IMCLONE SYSTEMS INC/DE, S-3, 1997-02-25

IMCLONE SYSTEMS INC/DE
S-3, 1997-02-25
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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As filed with the Securities and Exchange Commission on February 25, 1997

Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware 04-2834797
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)

180 Varick Street
New York, New York 10014
(212) 645-1405

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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Harlan W. Waksal, M.D.
Executive Vice President and Chief Operating Officer
ImClone Systems Incorporated
180 Varick Street
New York, New York 10014
(212) 645-1405

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Copy to:
Brian W. Pusch, Esq.
Penthouse Suite
29 West 57th Street
New York, New York 10019
(212) 980-0408

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]

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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [x]

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

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

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

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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
Proposed Proposed Amount of
Title of Amount Maximum Maximum Registration
Shares to be Offering Price Aggregate Fee
to be Registered Registered Per Share (1) Offering Price(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 3,000,000 $ 8.375 $25,125,000 $7,614.00
$.001 par value
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</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low sale
prices for the Common Stock included on the Nasdaq National Market on
February 20, 1997, as reported by The Wall Street Journal.

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 Section 8(a), may
determine.

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<PAGE>

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 February 25, 1997

Prospectus
3,000,000 Shares

ImClone Systems Incorporated

Common Stock
$.001 par value

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ImClone Systems Incorporated, a Delaware corporation (the "Company"), may
issue and sell from time to time all or a portion of the shares of Common Stock,
$.001 par value per share (the "Common Stock") offered hereby.

The Company may sell the shares of Common Stock being offered hereby
directly to purchasers or may also sell shares of Common Stock through or to one
or more agents, underwriters or dealers. See "Plan of Distribution." The
accompanying Prospectus Supplement will set forth the initial public offering
price, the net proceeds to the Company, the names of any agents, underwriters or
dealers involved in the sale of the shares of Common Stock in respect of which
this Prospectus is being delivered, any applicable fee, commission or discount
arrangements with such agents, underwriters or dealers and, to the extent
required, information concerning the other terms of any agreement, including any
indemnification and contribution agreement, between the Company and any such
agent, underwriter or dealer.

The Common Stock is included on the Nasdaq National Market under the symbol
IMCL. On February 24, 1997, the closing sale price of the Common Stock on the
Nasdaq National Market was $8 1/2 as reported by The Wall Street Journal.

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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.

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

The date of this Prospectus is February , 1997

<PAGE>

TABLE OF CONTENTS

AVAILABLE INFORMATION....................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 2
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS........................ 3
PROSPECTUS SUMMARY.......................................................... 4
RISK FACTORS................................................................ 6
RECENT DEVELOPMENTS......................................................... 13
USE OF PROCEEDS............................................................. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 14
DILUTION.................................................................... 24
PLAN OF DISTRIBUTION........................................................ 24
LEGAL MATTERS............................................................... 25
EXPERTS..................................................................... 25
INDEX TO FINANCIAL STATEMENTS............................................... F-1

AVAILABLE INFORMATION

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 reports and other information with the U.S. Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission at 7 World
Trade Center, 13th Floor, New York, New York, 10048 and Citicorp Center, 500
West Madison Street, Room 1400, Chicago, Illinois, 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates.

The Company has filed with the Commission a Registration Statement on Form
S-3 (of which this Prospectus is a part) under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the financial statements and exhibits incorporated therein
by reference or filed as a part thereof, which may be examined without charge,
and copies of such material can be obtained at prescribed rates from the Public
Reference Section maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete. In each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission, each such statement being qualified in all respects
by such reference, and such contract or other document shall be deemed
incorporated by reference into this Prospectus.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Commission are hereby incorporated
by reference and made a part hereof: (i) the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995; (ii) the Company's Current
Reports on Form 8-K, dated February 5, 1996 and February 14, 1996; (iii) the
Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; and (iv) the description of the
Common Stock contained in the Company's Registration Statement on Form 8-A dated
October 23, 1991.

All documents subsequently filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the
termination of the offering of the shares of Common Stock offered hereby shall

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be deemed to be incorporated herein by reference and to be a part hereof from
the respective dates of filings of such documents. The Company hereby undertakes
to provide without charge to each person to whom a copy of this Prospectus is
delivered, upon the request of such person, a copy of any or all documents
incorporated herein by reference, other than exhibits to such documents.
Requests for such copies should be addressed to the attention of Harlan W.
Waksal, Executive Vice President and Chief Operating Officer, ImClone Systems
Incorporated, 180 Varick Street, New York, New York, 10014, telephone number
(212) 645-1405.

CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

This Prospectus, including the documents and information incorporated
herein by reference, contains forward-looking statements that involve risks and
uncertainties. The Company's actual operations, performance and results could
differ materially from those reflected in, or anticipated by, these
forward-looking statements. In evaluating the Company and its operations,
performance and results, investors should consider, among other things, the
factors discussed under "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" herein, and the risks and
uncertainties discussed in the Company's most recent Annual Report on Form 10-K
under the captions "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", in the Company's Quarterly
Reports on Form 10-Q and in the Company's other reports filed under the Exchange
Act, in each case incorporated herein by reference.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, "Risk Factors" and financial statements (including the notes
thereto) included or incorporated by reference in this Prospectus. The
securities offered hereby involve a high degree of risk. See "Risk Factors."

The Company

ImClone Systems Incorporated is a biopharmaceutical company engaged
primarily in the research and development of therapeutic products for the
treatment of cancer and cancer-related disorders. The Company's product
candidates include interventional therapeutics for cancer and cancer vaccines.

C225. The Company's lead interventional therapeutic for cancer is a
chimerized (part mouse, part human) antibody that acts to block the Epidermal
Growth Factor receptor ("EGFr"). EGFr is expressed in select normal human
tissues and has been shown to be over-expressed in the cells of approximately
one-third of all human cancers. Extensive in vivo animal studies with human
tumors have shown that C225 in combination with various chemotherapeutic agents
(doxorubicin, cisplatin or paclitaxel) demonstrates a pronounced enhancement of
the anti-tumor effect of the chemotherapeutic agents, resulting in the complete
destruction of human tumors in substantially all the animals in these studies.
These studies have demonstrated long-term, tumor-free survival of animals.

Since December 1994, the Company has initiated several Phase Ib/IIa
clinical trials of C225 at Memorial Hospital (the patient care arm of Memorial
Sloan-Kettering Cancer Center ("Sloan-Kettering")), Yale Cancer Center and the
University of Virginia. The first study, involving a single injection of C225 at
escalating doses in thirteen patients, was completed in March 1995. Subsequent
studies have been initiated with escalating doses of C225 both with and without
chemotherapy. A multi-injection study of C225 alone in 17 patients was completed
in November 1995. A study of the drug in conjunction with cisplatin in head and
neck cancer patients began in May 1995 and was completed in November 1996 with
22 patients. Studies with doxorubicin in advanced prostate cancer patients and
with paclitaxel in breast cancer patients were initiated in January 1996 and
March 1996, respectively. The Company produces C225 for its clinical trials at
its manufacturing facility in Branchburg, New Jersey.

105AD7 Cancer Vaccine. 105AD7 is a human monoclonal antibody which mimics
an antigen known as gp72, which is common on cancers of the gastrointestinal
tract, including colorectal carcinoma. This human monoclonal antibody has been
shown to stimulate cellular immune anti-tumor responses in animal models and has
recently been tested in a Phase I human clinical study in the United Kingdom in
thirteen patients with advanced colorectal carcinoma. The results of that study
indicate that in a majority of patients 105AD7 stimulated a cellular immune
response and significantly increased the overall mean survival time in treated
patients compared to patients not immunized, with no discernible toxicity
related to the drug. Based on these results, late stage colorectal carcinoma
patients have been enrolled in the United Kingdom in a 164-patient Phase II
clinical trial.

BEC-2 Cancer Vaccine. BEC-2 is a monoclonal anti-idiotypic antibody which
the Company believes may be useful to prevent or delay the onset of recurrent
primary tumors or metastatic disease. The antibody, which mimics the ganglioside
GD3, has been tested since 1991 in Phase I clinical trials at Sloan-Kettering
against certain forms of cancer, including small-cell lung carcinoma and
melanoma. BEC-2 has shown statistically significant prolonged survival of
patients with small-cell lung carcinoma in a pilot study at Sloan-Kettering. The
Company has granted Merck KGaA (formerly E. Merck) ("Merck"), a German-based
pharmaceutical company, rights to manufacture and market BEC-2 worldwide, except
in North America, in return for research support, potential milestone fees and
royalties on future sales.

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Interleukin-6 Mutein (IL-6m). The Company has developed a recombinant
molecular variant of Interleukin-6, a naturally occurring hematopoietic growth
factor. IL-6m has been shown in animal tests to significantly stimulate the
production of platelets. A pilot human clinical trial of IL-6m was initiated at
Hadassah Hospital in Jerusalem, Israel in early 1994 in pre-chemotherapeutic
patients with ovarian or lung cancer. IL-6m has been shown by others in
pre-clinical trials to be a critical factor in liver cell regeneration.

Other Product Candidates. The Company is seeking to develop inhibitors of
angiogenesis, which is the formulation of new blood vessels necessary for tissue
growth, including tumor growth. The Company has acquired proprietary rights to
the recombinant mouse form of a key receptor involved in angiogenesis, the FLK-1
receptor. The Company has developed various antibodies with high affinity for
the receptor and its human form, which block the activation of the receptor and
thereby inhibit angiogenesis. The Company has also initiated a program to
develop small molecule inhibitors of angiogenesis.

FLK-2 is also a tyrosine kinase receptor which is expressed on a
sub-population of human hematopoietic stem cells, acute myeloblastic leukemia
and acute lymphoblastic leukemia, and possibly human neural and neural-like
tumors. The goals of the FLK-2 monoclonal antibody program are to develop
therapeutic antibodies that can be used to treat FLK-2 expressing tumors.

The Company is also conducting research in hematopoiesis (growth and
development of blood cell elements) aimed at discovering factors to support
hematopoietic stem cells and to control the proliferation, differentiation and
functional deterioration of hematopoietic elements.

The Company has licensed its diagnostic and infectious disease vaccine
product areas, based on its earlier research, to corporate partners for further
development and commercialization. The Company has granted the Wyeth/Lederle
division of American Home Products Corporation a worldwide license to
manufacture and market its infectious disease vaccines, which are in
development. The Company has also entered into a strategic alliance with Abbott
Laboratories ("Abbott"), pursuant to which the Company has licensed certain of
its diagnostic products to Abbott on a worldwide basis. In mid-1995, Abbott
launched in Europe its first DNA-based test, using the Company's technology, for
the diagnosis of the sexually transmitted disease chlamydia. The Company is
entitled to receive potential milestone payments and royalties in connection
with future sales of such diagnostic products.

Research and Development. The Company initiated its in-house research and
development efforts in 1986. The Company has assembled a scientific staff with a
variety of complementary skills in a broad base of advanced research
technologies, including oncology, immunology, molecular and cell biology and
protein and synthetic chemistry. The Company has also recruited a staff of
technical and professional employees to carry out manufacturing of clinical
trial materials at its Branchburg, New Jersey manufacturing facility. Of the
Company's 90 full-time personnel on December 31, 1996, 36 were employed in its
product development, clinical and manufacturing programs, 29 in research and 25
in administration. The Company's staff includes 15 persons with Ph.D. degrees
and two with M.D. degrees.

In addition to its research programs conducted in-house, the Company
collaborates with certain academic institutions to support research in areas
related to the Company's product development efforts. These institutions include
the National Cancer Institute, Sloan-Kettering, University of California,
Princeton University, and Hadassah Medical Organization. Usually, research
supported at outside academic institutions is performed in conjunction with
additional in-house research. The Company also has collaborations with
institutions related to the performance of its clinical trials. Such
institutions include Cancer Research Campaign, Sloan-Kettering, Yale Cancer
Center and the University of Virginia.

