed Product, thus requiring that
ISI's sales of same are subject to payment of royalties under
Paragraph 3.1, shall be resolved by decision of an Independent
Patent Attorney ("IPA") satisfactory to both ISI and ACC at
their joint cost and expense. The IPA shall be selected from
patent attorneys in the country where ACC contends that a
product sold by ISI is a Licensed Product(s) under the terms
of this agreement. The IPA shall provide a reasoned decision
based on brief/exhibits by ACC, response brief/exhibits by ISI
and reply/exhibits (if any) by ACC. ACC and ISI agree to
accept the decision of the IPA. If the IPA finds that the
product in dispute is a Licensed Product, ISI will pay ACC all
royalties due on sales of the Licensed Product with the next
account and payment to ACC under Article IV.

Any other dispute shall be submitted to arbitration
as follows: If arbitration is initiated by ISI, it shall be
held in the State of Texas, U.S.A. in compliance with the
commercial Arbitration Rules of the American Arbitration
Association. If arbitration is initiated by ACC it shall be
held in New York, New York, in compliance with the commercial
Arbitration Rules of the American Arbitration Association.
The arbitration award shall be final and binding upon the
parties hereto and may be filed with and enforced by any
competent court having competent jurisdiction to enforce said
award.

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<PAGE> 9

11. Article VIII Warranty of the ACC/ISI License Agreement shall be
amended to include new Paragraph 8.4 as follows:

8.4 The Licensed Patents are believed to be valid. For the
purposes of this Agreement, a Licensed Patent, when granted, shall be presumed
valid unless held invalid by a court of competent jurisdiction.

12. Exhibit "A" to the ACC/ISI License Agreement shall be amended to add
the following:

"Method for Prevention of Parasitic Infection" as described
and claimed in U.S. Patent No. 5,215,741, issued June 1, 1993.

13. All other terms of the ACC/ISI License Agreement, to the extent that
they are not inconsistent with the amendments recited herein, shall remain in
full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in duplicate by their duly authorized representatives as of the
date first above written.

ACC: ISI:
AMARILLO CELL CULTURE INTERFERON SCIENCES, INC.
COMPANY, INCORPORATED

/s/ Joseph M. Cummins /s/ Larry Gordon
- --------------------------------------------------------------------------------
By: Joseph M. Cummins, President By: Larry Gordon, Vice President
& General Counsel

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<PAGE> 1
EXHIBIT 10.44

[Form of Note]

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED,
SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO
THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

INTERFERON SCIENCES, INC.
Promissory Note

$________ __________, 1995
No.__ New York, New York

INTERFERON SCIENCES, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to _____________________________________,
a _________ corporation with an address at _____________, or registered
assigns (the registered holder of this Note being hereafter referred to as the
"Holder"), the principal amount of _____________ DOLLARS ($______), and to pay
interest on the unpaid principal balance hereof at the rate of interest per
annum from time to time announced publicly by Citibank, N.A. as its prime rate
plus 2%, all as hereafter further provided.

1. Issuance of Note.

This Note is one of the promissory notes (the "Notes") in an aggregate
principal amount of $1,070,000 issued on May 3, 1995 to certain stockholders of
the Company.

2. Payments.

(a) Principal of this Note and interest on the unpaid principal balance
hereof shall be payable on the earlier of (i) the first date after the date
hereof that the Company receives gross proceeds (before underwriting discounts
and commissions and other expenses) of at least $7,500,000 from a public
offering (the "Public Offering") of its common stock, par value $.01 per share
(the "Common Stock"), and (ii) November 2, 1995.

(b) Any amount required to be paid under this Note which is not paid when
due shall bear interest at the rate of interest per annum from time to time
announced publicly by Citibank, N.A. as its prime rate plus 4% until payment in
full of such amount has been made;

<PAGE> 2

provided, that in no event shall any interest to be paid hereunder exceed the
maximum rate permitted by law and, in any such event, this Note shall
automatically be deemed amended to permit interest charges at an amount equal
to, but no greater than, the maximum rate permitted by law.

(c) The Company may, at its option, prepay this Note, in whole at any
time or in part from time to time, without premium or penalty but with accrued
interest on the principal amount being prepaid..

(d) All payments shall be applied first to any unpaid interest and then
to principal.

(e) Payments of principal and interest on this Note shall be sent to the
Holder's address set forth above or to such other address as the Holder may
designate for such purpose from time to time by written notice to the Company,
and shall be made by check in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, except that, at the option of the Company, payment of
principal pursuant to the provisions of Section 2(a)(i) may be made, in whole or
in part, by delivering to the Holder a number of shares of Common Stock
(determined to the nearest whole number of shares), registered in the name of
the Holder, equal to the principal amount being paid divided by the public
offering price per share in the Public Offering.

(f) The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment, or adjustment whatsoever.