The Company operates a clinical-grade facility in Branchburg, New Jersey to
manufacture its therapeutic candidates in quality and quantities sufficient for
clinical trials. At this facility, the Company is producing C225, the EGFr
antibody, to supply its clinical trials.

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The Company was incorporated in Delaware in 1984 and commenced its
principal research and development operations in March 1986. The Company's
principal executive offices and laboratories are located at 180 Varick Street,
New York, New York, 10014, and the telephone number is (212) 645-1405.

The Offering

Common Stock
being offered.............. 3,000,000 shares

Common Stock outstanding
after the offering........ 23,456,574 shares (1)

Use of proceeds.............. The Company anticipates using the net
proceeds from this offering (i) to continue
to fund and expand its research and
development programs and (ii) for general
corporate purposes, including working
capital. See "Use of Proceeds."
Nasdaq National
Market symbol.............. IMCL

(1) Based on the number of shares outstanding at February 24, 1997. This
number does not include 5,190,847 shares of Common Stock issuable upon exercise
of options and warrants outstanding at February 24, 1997. See "Risk Factors -
Dilution."

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RISK FACTORS

An investment in the shares of Common Stock being offered by this
Prospectus involves a high degree of risk. In addition to the other information
contained or incorporated by reference in this Prospectus, the following factors
should be considered carefully in evaluating an investment in the shares of
Common Stock offered hereby.

Early Stage of Product Development. Technological Uncertainty. The Company
was founded in 1984 and opened its laboratory in New York in 1986. Substantially
all of the Company's products are in research or the early stages of development
or clinical studies. Substantially all the Company's revenues were generated
from license and research arrangements with corporate sponsors. The Company's
revenues under its research and license agreements with corporate sponsors have
fluctuated and are expected to fluctuate significantly from period to period.
Similarly, the Company's results of operations have fluctuated and are expected
to fluctuate significantly from period to period. These variations have been,
and are expected to be, based primarily on the timing of entering into supported
research and license agreements, the status of development of the Company's
various products, the timing and level of revenues from sales by its partner in
diagnostics, Abbott, of products bearing the Company's technology, the addition
or termination of research programs or funding support, performance by the
Company's corporate collaborators of their funding obligations, the achievement
of specified research or commercialization milestones and variations in the
level of expenditures for the Company's proprietary products during any given
period. The Company's products will require substantial additional development
and clinical testing and investment prior to commercialization. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, introduce and market its products. No assurance can be given that any
of the Company's product development efforts will be successfully completed,
that required regulatory approvals can be obtained or that any products, if
developed, will be successfully manufactured or marketed or achieve customer
acceptance.

History of Operating Losses and Accumulated Deficit. The Company has
experienced significant operating losses in each year since its inception due
primarily to substantial research and development expenditures. As of December
31, 1996, the Company had an accumulated deficit of approximately $102.0
million. The Company expects to incur significant additional operating losses
over each of the next several years.

Cash Requirements; Need for Additional Funding. The Company has expended
and will continue to expend in the future substantial funds to continue the
research and development of its products, conduct preclinical and clinical
trials, establish clinical-scale and commercial-scale manufacturing in its own
facilities or in the facilities of others, and market its products.

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At December 31, 1996, the Company had cash and cash equivalents and
securities available for sale balances of approximately $13.5 million, virtually
all of which represents the remaining balance of the proceeds of public
offerings of 3,000,000 shares of Common Stock in November 1995 and 2,200,000
shares of Common Stock in February 1996.

The Company's budgeted cash expenditures for the twelve month period ending
December 31, 1997 total approximately $20.5 million, which includes $1.7 million
of a remaining $1.9 million obligation to Pharmacia and Upjohn, Inc.
("Pharmacia") and the $2.1 million Industrial Revenue Development Bond debt
payable to the New York City Industrial Development Agency (the "NYIDA") in
December 1997. In addition, the budget reflects the expansion of operations to
include numerous new outside research agreements, the proposed hire of several
new employees during 1997 and related costs to support the expansion of the
Company's research and development programs, including the expanded clinical
trials. The Company expects that its capital resources, including the ongoing
research support of its corporate partners but excluding the anticipated
proceeds from this offering, will be sufficient to fund its operations through
1997. However, the receipt of certain of such ongoing research support is
subject to attaining research and development milestones, certain of which have
not yet been achieved. These milestones include the successful completion of a
pilot manufacturing run relating to the BEC-2 cancer vaccine and the
nonoccurence of third party opposition filings against a currently allowed
patent of the Company in Europe relating to the Abbott strategic alliance. There
can be no assurance that the Company will achieve these milestones in 1997, if
at all. If difficulty is encountered in attaining these milestones, the Company
may postpone the budgeted expansion of operations to allow for funding of its
operations beyond 1997. In order to fund its capital needs after 1997, the
Company will require significant levels of additional capital and intends to
raise the necessary capital through this offering and additional equity or debt
financings, arrangements with corporate partners or from other sources. The
Company has entered into preliminary discussions with several major
pharmaceutical companies concerning the funding of research and development for
certain of its products. No assurance can be given that the Company will be
successful in pursuing the capital-raising alternatives set forth above in this
paragraph. In addition, the Company may seek to enter into a significant
strategic partnership with a pharmaceutical company for the development of its
lead product candidate, C225. Such a strategic alliance could include an
up-front equity investment and license fees plus milestone fees and revenue
sharing. There can be no assurance that the Company will be successful in
achieving such an alliance, nor can the Company predict the amount of funds

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which might be available to it if it entered into such an alliance or the time
at which such funds would be made available.

The Company has granted a security interest in substantially all facility
equipment located in its New York City facility to secure the obligations of the
Company to the NYIDA relating to the 1986 Industrial Development Revenue Bond
(the "1986 Industrial Development Bond") and the 1990 Industrial Development
Revenue Bond, which were issued to finance a portion of the cost of this
facility.

Dilution. Warrants to purchase 3,275,645 shares of the Company's Common
Stock (which includes 2,205,805 warrants issued pursuant to compensatory plans
for directors, officers, employees and consultants) at an average exercise price
of approximately $2.41 per share (subject to adjustment) and stock options to
purchase 2,103,577 shares of the Company's Common Stock (which includes
1,653,577 options granted to employees and consultants under the Company's stock
option plans) at an average exercise price of approximately $6.08 per share
(subject to adjustment) were outstanding as of December 31, 1996. For the life
of such options and warrants, the holders thereof are given an opportunity to
benefit from a rise in the market price of the Common Stock with a resulting
dilution of the interest of other stockholders. The exercise of such options and
warrants is likely to be undertaken at a time when the Company, in all
probability, could obtain additional equity capital from the public on terms
more favorable than those provided for pursuant to the options and warrants. The
exercise of a significant number of options and warrants at any one time or the
sale of a substantial number of shares of Common Stock acquired upon exercise of
options or warrants could adversely affect the market price of the Company's
Common Stock and the Company's ability to raise additional equity capital.

Limited Manufacturing Experience. To be successful, the Company's products
must be manufactured in commercial quantities in compliance with regulatory
requirements and at acceptable costs. Although the Company has developed
products in the laboratory and in some cases has produced sufficient quantities
of materials for pre-clinical animal trials and early stage clinical trials,
production in late stage clinical or commercial quantities may create technical
challenges for the Company. The Company owns a facility which is used as its
clinical-scale manufacturing facility. If it commercializes its products, the
Company plans to adapt this facility for use as its commercial-scale
manufacturing facility. However, the Company has limited experience in
clinical-scale manufacturing and no experience in commercial-scale
manufacturing, and no assurance can be given that the Company will be able to
make the transition to late stage clinical or commercial production. The timing
and any additional costs of adapting the facility for commercial manufacturing
will depend on several factors, including the progress of products through
clinical trials, and are not yet determinable.

Establishing Sales and Marketing Capability. As a research and development
company, the Company does not have significant experience in selling or
marketing new products. The Company's current strategy does not necessarily
include marketing products on its own, as it intends to do so initially through
its corporate partners. See "Risk Factors-Dependence on Certain Contractual
Agreements with Corporate Partners." At such time as the Company seeks to market
directly a new product, the Company will require expertise in sales and
marketing. There can be no assurance that the Company will be able to retain
qualified or experienced sales and marketing personnel or that any efforts
undertaken by such personnel will be successful.

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Dependence on Certain Contractual Agreements with Corporate Partners. To
date, the Company has derived substantially all, and the Company expects to
continue to derive over the next several years a substantial portion, of its
revenues related to research and development funding and license fee revenues
from agreements with corporate partners. These agreements typically provide the
corporate partner with certain rights to manufacture and/or market in certain
geographic areas specified products which are developed using the Company's
proprietary technology, subject to an obligation to pay royalties to the Company
based on future product sales, if any. Certain of these agreements provide for
funding by corporate partners of research activities performed by the Company,
and in some cases for payments to the Company of license fees either upon
entering into such agreements or upon achievement of specified research,
regulatory and commercialization milestones, or both. The Company's revenues
from these agreements are not received at regular intervals, have fluctuated in
the past and are expected to continue to fluctuate in the future. In general,
the agreements from which the Company derives such revenues are subject to early
termination at the election of the corporate partner. In the past, some of these
arrangements have been terminated. There is no assurance that revenues from
these sources will be maintained, or that the Company will enter into any
additional agreements of a similar nature.

Under most of these agreements, the corporate partner, at least for certain
territories, controls and is responsible for the design and conduct of
pre-clinical and clinical trials, seeking and obtaining of regulatory approvals,
establishing clinical-and commercial-scale manufacturing capabilities and
manufacturing and marketing of products in those territories. The amount and
timing of funding and the investment of other resources under such agreements is
controlled by such other parties and also is subject to the risk of financial or
other difficulties that may befall such other parties. In addition, the
corporate partners or their affiliates may be pursuing alternative products or
technologies addressing the same purposes as those which are the subject of the
collaboration with the Company. While the Company believes its corporate
partners have or will have an economic motivation to succeed in performing their
obligations under such agreements, there can be no assurance that the corporate
interests and motivations of these partners will remain consistent with those of
the Company.

Uncertainties as to Patents and Proprietary Technologies. The patent
position of biopharmaceutical companies generally is highly uncertain and
involves complex legal and factual questions. The Company's success will depend,
in part, on its ability to obtain patents on its own products, obtain licenses
to use third parties' technologies, protect trade secrets, and operate without
infringing the proprietary rights of others. If the Company is unable to obtain
patents that adequately protect its own products, or if any of the Company's
proprietary technologies were to conflict with the rights of others, the
Company's ability to commercialize products using such technologies could be
materially and adversely affected.

The Company currently is the exclusive licensee or assignee of 40 issued
patents worldwide, 22 of which are issued United States patents. The Company is
the assignee or exclusive licensee of approximately 35 families of patent
applications in the United States and in foreign countries directed to its
proprietary technology. There can be no assurance that patents will issue as a
result of any of such applications. Nor can there be any assurance that issued
patents would be of substantial protection or commercial benefit to the Company
or would afford the Company adequate protection from competing products. For
example, issued patents may be challenged and declared invalid. In addition,
under many of its license agreements with third parties, the Company is required
to meet specified milestone or diligence requirements in order to retain its
license to such third party patents and patent applications. There can be no
assurance that the Company will satisfy any of these requirements.

The Company holds rights under certain third party patents that it
considers necessary for the development of its technology. It is anticipated
that, in order to commercialize certain of the products that the Company is
developing or may develop, the Company may be required to obtain additional
licenses to patents from third parties. However, the extent to which such
licenses may be required, the availability of such licenses, and the cost of
such licenses, if they are available, are presently uncertain.

The Company is aware that other parties have filed patent applications in
various countries in several areas in which the Company is developing products.
Some of these patent applications have issued as patents, and some are still
pending. There can be no assurance that the pending patent applications will not
issue as patents. Issued patents are entitled to a rebuttable presumption of
validity under the laws of the United States and certain other countries. These
issued patents may adversely affect the ability of the Company to develop the
commercial products it is attempting to develop. If licenses to such patents are
needed, there can be no assurance that any such licenses would be obtainable on
acceptable terms.

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The following are some of the areas which may be adversely affected by the
patents and patent applications of others:

The Company has an exclusive license to an issued U.S. patent for the
murine form of its EGFr antibody product, C225. The Company's licensor did not
seek patent protection outside the United States on this antibody. Outside the
United States, the Company is relying on patent applications exclusively
licensed from a major pharmaceutical company, which claim the use of an EGFr
antibody in conjunction with chemotherapeutic agents. The Company is currently
prosecuting these applications. There can be no assurance that the Company will
be successful in these efforts.

The EGFr antibodies being developed by the Company are "chimerized"
monoclonal antibodies. Patents have been issued to other biotechnology companies
that cover the chimerization of antibodies, and the Company may be required to
obtain licenses under these patents in order to commercialize its chimerized
monoclonal antibodies. There can be no assurance that the Company will be able
to obtain such licenses in the territories where it proposes commercialization.

The Company is aware that third-party patents have been issued in the
United States and Europe covering anti-idiotypic antibodies and/or their use for
the treatment of tumors. Such patents, if valid, could be construed to cover the
Company's BEC-2 monoclonal antibody and certain uses thereof in the United
States and most of Europe. Merck, the Company's licensee of BEC-2 worldwide,
except in North America, has informed the Company that it has obtained a
non-exclusive, worldwide license to such patent in order to market BEC-2, and
has offered a sublicense to the Company under its rights in the United States.
No assurance can be given that such license or sublicense would be available to
the Company in other parts of the world on commercially acceptable terms, if at
all.

The Company maintains a proprietary position with respect to
anti-angiogenic therapeutics, as well as therapeutic methods of treating
angiogenic disease, though patents and patent applications filed by the Company.
The Company is aware that third parties have filed patent applications that
could affect the ability of the Company to commercialize its anti-angiogenic
therapeutics or therapeutic treatments.

The Company's proprietary position with respect to its IL-6m is based on
patents and patent applications filed by the Company. The Company is aware of
patents issued to a third party in the United States and Europe covering
cysteine-depleted proteins. Patent applications by this third party also have
been filed in other countries. The issued U.S. and European patents may be
construed to cover use of the Company's IL-6m in the United States and Europe
and, assuming such patents are valid, enforceable and infringed, could require
the Company to obtain a license to the patents in order to commercialize the
Company's product in the U.S. and Europe, including Great Britain, France,
Germany, Sweden and Italy. Similar licenses might have to be obtained in order
to market the product in other countries if similar patents are issued in those
jurisdictions.

The Company is also aware that United States patents have been issued to
third parties relating to a general process for purifying proteins that the
Company may use in producing its IL-6m and to the use of IL-6 to treat
thrombocytopenia. The Company may be required to or decide to seek a license to
some or all of these patents.

In addition, the Company is aware of third-party patents for native
recombinant IL-6 and methods for its production. The Company is aware of a
European patent for the DNA encoding for human recombinant IL-6 and methods for
its production, which has been exclusively licensed on a worldwide basis to a
pharmaceutical company. The Company has entered into a Settlement Agreement with
the pharmaceutical company whereby the pharmaceutical company has agreed not to
enforce its patent against the Company based on the Company's use of its IL-6m
patent or patent applications.

The Company is also aware of U.S. patents that cover various aspects of
IL-6. The U.S. patents are licensed to the same pharmaceutical company as the
European patent mentioned above. They may be construed to cover the Company's
IL-6m.

The Company is aware that third parties have filed patent applications in
areas that could affect the ability of the Company or its licensee for
diagnostics, Abbott, to commercialize the Company's diagnostic products. These
areas include target amplification technology and signal amplification
technology. Third party patents have already issued in the field of target
amplification such as polymerase chain reaction technology (also known as PCR).

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There has been significant litigation in the biopharmaceutical industry
regarding patents and other proprietary rights. Such litigation has consumed
substantial resources for the parties involved. If the Company became involved
in similar litigation regarding its intellectual property rights, the cost of
such litigation could be substantial and could have a material adverse effect on
the Company.

Certain proprietary trade secrets and unpatented know-how are important to
the Company in conducting its research and development activities. There can be
no assurance that others may not independently develop the same or similar
technologies. Although the Company has taken steps, including entering into
confidentiality agreements with its employees and third parties, to protect its
trade secrets and unpatented know-how, third parties nonetheless may gain access
to such information.

Reliance on and Attraction and Retention of Key Personnel and Consultants.
The Company's ability to successfully develop marketable products and to
maintain a competitive position will depend in large part on its ability to
attract and retain highly qualified scientific and management personnel and to
develop and maintain relationships with leading research institutions and
consultants. The Company is highly dependent upon the principal members of its
management, scientific staff and Scientific Advisory Board. Competition for such
personnel and relationships is intense, and there can be no assurance that the
Company will be able to continue to attract and retain such personnel.

Technological Change and Risk of Obsolescence; Competition. The
biopharmaceutical industry is subject to rapid and significant technological
change. The Company has numerous competitors, including major pharmaceutical and
chemical companies, specialized biotechnology firms, universities and other
research institutions. These competitors may succeed in developing technologies
and products that are more effective than any which are being developed by the
Company or which would render the Company's technology and products obsolete and
non-competitive. Many of these competitors have substantially greater financial
and technical resources and production and marketing capabilities than the
Company. In addition, many of the Company's competitors have significantly
greater experience than the Company in pre-clinical testing and human clinical
trials of new or improved pharmaceutical products and in obtaining Food and Drug
Administration ("FDA") and other regulatory approvals on products for use in
health care. The Company is aware of various products under development or
manufactured by competitors that are used for the prevention, diagnosis or
treatment of certain diseases the Company has targeted for product development,
some of which use therapeutic approaches that compete directly with certain of
the Company's product candidates. The Company has limited experience in
conducting and managing pre-clinical testing necessary to enter clinical trials
required to obtain government approvals and has limited experience in conducting
clinical trials. Accordingly, the Company's competitors may succeed in obtaining
FDA approval for products more rapidly than the Company, which could adversely
affect the Company's ability to further develop and market its products. If the
Company commences significant commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and marketing capabilities,
areas in which the Company has limited or no experience.

Extensive Government Regulation. Research, pre-clinical development,
clinical trials and the manufacturing and marketing of therapeutic and
diagnostic products under development by the Company are subject to extensive
and rigorous regulation by governmental authorities in the United States and
other countries. Clinical trials and the manufacturing and marketing of products
will be subject to the testing and approval processes of the FDA and comparable
foreign regulatory authorities. The process of obtaining required FDA regulatory
approvals for the types of products under development by the Company usually
takes many years and is expensive. Development of a new biologic therapeutic or
vaccine product may take, from initiation of clinical trials until FDA approval,
on average five to ten years or more, while in vitro diagnostics may take
approximately two to six years or more depending on the requirements of the
approval process or clinical data requirements. If the FDA requests additional
data, these time periods can be substantially increased. Even after such
additional data are submitted, there can be no assurance of obtaining FDA
approval. In addition, product approvals may be withdrawn or limited for
noncompliance with regulatory standards or the occurrence of unforeseen problems
following initial marketing. The Company has not sought or received regulatory
approval for the commercial sale of any of its products or for any manufacturing
processes or facilities. The Company and its licensees may encounter significant
delays or excessive costs in their respective efforts to secure necessary
approvals or licenses. Future federal, state, local or foreign legislative or
administrative acts could also prevent or delay regulatory approval of the
Company's or its licensees' products. There can be no assurance that the Company
or its collaborative partners will be able to obtain the necessary approvals for
clinical testing, manufacturing or marketing of the Company's products or that
the clinical data they obtain in clinical studies will be sufficient to
establish the safety and effectiveness of the products. Failure to obtain or
maintain requisite governmental approvals or failure to obtain approvals of the

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clinical intended uses requested, could delay or preclude the Company or its
licensees from further developing particular products or from marketing their
products or could limit the commercial use of the products and thereby have a
material adverse effect on the Company's liquidity and financial condition.

Product Liability Exposure. The use of the Company's product candidates
during testing or after approval entails an inherent risk of adverse effects
which could expose the Company to product liability claims. There can be no
assurance that the Company would have sufficient resources to satisfy any
liability resulting from these claims. The Company endeavors to obtain
indemnification by its corporate partners against certain of such claims.
However, there can be no assurance that such parties will honor, or have the
financial resources to honor, such obligations. The Company currently has
limited product liability insurance for products in pre-clinical and clinical
testing. There can be no assurance that such coverage will be adequate in scope
to protect the Company in the event of a successful product liability claim.

Hazardous Materials; Environmental Matters. The Company's research and
development activities involve the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. The Company is subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by such laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result, and any such liability
could exceed the resources of the Company. The Company may be required to incur
significant costs to comply with environmental laws and regulations in the
future. The Company's operations, business or assets may be materially or
adversely affected by current or future environmental laws or regulations.

Uncertainty of Health Care Reimbursement and Related Matters. The Company's
ability to earn sufficient returns on its products may depend in part on the
extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health coverage insurers and other organizations. If purchasers or users
of the Company's products are not entitled to adequate reimbursement for the
cost of using such products, they may forego or reduce such use. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that adequate third-party coverage will
be available.

Possible Volatility of Stock Price. The Company believes that factors such
as the status of its products in development, announcements of new products,
formation or termination of corporate alliances, other developments by the
Company, its competitors or the FDA, determinations in connection with patent
applications of the Company or others and variations in quarterly operating
results could cause the market price for the Common Stock to fluctuate
substantially. In addition, the stock market has experienced extreme price and
volume fluctuations that have particularly affected the market price for many
high technology and healthcare-related companies and that have often been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.

Limitations on Net Operating Loss Carryforwards. At December 31, 1996, the
Company had net operating loss carryforwards for federal income tax purposes of
approximately $97.4 million which expire at various dates from 2000 through
2011. Pursuant to Section 382 of the Iternal Revenue Code of 1986, as amended,
the annual utilization of the Company's net operating loss carryforwards may be
limited if the Company experiences a change in ownership of more than 50% within
a three-year period. The Company believes that one or more of such ownership
changes may have occurred since 1986. Therefore, the Company may be
significantly limited in using its tax net operating loss carryforwards arising
before such ownership change(s) to offset future taxable income.

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Dividend Policy. The Company has never paid any cash dividends on its
Common Stock. The Board of Directors will determine future dividend policy based
on the Company's results of operations, financial condition, capital
requirements and other circumstances. The Company does not anticipate that any
cash dividends will be declared in the foreseeable future.

RECENT DEVELOPMENTS

In October 1996, the Company obtained an exclusive, worldwide patent
license from the National Institutes of Health for the delta-like (DLK) protein
and gene. The agreement provides the Company with an exclusive license to stem
cell and gene therapy applications of the DLK protein and gene, as well as
related diagnostic uses.

In December 1996, the Company entered into a technology cross-licensing
agreement with Immunex Corporation ("Immunex") relating to FLT3/FLK-2 ligand and
its receptor. FLT3 ligand is a hematopoietic growth factor. Under the terms of
the agreement, the Company has exclusively licensed the receptor to Immunex for
use in the manufacture of the ligand. In return, the Company will receive an
initial payment and a royalty based on the sales of the ligand by Immunex and
its sub-licensees. In addition, Immunex has granted the Company a non-exclusive
license in the United States and Canada to use its patented FLT3/FLK-2 ligand,
manufactured by Immunex, for ex-vivo stem cell expansion together with an
exclusive license to distribute the ligand with its own proprietary products for
ex-vivo expansion. Immunex has agreed to seek to obtain the consent of its
parent company, American Home Products Corporation, to expand the territory of
this license to include the world outside North America.

USE OF PROCEEDS

Because there is no minimum amount for the number of shares of Common Stock
offered hereby, the Company cannot determine the net proceeds from the sale of
the shares of Common Stock offered hereby. However, the net proceeds from the
sale of 3,000,000 shares of Common Stock would be approximately $ 25.3 million
(assuming an offering price of $8 1/2 per share), after deducting estimated
commissions and expenses payable by the Company. The Company anticipates using
the net proceeds from this offering (i) to pay the costs for the Company to
engage in further research and development, to continue to fund and expand its
clinical programs, and to support and expand manufacturing and (ii) for general
corporate purposes, including working capital. Pending such uses, the Company
plans to invest such funds in short-term interest-bearing obligations of
investment grade.