(g) The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
bringing of suit, and diligence in taking any action to collect any amount
called for hereunder, and shall be directly and primarily liable for the payment
of all sums owing and to be owing hereon, regardless of and without any notice,
diligence, act, or omission with respect to the collection of any amount called
for hereunder.

3. Events of Default.

The occurrence of any of the following events shall constitute an event
of default (an "Event of Default"):

(a) A default in the payment of interest on or principal of this Note.

(b) A breach of any representation, or a default in the performance of
any covenant, of the Company in this Note, and continuance of such breach or
default for a period of 30 days after there has been given to the Company a
written notice specifying such breach or default

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<PAGE> 3

and requiring it to be remedied and specifying that such notice is a notice of
default hereunder.

(c) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency, or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 90 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, or similar official of
the Company or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.

4. Remedies Upon Default.

(a) Upon the occurrence and continuance of an Event of Default referred
to in Section 3(c), the unpaid principal amount then outstanding of, and the
accrued interest on, this Note shall automatically become immediately due and
payable without presentment, demand, protest, or other formalities of any kind,
all of which are hereby expressly waived by the Company. Upon the occurrence and
continuance of an Event of Default other than one referred to in Section 3(c),
the Holder may declare the unpaid principal amount then outstanding of this Note
to be due and payable immediately, and upon any such declaration the same shall
become due and payable immediately, without presentation, demand, protest, or
other formalities of any kind, all of which are expressly waived by the Company.

(b) The Holder may institute such actions or proceedings in law or equity
as it shall deem expedient for the protection of its rights and may prosecute
and enforce its claims against all assets of the Company, and in connection with
any such action or proceeding shall be entitled to receive from the Company
payment of the principal amount of this Note plus accrued interest to the date
of payment plus reasonable expenses of collection including, without limitation,
reasonable attorney's fees and expenses.

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<PAGE> 4

5. Security Interest.

(a) As collateral security for the prompt payment in full when due of
interest on and principal of this Note, the Company hereby grants the Holder,
together with the holders of the other Notes, a security interest in all of the
Company's right, title, and interest in any and all equipment, wherever located,
whether now existing or hereafter coming into existence (the "Collateral"). The
Company shall, at the request of the Holder, execute, deliver, file, and record
any financing statements or other documents as may be necessary or desirable to
create, preserve, perfect, or validate the security interest granted pursuant to
this Section 5. Upon the occurrence and continuance of an Event of Default, the
Holder shall, in respect of the Collateral, have the rights and remedies of a
secured party under the New York Uniform Commercial Code.

(b) The Company represents and warrants that as of May 3, 1995 no person
other than the holders of the Notes has a security interest in the Collateral,
and covenants and agrees, until such time as the Notes are repaid in full, not
to grant any person other than the holders of the Notes a security interest in
the Collateral or in any other assets of the Company without the consent of the
holders of all of the outstanding Notes.

6. Transfer.

Any Notes issued upon the transfer of this Note shall be numbered and
shall be registered in a Note Register as they are issued. The Company shall be
entitled to treat the registered holder of any Note on the Note Register as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Note on the part of any other
person, and shall not be liable for any registration or transfer of Notes which
are registered or to be registered in the name of a fiduciary or the nominee of
a fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Note shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of its authority shall be produced. Upon any registration of transfer,
the Company shall deliver a new Note or Notes to the person entitled thereto.
This Note may be exchanged, at the option of the Holder thereof, for another
Note, or other Notes of different denominations, of like tenor and representing
in the aggregate a like principal amount, upon surrender to the Company or its
duly authorized agent.

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<PAGE> 5

7. Miscellaneous.

(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex, or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, (i) if to the Company, at its address at 783 Jersey Avenue, New
Brunswick, New Jersey 08901, Attn: Chief Executive Officer, (ii) if to the
Holder, at its address set forth on the first page hereof, or (iii) in either
case, to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 7(a). Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 7(a) shall be deemed given at the time of
receipt thereof.

(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note (and upon surrender of this Note
if mutilated), the Company shall execute and deliver to the Holder a new Note of
like date, tenor, and denomination.

(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers, or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power, or remedy referred to herein or now or hereafter available at law,
in equity, by statute, or otherwise, and all such remedies may be exercised
singly or concurrently.

(d) This Note may be amended only by a written instrument executed by the
Company and the Holder hereof. Any amendment shall be endorsed upon this Note,
and all future Holders shall be bound thereby.

(e) This Note shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to conflict of laws.

IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.

INTERFERON SCIENCES, INC.

By:
----------------------------
Name:
Title:

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<PAGE> 1

23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Interferon Sciences, Inc.

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

Our report dated April 3, 1995 contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has an
accumulated deficit, which raise substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

KPMG PEAT MARWICK LLP

New York, New York

July 17, 1995