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

The following discussion and analysis by management is provided to identify
certain significant factors which affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements.

OVERVIEW AND RISK FACTORS

The Company is a biopharmaceutical company engaged primarily in the
research and development of therapeutic products for the treatment of selected
cancers and cancer-related disorders. The products under development include
cancer therapeutics and cancer vaccines. Since its inception in April 1984, the
Company has devoted substantially all of its efforts and resources to research
and development conducted on its own behalf and through collaborations with
corporate partners and academic research and clinical institutions. The Company
has generated a cumulative net loss of approximately $101,973,000 for the period
from its inception to December 31, 1996. The Company expects to incur
significant additional operating losses over each of the next several years. The
major sources of the Company's working capital have been the proceeds of its
initial public offering in November 1991, a second public offering in May 1993,
overseas offerings in 1994, the sale of its Cadus Pharmaceutical Corporation
("Cadus") stock holdings in December 1994 and April 1995, the debt and equity
transaction with a group of investors (the "Oracle Group") in August 1995,
public offerings completed in November 1995 and February 1996, private equity
financings, license fees and research and development fees from corporate
partners, and income earned on the investment of these funds. See "Liquidity and
Capital Resources". Since its inception through December 31, 1996, the Company
also has incurred indebtedness of $6,313,000 ($2,000,000 of which was repaid
March 31, 1992) under Industrial Development Revenue Bonds, the proceeds of
which have been used for the acquisition, construction and installation of the
Company's research and development faciltiy in New York City. The Company also
has a remaining obligation to Pharmacia at December 31, 1996 in the amount of
$1.9 million. See Note 6(a) to the Financial Statements.

Substantially all of the Company's products are in the early stages of
development, clinical studies or research. Substantially all the Company's
revenues were generated from license and research arrangements with corporate
sponsors. The Company's revenues under its research and license agreements with
corporate sponsors have fluctuated and are expected to fluctuate significantly
from period to period. Similarly, the Company's results of operations have
fluctuated and are expected to fluctuate significantly from period to period.
These variations have been, and are expected to be, based primarily on the
timing of entering into supported research and license agreements, the status of
the Company's various products, the timing and level of revenues from sales by
its partner in diagnostics, Abbott, of products bearing the Company's
technology, the addition or termination of research programs or funding support,
performance by the Company's corporate collaborators of their funding and
marketing obligations, the achievement of specified research or
commercialization milestones and variations in the level of expenditures for the
Company's proprietary products during any given period. The Company's products
will require substantial additional development and clinical testing and
investment prior to commercialization. To achieve profitable operations, the
Company, alone or with others, must successfully develop, introduce and market
its products. No assurance can be given that any of the Company's product
development efforts will be successfully completed, that required regulatory
approvals can be obtained or that any products, if developed, will be
successfully manufactured or marketed or achieve customer acceptance.

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RESULTS OF OPERATIONS

Years Ended December 31, 1996 and December 31, 1995

Revenues for the years ended December 31, 1996 and December 31, 1995 were
$600,000 and $800,000, respectively. Revenues for both years included $300,000
from its corporate partnership with the Wyeth-Lederle Vaccine Division of
American Home Products Corporation ("American Home") in infectious disease
vaccines. In addition, revenues for the years ended December 31, 1996 and
December 31, 1995 included royalty fees of $225,000 and contract research fees
of $500,000, respectively, from the Company's strategic alliance with Abbott in
diagnostics. Finally, the year ended December 31, 1996 included $75,000 in
license fees from the Company's cross-licensing agreement with Immunex for novel
hematopoietic growth factors.

Total operating expenses for the years ended December 31, 1996 and December
31, 1995 were $15,443,000 and $12,507,000, respectively. Research and
development expenses for the years ended December 31, 1996 and December 31, 1995
were $11,482,000 and $8,768,000, respectively. Such amounts for the years ended
December 31, 1996 and December 31, 1995 represented 74% and 70%, respectively,
of total operating expenses. The $2,714,000 increase in research and development
expenses is primarily attributable to costs incurred for C225, the Company's
lead therapeutic product candidate. This includes additional staffing and
expenditures in the functional areas of product development, manufacturing and
clinical and regulatory affairs to support the manufacture of C225 for human
clinical trials and travel-related expenses to pursue strategic partnerships for
C225 (and other product candidates). The remaining increase reflects growth in
the area of discovery research for future product candidates.

General and administrative expenses include administrative personnel costs,
costs incurred in connection with pursuing arrangements with corporate partners
and technology licensors, and expenses associated with applying for patent
protection for the Company's technology and products. Such expenses for the year
ended December 31, 1996 were $3,961,000 compared to $3,739,000 for the year
ended December 31, 1995. The $222,000 increase primarily reflects additional
staffing to support the expanding research, clinical, development and
manufacturing efforts of the Company, particularly with its lead therapeutic
product candidate, C225. The Company expects general and administrative expenses
to increase in future years to support planned increases in research and
development.

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<PAGE>

Interest and other income was $918,000 for the year ended December 31, 1996
as compared to $3,120,000 for the year ended December 31, 1995. Other income for
the year ended December 31, 1995 included the sale of the remaining one-half of
its shares of capital stock of Cadus for $3,000,000 to High River Limited
Partnership ("High River"). See "Liquidity and Capital Resources". The greater
interest income earned during the year ended December 31, 1996 reflects the
Company's improved cash position from the November 1995 and February 1996 public
sales of shares of its Common Stock. See "Liquidity and Capital Resources".
Interest and other expense was $823,000 and $1,054,000 for the years ended
December 31, 1996 and December 31, 1995, respectively. Such expense for both
years primarily includes interest on two outstanding Industrial Development
Revenue Bonds with an aggregate principal amount of $4,313,000, interest
recorded on the liability to Pharmacia for the reacquisition of the worldwide
rights to IL-6m and the contract manufacture of clinical material, and interest
accrued and the amortization of the non-cash debt discount recorded in
connection with the Company's August 1995 financing with the Oracle Group. See
"Liquidity and Capital Resources" and Notes 6(a) and 6(b) to the Financial
Statements.

The Company had net losses of $16,015,000 or $0.83 per share, and
$9,641,000 or $0.72 per share, for the years ended December 31, 1996 and
December 31, 1995, respectively. The net loss for the year ended December 31,
1996 included a $1,267,000 or $0.07 per share extraordinary loss on early
extinguishment of debt through the May issuance of Common Stock in lieu of cash
repayment of a $2,500,000 loan due the Oracle Group and a $180,000 long-term
note owed to a Company Director. See "Liquidity and Capital Resources".

Years Ended December 31, 1995 and December 31, 1994

Revenues for the years ended December 31, 1995 and December 31, 1994 were
$800,000 and $950,000, respectively. Revenues for the years ended December 31,
1995 and December 31, 1994 consisted of $300,000 from the Company's corporate
partnership with American Home in vaccines. In addition, revenues for the years
ended December 31, 1995 and December 31, 1994 included contract research fees of
$500,000 and $400,000, respectively, from the Company's strategic alliance with
Abbott in diagnostics. Finally, license fees of $250,000 were recognized from
the Abbott alliance during the year ended December 31, 1994.

Total operating expenses for the years ended December 31, 1995 and December
31, 1994 were $12,507,000 and $15,164,000, respectively. Research and
development expenses for the years ended December 31, 1995 and December 31, 1994
were $8,768,000 and $11,816,000, respectively. Such amounts for the years ended
December 31, 1995 and December 31, 1994 represented 70% and 78%, respectively,
of total operating expenses. The decrease in research and development expenses
is attributable to the reduction in selected personnel, laboratory and third
party costs. Also, the Company incurred a one-time charge of $800,000 during the
year ended December 31, 1994 for the contract manufacture of IL-6m clinical
material from Pharmacia.

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<PAGE>

General and administrative expenses include administrative personnel costs,
costs incurred in connection with pursuing arrangements with corporate partners
and technology licensors, and expenses associated with applying for patent
protection for the Company's technology and products. Such expenses for the year
ended December 31, 1995 were $3,739,000 compared to $3,348,000 for the year
ended December 31, 1994. The increase is related primarily to fees incurred in
connection with the April 1995 Cadus stock sale, a loan agreement and related
financing with the Oracle Group completed in August 1995, a contemplated
product-related financing of C225 which the Company did not continue to pursue,
and transfer of the Company's patent representation to outside counsel.

Interest and other income was $3,120,000 for the year ended December 31,
1995 as compared to $3,186,000 for the year ended December 31, 1994. Each year
included a gain from the sale of 50% of the Company's common and preferred Cadus
stock to an unrelated party for $3,000,000. Interest and other expense was
$1,054,000 and $821,000 for the years ended December 31, 1995 and December 31,
1994, respectively. Such expense for both years primarily reflect interest on
two outstanding Industrial Development Revenue Bonds with an aggregate principal
amount of $4,313,000. In addition, interest and other expense also included
interest recorded on the liability to Pharmacia for the reacquisition of the
worldwide rights to IL-6m and the contract manufacture of clinical material for
the Company's trials of IL-6m. See "Liquidity and Capital Resources" and Note
6(a) to the Financial Statements. Interest for the period ended December 31,
1995 also includes accrued interest and the amortization of discounted interest
incurred in connection with the August 1995 financing with the Oracle Group. See
Note 6(b) to the Financial Statements.

The equity in the loss of affiliate of $342,000 for the year ended December
31, 1994 was attributable to the Company's share in the losses of Cadus, which
was accounted for under the equity method during the year. During 1994, the
Company owned 28% of the common and preferred stock of Cadus. The terms of its
sale of 50% of its holdings in Cadus to High River for $3,000,000 were finalized
in December 1994; the cash consideration was received by the Company on January
4, 1995. On April 27, 1995, sale of the Company's remaining Cadus stock was
completed for $3,000,000 to High River. See "Liquidity and Capital Resources"
and Note 2(e) to the Financial Statements.

The Company had net losses of $9,641,000 or $0.72 per share, and
$12,191,000 or $1.12 per share, for the years ended December 31, 1995 and
December 31, 1994, respectively, due to the factors discussed above. The lower
loss per share for the year ended December 31, 1995 was primarily attributable
to a lower net loss and an increase in the number of outstanding shares.

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LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, the Company had a cash and cash equivalents and
securities available for sale balance of approximately $13.5 million, virtually
all of which represents the remaining balance of the proceeds of public
offerings of 3,000,000 shares of Common Stock in November 1995 and 2,200,000
shares of Common Stock in February 1996. Such balances totaled approximately
$10.9 million on February 13, 1997.

The Company has financed its operations primarily through the proceeds of
an initial public offering in November 1991, which raised approximately $31.7
million, net of expenses, supported research funding and license agreements,
interest income, the issuance of industrial development bonds and the following
described additional financings. In May 1993, the Company completed a second
public Common Stock offering which raised approximately $10.4 million, net of
expenses. In 1994, the Company completed several private offerings of its Common
Stock, including offerings pursuant to Regulation S under the 1933 Act. The 1933
Act places restrictions on the resale in the United States of shares issued in a
Regulation S offering. These various private offerings raised an aggregate of
approximately $5.7 million.

In December 1994 the Company completed the sale of one-half of its shares
of capital stock of Cadus to High River for $3.0 million. During April 1995, the
Company completed the sale of the remaining one-half of its shares of capital
stock of Cadus for $3.0 million, also to High River. In exchange for receiving a
now-expired right to repurchase all the outstanding shares of capital stock of
Cadus, the Company granted to High River two options to purchase shares of
Common Stock. One option is for 150,000 shares at an exercise price per share
equal to $2.00, subject to adjustment under certain circumstances, and the other
option is for 300,000 shares at an exercise price per share equal to $0.69,
subject to adjustment under certain circumstances. Both options will expire on
April 26, 2000.

In August 1995, the Oracle Group purchased 1,000,000 shares of Common Stock
for a purchase price of $1.5 million and made a loan to the Company in the
aggregate amount of $2.5 million with a two-year maturity, but subject to
mandatory prepayment, in whole or in part, upon the occurrence of certain
events, including the raising of certain additional funds. The loan carried an
annual interest rate of 8%. The Oracle Group includes Oracle Partners, L.P.,
Quasar International Partners C.V., Oracle Institutional Partners L.P., Sam
Oracle Fund, Inc. and Warren B. Kanders. The Oracle Group also received warrants
exercisable at any time until August 10, 2000 entitling the holders thereof to
purchase 500,000 shares of Common Stock at a price of $1.50 per share and
500,000 shares of Common Stock at a price of $3.00 per share. As a result of the
Company's offerings of shares of its Common Stock in November 1995 and February
1996, the Oracle Group was entitled to require the Company to apply 20 percent
of the gross proceeds of the sale of the shares of Common Stock from the
offerings to repay the loan.

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In May 1996, the Company and the Oracle Group exchanged the notes
evidencing the 1995 loan in the aggregate outstanding principal amount of $2.5
million for 333,333 shares of Common Stock and the Company paid the accrued and
unpaid interest on the notes in the amount of $143,000 in cash. The Company
recorded an extraordinary loss of $1,228,000 on the extinguishment of the debt.
The Company has registered such shares of Common Stock with the Securities and
Exchange Commission (the "Commission") under a registration statement in
accordance with the provisions of the 1933 Act.

In July 1995, a director loaned the Company $180,000 in exchange for a
long-term note due two years from issuance at an annual interest rate of 8%. As
part of the transaction, the director was granted 36,000 warrants to purchase
Company Common Stock at $1.50 per share and an additional 36,000 warrants to
purchase Company Common Stock at $3.00 per share. In May 1996, the Company and
the director exchanged the note for 24,000 shares of Common Stock and the
Company paid the accrued and unpaid interest on the note in the amount of
$10,000 in cash. The Company recorded an extraordinary loss of $39,000 on the
extinguishment of the debt. The Company has registered such shares of Common
Stock with the Commission under a registration statement in accordance with the
provisions of the 1933 Act.

In November 1995, the Company completed a public sale of 3,000,000 shares
of Common Stock at a per share price to the public of $3.75. Net proceeds to the
Company from this sale totaled approximately $10.6 million after deducting
expenses payable by the Company in connection with the offering and the
commission paid by the Company.

In February 1996, the Company completed a public sale of 2,200,000 shares
of Common Stock at a per share price to the public of $6.63. Net proceeds to the
Company from this sale totaled approximately $13.6 million after deducting
expenses payable by the Company in connection with the offering and the
commission paid by the Company.

In May 1996, the Company extended its collaboration with Merck for the
development of a therapeutic cancer vaccine, BEC-2, for use in small-cell lung
carcinoma and in malignant melanoma. The collaboration continues a research and
license agreement between the two companies signed in December 1990. Under the
terms of the modified agreement, the Company may receive up to $11.7 million in
license fees, research and development support and milestone payments in
addition to the monies previously received under the original agreement. In
return, Merck will receive marketing rights to BEC-2 for all therapeutic
indications outside North America. Formerly, the rights of Merck were confined
to Europe, Australia and New Zealand. Merck will also share in the development
costs for the United States and Europe and will pay all development costs in
other territories. The Company will be entitled to royalties based upon product
sales outside North America.

-19-
<PAGE>

In June 1996, the Company and the New York City Industrial Development
Agency (the "NYIDA") extended the maturity of the Company's $2.1 million
repayment obligation to the NYIDA for the 1986 Industrial Revenue Bond, which
was due on June 15, 1996, to December 15, 1997.

In December 1996, the Company entered into a technology cross-licensing
agreement with Immunex relating to FLT3/FLK-2 ligand and its receptor. FLT3
ligand is a hematopoietic growth factor. Under the terms of the agreement, the
Company has exclusively licensed the receptor to Immunex for use in the
manufacture of the ligand. In return, the Company will receive an initial
payment of $150,000 and a royalty based on the sales of the ligand by Immunex
and its sub-licensees. Of the initial $150,000 payment, $75,000 was recorded as
license fee revenue for the year ended December 31, 1996. In addition, Immunex
has granted the Company a non-exclusive license in the United States and Canada
to use its patented FLT3/FLK-2 ligand, manufactured by Immunex, for ex-vivo stem
cell expansion together with an exclusive license to distribute the ligand with
its own proprietary products for ex-vivo expansion. Immunex has agreed to seek
to obtain the consent of its parent company, American Home, to expand the
territory of this license to include the world outside North America.

In December 1996, the Company and Abbott modified their 1992 diagnostic
strategic alliance to provide for an exclusive sublicensing agreement with
Chiron Diagnostics for the Company's patented DNA signal amplification
technology, Ampliprobe. Under the terms of the agreement, all sales of Chiron
branched DNA diagnostic probe technology in countries covered by Company patents
will be subject to a royalty to Abbott to be passed through to the Company. The
initial royalty payment of approximately $225,000, which covered Ampliprobe
sales from January 1992 through September 1996, was included under the revenue
caption "research and development funding from third parties and other" for the
year ended December 31, 1996. The Company received the initial royalty payment
from Abbott in late January 1997.

In December 1996, the Company signed an agreement with Finova to finance
the lease of laboratory and computer-related equipment and make certain building
and leasehold improvements to existing facilities involving payments aggregating
approximately $2,500,000. The first of multiple intended leases has been signed
at a cost of $421,000. Each lease has a fair market value purchase option at the
expiration of a 42-month term. Pursuant to the agreement, the Company issued to
Finova a warrant expiring December 31, 1999 to purchase 23,220 shares of Common
Stock at an exercise price of $9.69 per share. The Company has registered such
shares of Common Stock underlying the warrant with the Commission under a
registration statement in accordance with the provisions of the 1933 Act. See
Notes 6(a), 10 and 11 to the Financial Statements.

The Company has expended and will continue to expend in the future
substantial funds to continue the research and development of its products,
conduct pre-clinical and clinical trials, establish clinical-scale and
commercial-scale manufacturing in its own facilities or in the facilities of
others, and market its products. In addition, $2.1 and $2.2 million,
respectively, in Industrial Development Revenue Bonds issued on behalf of the
Company in 1986 and 1990 become due in December 1997 and May 2004, respectively.
See Note 5 to the Financial Statements.

-20-
<PAGE>

In July 1993, the Company entered into an agreement with Erbamont, Inc.,
now a subsidiary of Pharmacia, to acquire the worldwide rights to IL-6m, a blood
cell growth factor, which had been licensed to Pharmacia pursuant to a
development and licensing agreement. In consideration of the return of rights
and the transfer of certain material and information, the Company has paid $1.4
million and has further obligations to Pharmacia. Such obligations, including
those to pay for IL-6 mutein material manufactured and supplied by Pharmacia,
totaled $2.4 million at March 31, 1996. In addition, the Company is required to
pay Pharmacia $2.7 million in royalties on eventual sales of IL-6m, if any. In
March, 1996, the Company entered into a Repayment Agreement with Pharmacia (the
"Repayment Agreement") pursuant to which it agreed to pay the $2.4 million over
24 months commencing in March 1996, with interest only payable during the first
six months. At December 31, 1996 the remaining obligation to Pharmacia totaled
$1.9 million. In connection with the Repayment Agreement, the Company signed a
Confession of Judgment, which can be filed by Pharmacia with an appropriate
court in the case of default by the Company. Pursuant to a Security Agreement
entered into with Pharmacia, the Company pledged its interests in patents
related to IL-6m and to heparanase to secure its obligations under the Repayment
Agreement.

The Company's future working capital and capital requirements will depend
upon numerous factors, including the progress of the Company's research and
development programs, pre-clinical testing and clinical trials, the Company's
corporate partners fulfilling their obligations to the Company, the timing and
cost of seeking regulatory approvals, the level of resources that the Company
devotes to the development of manufacturing, marketing and sales capabilities,
technological advances, the status of competitors and the ability of the Company
to maintain existing and establish new collaborative arrangements with other
companies to provide funding to the Company to support these activities.

The Company's budgeted cash expenditures for the twelve month period ending
December 31, 1997 total approximately $20.5 million. Included in this budget
figure are $1.7 million of the remaining $1.9 million obligation to Pharmacia
and the $2.1 million Industrial Revenue Development Bond debt payable to the
NYIDA in December 1997. In addition, the budget reflects the expansion of
operations to include numerous new outside research agreements, the proposed
hire of several new employees during 1997 and related costs to support the
expansion of the Company's research and development programs, including the
expanded clinical trials. The Company expects that its capital resources,
including the ongoing research support of its corporate partners but excluding
the anticipated proceeds of this offering, will be sufficient to fund its
operations through 1997. However, the receipt of certain of such ongoing
research support is subject to attaining research and development milestones,
certain of which have not yet been achieved. These milestones include the
successful completion of a pilot manufacturing run relating to the BEC-2 cancer
vaccine and the nonoccurence of third party opposition filings against a
currently allowed patent of the Company in Europe relating to the Abbott
strategic alliance. There can be no assurance that the Company will achieve
these milestones in 1997, if at all. If difficulty is encountered in attaining
these milestones, the Company may postpone the budgeted expansion of operations
to allow for funding of its operations beyond 1997. Accordingly, in order to
fund its capital needs after 1997, the Company will require significant levels
of additional capital and intends to raise the necessary capital through this
offering and additional equity or debt financings, arrangements with corporate
partners or from other sources.

-21-
<PAGE>

The Company has entered into preliminary discussions with several major
pharmaceutical companies concerning the funding of research and development for
certain of its products regarding various alternatives. No assurance can be
given that the Company will be successful in pursuing any such alternatives. In
addition, the Company may seek to enter into a significant strategic partnership
with a pharmaceutical company for the development of its lead product candidate,
C225. Such a strategic alliance could include an up-front equity investment and
license fees plus milestone fees and revenue sharing. There can be no assurance
that the Company will be successful in achieving such an alliance, nor can the
Company predict the amount of funds which might be available to it if it entered
into such an alliance or the time at which such funds would be made available.

The Company has granted a security interest in substantially all facility
equipment located in its New York City facility to secure the obligations of the
Company to the NYIDA relating to the 1986 Industrial Development Revenue Bond
and the 1990 Industrial Development Revenue Bond, which were issued to finance a
portion of the cost of this facility.

The Company has outfitted and purchased equipment for a certain property to
create a clinical-scale production facility that complies with current Good
Manufacturing Practices regulations. To be successful, the Company's products
must be manufactured in commercial quantities in compliance with regulatory
requirements and at acceptable costs. Although the Company has developed
products in the laboratory and in some cases has produced sufficient quantities
of materials for pre-clinical animal trials and early stage clinical trials,
production in late stage clinical or commercial quantities may create technical
challenges for the Company. If it commercializes its products, the Company plans
to adapt this facility for use as its commercial-scale manufacturing facility.
However, the Company has limited experience in clinical-scale manufacturing and
no experience in commercial-scale manufacturing, and no assurance can be given
that the Company will be able to make the transition to late stage clinical or
commercial production. The timing and any additional costs of adapting the
facility for commercial manufacturing will depend on several factors, including
the progress of products through clinical trials, and are not yet determinable.

Total capital expenditures made during the year ended December 31, 1996
were $693,000. Of the total capital expenditures made during the year ended
December 31, 1996, $421,000 has been reimbursed in accordance with the terms of
the Finova agreement mentioned above which provides for improvements and
equipping of the Company's manufacturing facility in New Jersey. The balance of
capital additions was for equipment and computer-related purchases for both the
New Jersey facility and the corporate office and research laboratories in New
York.

At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $97,350,000 which expire at various
dates from 2000 through 2011. At December 31, 1996 the Company had research
credit carryforwards of approximately $1,883,000 which expire at various dates
between the years 2001 and 2011. Pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended, the annual utilization of the Company's net operating
loss and research credit carryforwards may be limited if the Company experiences
a change in ownership of more than 50% within a three-year period. The Company
believes that one or more of such ownership changes may have occured since 1986.
Therefore, the Company may be significantly limited in utilizing its tax net
operating loss carryforwards arising before such ownership change(s) to offset
future taxable income. Similarly, the Company may be restricted in using its
research credit carryforwards arising before such ownership change(s) to offset
future federal income tax expense.

-22-
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is to be applied
prospectively. This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Management of the Company does not expect
that adoption of SFAS No. 125 will have a near-term material impact on the
Company's financial position, results of operations, or liquidity.

-23-
<PAGE>

DILUTION

As of December 31, 1996, the Company had a net tangible book value of
$15,547,000, or $.77 per share. Net tangible book value per share is determined
by dividing the net tangible book value (tangible assets less liabilities) of
the Company by the number of shares of Common Stock outstanding at that date.
Adjusting such net tangible book value to give effect to the sale of 3,000,000
shares of Common Stock offered by the Company hereby at an assumed price of
$8 1/2 per share, and the receipt and application of the net proceeds there
from, but without taking into account any other changes in net tangible book
value after December 31, 1996, the pro forma net tangible book value of the
Company as of December 31, 1996 would have been $40,807,000 or $1.76 per
share. This represents an immediate increase in the net tangible book value
of $.99 per share to existing stockholders and an immediate dilution of $6.74
per share to new investors. The following table illustrates this per share
dilution.

Assumed public offering price per share ............. $8.50

Net tangible book value per share as of
December 31, 1996........................... $.77

Increase in net tangible book value per share
attributable to the offering(1)............. .99

Pro forma net tangible book value per share
after the offering.......................... 1.76
-----
Dilution per share to new investors(2)............... $6.74
=====
- -----------------
(1) After deducting estimated commissions and expenses payable by the Company
in connection with sale of the shares of Common Stock offered hereby.

(2) Determined by subtracting the pro forma net tangible book value per share
after the offering from the amount of cash paid by a new investor for a
share of Common Stock.

PLAN OF DISTRIBUTION

The Company may sell the shares of Common Stock being offered hereby
directly to purchasers, or may also sell shares of Common Stock through or to
one or more agents, underwriters or dealers. The accompanying Prospectus
Supplement will set forth the initial public offering price, the net proceeds to
the Company, the names of any agents, underwriters or dealers involved in the
sale of the shares of Common Stock in respect of which this Prospectus is being
delivered, any applicable fee, commission or discount arrangements with such
agents, underwriters or dealers and, to the extent required, information
concerning the other terms of any agreement, including any indemnification and
contribution agreement, between the Company and any such agent, underwriter or
dealer.

Offers to purchase the shares of Common Stock may be solicited directly by
the Company or by agents designated by the Company from time to time. Any such
agent involved in the offer or sale of the shares of Common Stock in respect of
which this Prospectus is delivered will be named, and any commissions payable by
the Company to such agent will be set forth, in the Prospectus Supplement.
Unless otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment. Agents may be
customers of, engage in transactions with, or perform services for, the Company
and/or certain affiliates thereof in the ordinary course of business. An agent
may resell shares of Common Stock purchased by it as principal to another
broker-dealer at a discount.

If an agent or underwriter or agents or underwriters are utilized in the
sale, the Company will execute a selling agency or underwriting agreement with
such agents or underwriters at the time of sale to them and the names of the
agents or underwriters and the terms of the transaction will be set forth in the
Prospectus Supplement which will be used by the agents or underwriters to make
sales or resales of the shares of Common Stock.

Except as otherwise indicated in the applicable Prospectus Supplement, if a
dealer is utilized in the sale of the shares of Common Stock in respect of which
this Prospectus is delivered, the Company will sell such shares of Common Stock
to the dealer, as principal. The dealer may then resell such shares of Common
Stock to the public at varying prices to be determined by such dealer at the
time of resale.

Agents, underwriters, dealers and other persons may be entitled, under
agreements which may be entered into with the Company, to indemnification
against, or contribution with respect to, certain civil liabilities under the
Securities Act.

-24-
<PAGE>

From time to time, agents, underwriters, dealers, and direct purchasers and
certain of their affiliates have engaged and may in the future engage in
transactions with and perform services for the Company or its subsidiaries in
the ordinary course of business.

The place and time of delivery for the shares of Common Stock in respect of
which this Prospectus is delivered are set forth in the accompanying Prospectus
Supplement.

LEGAL MATTERS

Certain legal matters in connection with the sale of the shares of Common
Stock have been passed upon for the Company by the Law Offices of Brian W Pusch,
New York, New York. Brian W. Pusch owns 100 shares of Common Stock.

EXPERTS

The financial statements of ImClone Systems Incorporated as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, have been included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.

-25-
<PAGE>

FINANCIAL STATEMENTS

Index to Financial Statements

Financial Statements

Independent Auditors' Report.................................. ........... F-2

Balance Sheets at December 31, 1996 and 1995.............................. F-3

Statements of Operations for the
Years Ended December 31, 1996, 1995, and 1994........................... F-4

Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995, and 1994........................... F-5

Statements of Cash Flows for the
Years Ended December 31, 1996, 1995, and 1994........................... F-6

Notes to Financial Statements............................................. F-7

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
ImClone Systems Incorporated:

We have audited the financial statements of ImClone Systems Incorporated as
listed in the accompanying index. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ImClone Systems Incorporated
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1996, in
conformity with generally accepted accounting principles.

As discussed in Note 2(h) to the financial statements, the Company has
adopted Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, in 1996.

/s/ KMPG Peat Marwick LLP
KPMG Peat Marwick LLP

New York, New York
February 18, 1997

F-2
<PAGE>

IMCLONE SYSTEMS INCORPORATED

Balance Sheets
(in thousands, except share data)

December 31, December 31,
Assets 1996 1995
------------ -------------
Current assets:
Cash and cash equivalents ..................... $ 2,734 $ 10,207
Securities available for sale ................. 10,780 --
Prepaid expenses .............................. 122 115
Amount due from officer and stockholder ....... 101 132
Other current assets .......................... 479 26
--------- ---------
Total current assets ..................... 14,216 10,480
--------- ---------
Property and equipment:
Land ......................................... 340 340
Building and building improvements ........... 8,969 8,969
Leasehold improvements ....................... 4,832 4,832
Machinery and equipment ...................... 5,159 4,796
Furniture and fixtures ....................... 536 526
Construction in progress ..................... 320 --
--------- ---------
Total cost ............................... 20,156 19,463
Less accumulated depreciation
and amortization ....................... (9,606) (7,984)
--------- ---------
Property and equipment, net .............. 10,550 11,479
--------- ---------
Patent costs, net .............................. 977 707
Deferred financing costs, net .................. 65 74
Other assets ................................... 77 63
--------- ---------
$ 25,885 $ 22,803
========= =========
Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable .............................. $ 1,059 $ 992
Accrued expenses and other .................... 1,366 826
Interest payable .............................. 238 343
Current portion of long-term liabilities ...... 3,858 4,584
--------- ---------
Total current liabilities ................ 6,521 6,745
--------- ---------
Long-term debt ................................. 2,200 2,200
Long-term notes payable, net ................... -- 1,928
Other long-term liabilities,
less current portion.......................... 575 107
--------- ---------
Total liabilities ........................ 9,296 10,980
--------- ---------
Commitments and contingencies
Stockholders' equity :
Preferred stock, $1.00 par value;
authorized 4,000,000 shares;
none issued and outstanding ................ -- --
Common stock, $.001 par value;
authorized 30,000,000 shares;
issued 20,248,122 and 16,819,622
at December 31, 1996 and
December 31, 1995, respectively;
outstanding 20,233,699 and
16,806,919 at December 31, 1996 and
December 31, 1995, respectively ............ 20 17
Additional paid-in capital ................... 118,760 97,914
Accumulated deficit .......................... (101,973) (85,958)
Treasury stock, at cost; 14,423
and 12,703 shares at December 31, 1996
and December 31, 1995, respectively ........ (169) (150)
Unrealized loss on securities
available for sale ......................... (49) --
--------- ---------
Total stockholders' equity ............... 16,589 11,823
--------- ---------
$ 25,885 $ 22,803
========= =========

See accompanying notes to financial statements.

F-3
<PAGE>

IMCLONE SYSTEMS INCORPORATED

Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>

Year Ended December 31,
---------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Revenues:
License fees from third parties ................ $ 75 $ -- $ 250
Research and development funding from third
parties and other ........................... 525 800 700
-------- -------- --------
Total revenues ................... 600 800 950
-------- -------- --------
Operating expenses:
Research and development ....................... 11,482 8,768 11,816
General and administrative ..................... 3,961 3,739 3,348
-------- -------- --------
Total operating expenses .......... 15,443 12,507 15,164
-------- -------- --------
Operating loss ...................................... (14,843) (11,707) (14,214)
-------- -------- --------
Other (income) expense:
Interest and other income ...................... (918) (3,120) (3,186)
Interest and other expense ..................... 823 1,054 821
Equity in loss of affiliate .................... -- -- 342
-------- -------- --------
Net interest and other income ...... (95) (2,066) (2,023)
-------- -------- --------
Loss before extraordinary item ...................... (14,748) (9,641) (12,191)
Extraordinary loss on extinguishment of debt......... 1,267 -- --
-------- -------- --------
Net loss ............................................ $(16,015) $ (9,641) $(12,191)
======== ======== ========
Net loss per common share:
Loss before extraordinary item .............. $ (0.76) $ (0.72) $ (1.12)
Extraordinary loss on extinguishment of debt. 0.07 -- --
-------- -------- --------
Net loss per common share ................... $ (0.83) $ (0.72) $ (1.12)
======== ======== ========
Weighted average shares outstanding ................. 19,371 13,311 10,903
======== ======== ========
</TABLE>

See accompanying notes to financial statements

F-4
<PAGE>

IMCLONE SYSTEMS INCORPORATED

Statements of Stockholders' Equity
Years Ended December 31, 1994, 1995, and 1996
(in thousands, except share data)

Additional
Common Stock Paid-in Accumulated Treasury
--------------------------
Shares Amount Capital Deficit Stock
-------------- --------- -------------- ---------------- -----------

<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ....... 9,510,183 $ 10 $ 79,497 $ (64,126) $ (150)
-------------- --------- -------------- ---------------- -----------
Issuance of common stock ........... 3,067,502 3 5,133
Advances to officer and
stockholder ....................
Amortization of deferred
compensation ...................
Net loss ........................... (12,191)
-------------- --------- -------------- ---------------- -----------
Balance at December 31, 1994 ....... 12,577,685 $ 13 $ 84,630 $ (76,317) $ (150)
-------------- --------- -------------- ---------------- -----------
Issuance of common stock ........... 4,000,000 4 11,998
Options exercised .................. 156,750 162
Warrants exercised ................. 15,300 23
Payment of promissory notes ........ 57,184 36
Proceeds from promissory notes ..... 2
Debt discount ...................... 1,063
Net loss ........................... (9,641)
-------------- --------- -------------- ---------------- -----------
Balance at December 31, 1995 ....... 16,806,919 $ 17 $ 97,914 $ (85,958) $ (150)
-------------- --------- -------------- ---------------- -----------
Issuance of common stock ........... 2,200,000 2 13,560
Options exercised .................. 266,275 846
Warrants exercised ................. 604,892 1 2,960
Options granted to non-employees.... 95
Extinguishment of debt ............. 357,333 3,260
Debt discount ...................... 125
Treasury shares .................... (1,720) (19)
Changes in unrealized loss on
securities available for sale ...
Net loss ............................ (16,015)
-------------- --------- -------------- ---------------- -----------
Balance at December 31, 1996 ........ 20,233,699 $ 20 $ 118,760 $ (101,973) $ (169)
============== ========= ============== ================ ===========

<CAPTION>
Unrealized
Amount Loss on
Due from Securities
Officer and Deferred Available
Stockholder Compensation for Sale Total
-------------- ----------------- ------------- ----------------

<S> <C> <C> <C> <C>
Balance at December 31, 1993 ........ $ (398) $ (21) $ - $ 14,812
-------------- ----------------- ------------- ----------------
Issuance of common stock ............ 5,136
Advances to officer and
stockholder ..................... 398 398
Amortization of deferred
compensation .................... 21 21
Net loss ............................ (12,191)
-------------- ----------------- ------------- ----------------
Balance at December 31, 1994 ........ $ - $ - $ - $ 8,176
-------------- ----------------- ------------- ----------------
Issuance of common stock ............ 12,002
Options exercised ................... 162
Warrants exercised .................. 23
Payment of promissory notes ......... 36
Proceeds from promissory notes ...... 2
Debt discount ....................... 1,063
Net loss ............................ (9,641)
-------------- ----------------- ------------- ----------------
Balance at December 31, 1995 ........ $ - $ - $ - $ 11,823
-------------- ----------------- ------------- ----------------
Issuance of common stock ............ 13,562
Options exercised ................... 846
Warrants exercised .................. 2,961
Options granted to non-employees.... 95
Extinguishment of debt .............. 3,260
Debt discount ....................... 125
Treasury shares ..................... (19)
Changes in unrealized loss on
securities available for sale ... (49) (49)
Net loss ............................ (16,015)
-------------- ----------------- ------------- ----------------
Balance at December 31, 1996 ........ $ - $ - $ (49) $ 16,589
============== ================= ============= ================
</TABLE>
See accompanying notes to financial statements

F-5
<PAGE>

IMCLONE SYSTEMS INCORPORATED

Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>

Year Ended December 31,
----------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>

Net loss .............................................. $(16,015) $ (9,641) $(12,191)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ........................ 1,704 1,789 1,844
Expense associated with issuance
of options ....................................... 95 -- 21
Equity in loss of affiliate .......................... -- -- 342
Loss on sale of investments .......................... -- -- 23
Fees associated with commercialization
and license agreement rights ...................... -- -- 117
Extraordinary loss on early
extinguishment of debt ............................ 1,267
Discounted interest amortization ..................... 156 222 --
Write-off of fixed assets ............................ -- 2 --
Write-off of patent costs ............................ -- 126 29
Changes in:
Prepaid expenses .................................... (7) (37) 19
Other current assets ................................ (453) 42 (4)
Due from officer .................................... 31 24 (111)
Other assets ........................................ (14) 115 (110)
Interest payable .................................... (105) 328 (1)
Accounts payable .................................... 67 (624) 780
Accrued expenses and other .......................... 540 421 434
-------- -------- --------
Net cash used in operating activities ............. (12,734) (7,233) (8,808)
-------- -------- --------
Cash flows from investing activities:
Acquisitions of property and equipment ............... (693) (36) (434)
Proceeds from sale of equipment ...................... 421 -- --
Purchases of securities available for sale ........... (32,665) -- --
Sales of securities available for sale ............... 21,836 -- 5,350
Additions to patents ................................. (343) (186) (176)
Investment in and advances to affiliate .............. -- -- 405
-------- -------- --------
Net cash (used in) provided by investing activities (11,444) (222) 5,145
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock ............................. 13,562 12,002 5,534
Proceeds from exercise of stock options and warrants . 3,807 185 --
Purchase of treasury stock ........................... (19) -- --
Proceeds from long-term notes payable ................ -- 2,680 --
Proceeds from short-term notes payable ............... -- 100 220
Repayment of short-term notes payable ................ -- (284) --
Repayment of long-term debt .......................... -- -- (400)
Payments of other liabilities ........................ (645) (53) (55)
-------- -------- --------
Net cash provided by financing activities ......... 16,705 14,630 5,299
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ... (7,473) 7,175 1,636
Cash and cash equivalents at beginning of period ....... 10,207 3,032 1,396
-------- -------- --------
Cash and cash equivalents at end of period ............. $ 2,734 $ 10,207 $ 3,032
======== ======== ========
</TABLE>

See accompanying notes to financial statements

F-6
<PAGE>

ImClone Systems Incorporated
NOTES TO FINANCIAL STATEMENTS

(1) Organization and Basis of Preparation

ImClone Systems Incorporated (the "Company") is a biopharmaceutical company
engaged primarily in the research and development of therapeutic products for
the treatment of cancer and cancer related disorders. The Company employs
accounting policies that are in accordance with generally accepted accounting
principles in the United States.

The Company expects that its capital resources, including the ongoing
research support of its corporate partners, will be sufficient to fund its
operations through 1997. If, however, difficulty is encountered in attaining the
milestones necessary for continued research support, the Company would postpone
the budgeted expansion of operations to allow for funding of its operations
beyond 1997. Accordingly, in order to fund its capital needs after that time,
the Company will require significant levels of additional capital and intends to
raise the necessary capital through additional equity or debt financings,
arrangements with corporate partners or from other sources. The Company has
entered into preliminary discussions with several major pharmaceutical companies
regarding various alternatives concerning the funding of research and
development for certain of its products. No assurance can be given that the
Company will be successful in pursuing any such alternatives. In addition, the
Company may seek to enter into a significant strategic partnership with a
pharmaceutical company for the development of its lead product candidate, C225.
Such a strategic alliance could include an up-front equity investment and
license fees plus milestone fees and revenue sharing. There can be no assurance
that the Company will be successful in achieving such an alliance, nor can the
Company predict the amount of funds which might be available to it if it entered
into such an alliance or the time at which such funds would be made available.

The biopharmaceutical industry is subject to rapid and significant
technological change. The Company has numerous competitors, including major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions. These competitors may succeed in
developing technologies and products that are more effective than any which are
being developed by the Company or which would render the Company's technology
and products obsolete and non-competitive. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in
pre-clinical testing and human clinical trials of new or improved pharmaceutical
products and in obtaining Food and Drug Administration ("FDA") and other
regulatory approvals on products for use in health care. The Company is aware of
various products under development or manufactured by competitors that are used
for the prevention, diagnosis or treatment of certain diseases the Company has
targeted for product development, some of which use therapeutic approaches that
compete directly with certain of the Company's product candidates. The Company
has limited experience in conducting and managing pre-clinical testing necessary
to enter clinical trials required to obtain government approvals and has limited
experience in conducting clinical trials. Accordingly, the Company's competitors
may succeed in obtaining FDA approval for products more rapidly than the
Company, which could adversely affect the Company's ability to further develop
and market its products. If the Company commences significant commercial sales
of its products, it will also be competing with respect to manufacturing
efficiency and marketing capabilities, areas in which the Company has limited or
no experience.

F-7
<PAGE>

(2) Summary of Significant Accounting Policies

(a) Cash Equivalents

Cash equivalents consist primarily of U.S. government instruments,
commercial paper, master notes and other readily marketable debt instruments.
The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents.

(b) Investments in Securities

The Company classifies its investment in debt and equity securities in one
of three categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold the security until maturity. All
other securities not included in trading or held-to-maturity are classified as
available-for-sale.

Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.

A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established. Premiums and
discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.

At December 31, 1996, all investments in securities were classified as
available-for-sale.

Property and equipment are stated at cost. Depreciation of furniture and
equipment is provided by straight-line methods over estimated useful lives of
three to twelve years, and leasehold improvements are being amortized over the
related lease term (including optional renewal periods (Note 10)) or the service
lives of the improvements, whichever is shorter.

(d) Patent Costs

Patent and patent application costs are amortized on a straight-line basis
over their respective expected useful lives, up to a 15-year period.

(e) Deferred Financing Costs

Costs incurred in obtaining the Industrial Development Revenue Bonds (Note
5) are amortized using the straight-line method over the terms of the related
bonds.

F-8
<PAGE>

(f) Investment in and Advances to Affiliate

Cadus Pharmaceutical Corporation ("Cadus") was incorporated in January 1992
to develop novel classes of therapeutics that target signal transduction
pathways. The Company held a 50% investment in the capital stock of Cadus
through November 1994. In December 1994, an agreement was reached for the
Company to sell one-half of its shares of capital stock of Cadus to High River
Limited Partnership ("High River") for total consideration of $3.0 million. The
gain in 1994 on sale of the Cadus shares was recorded in the Statement of
Operations as other income for the year ended December 31, 1994. The cash
consideration was received by the Company on January 4, 1995.

During April 1995, the Company completed the sale of the remaining one-half
of its shares of capital stock of Cadus for $3.0 million, also to High River. In
exchange for receiving a now-expired right to repurchase all the outstanding
shares of capital stock of Cadus, the Company granted to High River two options
to purchase shares of Common Stock. One option is for 150,000 shares at an
exercise price per share equal to $2.00, subject to adjustment under certain
circumstances, and the other option is for 300,000 shares at an exercise price
per share equal to $0.69, subject to adjustment under certain circumstances.
Both options will expire on April 26, 2000.

(g) Revenue Recognition

License fees are recognized if the Company enters into license agreements
with third parties that provide for the payment of non-refundable fees when the
agreement is signed or when all parties concur that specified goals are
achieved. These fees are recognized as license fee revenues in accordance with
the terms of the particular agreement.

Research and development funding revenue is derived from collaborative
agreements with third parties and is recognized in accordance with the terms of
the respective contracts. Revenue from certain agreements is recognized using
the percentage of completion method based on contract costs incurred to date
compared with total estimated contract costs.

Revenue recognized in the accompanying statements of operations is not
subject to repayment. Revenue received that is related to future performance
under such contracts is deferred and recognized as revenue when earned.

(h) Stock Option Plan

Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.

(i) Research and Development

Research and development expenditures made pursuant to certain research and
development contracts with academic institutions, and other research and
development costs, are expensed as incurred.

F-9
<PAGE>

(j) Income Taxes

Effective January 1, 1993 the Company adopted SFAS No. 109, Accounting for
Income Taxes. SFAS No. 109 requires a change from the deferred method of
accounting for income taxes to the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns.

(k) Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Adoption of this
Statement did not have a material impact on the Company's financial position,
results of operations, or liquidity.

(m) Net Loss Per Share

Net loss per share is computed based on the weighted average number of
shares outstanding. Common stock equivalents are not included in the computation
of average shares outstanding because they are anti-dilutive.

(n) Reclassification

Certain amounts previously reported have been reclassified to conform to
current year's presentation.

F-10
<PAGE>

(3) Securities Available-For-Sale

Securities available-for-sale of $10,780,000 at December 31, 1996 consisted
of mortgage-backed debt securities. The amortized cost of such securities was
$10,829,000 and the net unrealized holding losses were $49,000 at December 31,
1996. These securities available-for-sale have maturities ranging from 1997 to
1999.

(4) Accrued Expenses and Other

The following items are included in accrued expenses and other:

December 31, December 31,
1996 1995
------------ ------------
Salaries and other
payroll related expenses ................. $ 782,000 $206,000
Legal and accounting fees .................. 217,000 145,000
Other ...................................... 367,000 475,000
---------- --------
$1,366,000 $826,000
========== ========

(5) Long-term Debt

Long-term debt is comprised of the following:

December 31, December 31,
1996 1995
------------ ------------
10.75% Bond due 1997 ................. $ 2,113,000 $ 2,113,000
11.25% Bond due 2004 ................. 2,200,000 2,200,000
Less current portion ................. (2,113,000) (2,113,000)
----------- -----------
$ 2,200,000 $ 2,200,000
=========== ===========

On December 31, 1986, the New York City Industrial Development Agency (the
"NYIDA") issued an Industrial Development Revenue Bond (the "1986 Bond") on
behalf of the Company in the amount of $2,113,000. During December 1994, the
Bond's original maturity date of December 15, 1994 was extended to June 15,
1996. During June 1996, the Company and the NYIDA extended the maturity date an
additional eighteen months to December 15, 1997. The proceeds from the sale of
this Bond were used by the Company for the acquisition, construction and
installation of the Company's research and development facility in New York
City.

In August 1990, the NYIDA issued another Industrial Development Revenue
Bond (the "1990 Bond") in the amount of $2,200,000. The Bond is due May 1, 2004.
The proceeds from the sale of the Bond were used by the Company for the
acquisition, construction and installation of the Company's research and
development facility in New York City.

The Company has granted a security interest in substantially all equipment
located in its New York City facility to secure the obligations of the Company
to the NYIDA relating to the 1986 Bond and the 1990 Bond.

F-11
<PAGE>

(6) Long-term Liabilities and Notes Payable

(a) Other Long-term Liabilities

Other long-term liabilities is comprised of the following:

December 31, December 31,
1996 1995
------------ ------------
Liability to reacquire IL-6m rights ............ $ 1,917,000 $ 2,400,000
Liability under capital lease obligations ..... 354,000 125,000
Liability under license agreement .............. 49,000 53,000
Less current portion ........................... (1,745,000) (2,471,000)
----------- -----------
$ 575,000 $ 107,000
=========== ===========

In July 1993, the Company entered into an agreement with Erbamont, Inc.,
now a subsidiary of Pharmacia and Upjohn, Inc. ("Pharmacia"), to acquire the
worldwide rights to IL-6m, a blood cell growth factor, which had been licensed
to Pharmacia pursuant to a development and licensing agreement. In consideration
of the return of rights and the transfer of certain material and information,
the Company has paid $1.4 million and has further obligations to Pharmacia. Such
obligations, including those to pay for IL-6 mutein material manufactured and
supplied by Pharmacia, totaled $2.4 million at March 31, 1996. In addition, the
Company is required to pay Pharmacia $2.7 million in royalties on eventual sales
of IL-6m, if any. In March, 1996, the Company entered into a Repayment Agreement
with Pharmacia (the "Repayment Agreement") pursuant to which it agreed to pay
the $2.4 million over 24 months commencing in March 1996, with interest only
payable during the first six months. At December 31, 1996 the remaining
obligation to Pharmacia totaled $1.9 million. In connection with the Repayment
Agreement, the Company signed a Confession of Judgment, which can be filed by
Pharmacia with an appropriate court in the case of default by the Company.
Pursuant to a Security Agreement entered into with Pharmacia, the Company
pledged its interests in patents related to IL-6m and to heparanase to secure
its obligations under the Repayment Agreement.

During fiscal 1992, the Company entered into a capital lease agreement for
laboratory equipment which was recorded as an asset in the amount of $262,000.
The lease extends over a five-year period and has a bargain purchase option at
the end of the lease term. At December 31, 1996, the accumulated depreciation on
this equipment totaled $180,000. See also Note 10.

In December 1996, the Company signed an agreement with Finova Technology
Finance, Inc. ("Finova") to finance the lease of laboratory and computer-related
equipment and make certain building and leasehold improvements to existing
facilities involving payments aggregating approximately $2,500,000. The first of
multiple intended leases was signed in December 1996 at a cost of $421,000 and
related to equipment previously purchased by the Company during 1996. This
capital lease has been treated as a sale-leaseback transaction and no gain or
loss was recognized on the sale. Each lease has a fair market value purchase
option at the expiration of a 42-month term. At December 31, 1996, accumulated
depreciation on these assets totaled $6,000. Pursuant to the agreement, the
Company issued to Finova a warrant expiring December 31, 1999 to purchase 23,220
shares of Common Stock at an exercise price of $9.69 per share. The Company
recorded a non-cash debt discount of approximately $125,000 in connection with
this financing, which discount is being amortized over the 42-month term of the
first lease. See also Notes 10 and 11.

In connection with the Company's production and eventual marketing of
certain products, the Company entered into a license agreement which requires
minimum annual royalty payments throughout the term of the agreement. The
agreement expires in 2004 and calls for minimum annual payments of $10,000,
which are creditable against royalties that may be due from sales. To the extent
the minimum annual royalties are not expected to be offset by sales, the Company
has charged the net present value of these payments to operations. An interest
rate of 10% was used to discount the cash flows.

F-12
<PAGE>

(b) Long-term Notes Payable, net

Long-term notes payable is comprised of the following:

December 31, December 31,
1996 1995
------------ ------------
Liability for director
promissory note, including interest ........ $ -- $ 186,000
Liability for long-term loan,
including interest ......................... -- 2,583,000
Less loan discount ........................... -- (841,000)
---------- -----------
$ -- $ 1,928,000
========== ===========

In July 1995, a director loaned the Company $180,000 in exchange for a
long-term note due two years from issuance at an annual interest rate of 8%. As
part of the transaction, the director was granted 36,000 warrants to purchase
Company common stock at $1.50 per share and an additional 36,000 warrants to
purchase Company common stock at $3.00 per share. In May 1996, the Company and
the director exchanged the note for 24,000 shares of Common Stock and the
Company paid the accrued and unpaid interest on the note in the amount of
$10,000 in cash. The Company recorded an extraordinary loss of $39,000 on the
extinguishment of the debt. The Company has registered such shares of Common
Stock with the Commission under a registration statement in accordance with the
provisions of the Securities Act of 1933 (the "1933 Act").

On August 11, 1995, the Oracle Group purchased 1,000,000 shares of Common
Stock for a purchase price of $1.5 million and made a loan to the Company in the
aggregate amount of $2.5 million with a two-year maturity, but subject to
mandatory prepayment, in whole or in part, upon the occurrence of certain
events, including the raising of certain additional funds. The loan carried an
annual interest rate of 8%. The Oracle Group includes Oracle Partners, L.P.,
Quasar International Partners C.V., Oracle Institutional Partners L.P., Sam
Oracle Fund, Inc. and Warren B. Kanders. The Oracle Group also received warrants
exercisable at any time until August 10, 2000 entitling the holders thereof to
purchase 500,000 shares of Common Stock at a price of $1.50 per share and
500,000 shares of Common Stock at a price of $3.00 per share. As a result of the
Company's offerings of shares of its Common Stock in November 1995 and February
1996, the Oracle Group was entitled to require the Company to apply 20 percent
of the gross proceeds of the sale of the shares of Common Stock from the
offerings to repay the loan.

In May 1996, the Company and the Oracle Group exchanged the notes in the
aggregate outstanding principal amount of $2.5 million for 333,333 shares of
Common Stock and the Company paid the accrued and unpaid interest on the notes
in the amount of $143,000 in cash. The Company recorded an extraordinary loss of
$1,228,000 on the extinguishment of the debt. The Company has registered such
shares of Common Stock with the Commission under a registration statement in
accordance with the provisions of the 1933 Act.

F-13
<PAGE>

(7) Research Agreements

The Company has entered into several research and development agreements
with third parties. Generally, the agreements provide for the Company to receive
research and development funding, milestone payments, royalties, or license fees
or a combination thereof. In return, the Company has granted licenses to these
third parties to market or manufacture and market certain of its products in
specified fields of use and in specified geographic areas.

Revenues for the years ended December 31, 1996, December 31, 1995, and
December 31, 1994 were $600,000, $800,000, and $950,000 respectively. Revenues
for each year consisted of $300,000 from its corporate partnership with the
Wyeth-Lederle Vaccine Division of American Home Products Corporation ("American
Home") in infectious disease vaccines. In addition, revenues for the year ended
December 31, 1996 included royalty fees of $225,000 from the Company's strategic
alliance with Abbott Laboratories ("Abbott") in diagnostics. Revenues for the
years ended December 31, 1995, and December 31, 1994 included contract research
fees of $500,000 and $400,000, respectively, also from the Abbott alliance. The
year ended December 31, 1996 also included $75,000 in license fees from the
Company's cross-licensing agreement with Immunex Corporation ("Immunex") for
novel hematopoietic growth factors. Finally, license fees of $250,000 were
recognized from the Abbott alliance during the year ended December 31, 1994.

Revenues for all three years were derived from United States sources.

(8) Capital Stock

(a) Stock Option Plans:

In February 1986, the Company adopted an Incentive Stock Option Plan and a
Nonqualified Stock Option Plan (the "86 Plans"). On February 25, 1996, the
Company adopted an additional Stock Option Plan and Nonqualified Stock Option
Plan (the "96 Plans") which were approved by shareholders at its Annual Meeting
held June 3, 1996. Combined, the 86 and 96 Plans provide for the granting of
options to purchase up to 3,000,000 shares of Common Stock to key employees and
advisors. Incentive stock options may not be granted at a price less than the
fair market value of the stock at the date of grant. Options under both the 86
and 96 Plans expire ten years from the date of grant. Certain options granted
under these plans vest over three- to five-year periods. At December 31, 1996,
options to purchase 2,103,577 shares of Common Stock were outstanding and
525,625 shares were available for grant.

A summary of stock option activity follows:

Weighted average
Number of exercise price
shares per share
---------- ----------
Balance at December 31, 1993 ................ 969,321 $8.75
1994 activity
Granted ................................ 254,500 3.94
Exercised .............................. --
Canceled ............................... (331,742) 10.21
----------
Balance at December 31, 1994 ................ 892,079 $6.83
1995 activity
Granted ................................ 752,000 1.91
Exercised .............................. (156,750) 1.04
Canceled ............................... (120,375) 1.45
----------
Balance at December 31, 1995 ................ 1,366,954 $2.34
1996 activity
Granted ................................ 1,077,875 9.85
Exercised .............................. (266,275) 3.18
Canceled ............................... (74,977) 2.58
----------
Balance at December 31, 1996 ................ 2,103,577 $6.08
----------

F-14
<PAGE>

In June 1996, the Company granted options to purchase 116,000 shares of its
Common Stock to certain Scientific Advisory Board members in consideration for
future services. The fair value of the grant was approximately $756,000 as
calculated using the Black-Scholes option pricing model. Compensation expense is
being recognized ratably over the four year vesting period of the options. See
Note 8(c) for weighted average assumptions used. During the year ended December
31, 1996, the Company recognized approximately $95,000 in compensation expense
relating to the above grants.

During April 1995, the Company completed the sale of the remaining one-half
of its shares of capital stock of Cadus for $3.0 million to High River. In
exchange for receiving a now-expired right to repurchase all the outstanding
shares of capital stock of Cadus, the Company granted to High River two options
to purchase shares of Common Stock. One option is for 150,000 shares at an
exercise price per share equal to $2.00, subject to adjustment under certain
circumstances, and the other option is for 300,000 shares at an exercise price
per share equal to $0.69, subject to adjustment under certain circumstances.
Both options will expire on April 26, 2000. The 450,000 options have a weighted
average exercise price of $1.13.

On February 2, 1995, exercise prices for certain granted and outstanding
Incentive and Nonqualified Stock Options with original exercise prices in excess
of $1.25 per share were offered to be repriced to $1.25 per share, by vote of a
Special Subcommittee of the Compensation Committee of the Board of Directors.
Benefit of repricing was confined to individuals who continued to serve the
Company as employees or consultants, and 645,000 options were repriced. In
connection with the offer of repricing, the vesting schedule of those choosing
to accept repriced options was extended to June 30, 1995 for options already
vested or to vest prior to June 30, 1995. The closing trading price of the
Company's common stock on February 2, 1995 was $0.69.

(b) Warrants

As of December 31, 1996, a total of 3,275,645 common shares were issuable
under outstanding warrants. Such warrants have been issued to certain officers,
directors and other employees of the Company, certain Scientific Advisory Board
members, certain investors and certain credit providers and investors.

A summary of warrant activity follows:
Weighted
Number of Average Exercise
Shares Price Per Share
--------- ----------------
Balance at December 31, 1993 ........ 2,983,970 9.47
1994 Activity
Granted ........................ 24,600 0.69
Exercised ...................... -- --
Cancelled ...................... (536,003) 6.61
---------
Balance at December 31, 1994 ........ 2,472,567 10.01

1995 Activity
Granted ........................ 1,434,300 3.03
Exercised ...................... (15,300) 1.50
Cancelled ...................... -- --
---------
Balance at December 31, 1995 ........ 3,891,567 3.15

1996 Activity
Granted ....................... 23,220 9.69
Exercised ..................... (604,892) 4.89
Cancelled ..................... (34,250) 12.92
---------
Balance at December 31, 1996 ....... 3,275,645 2.41
=========

During September 1996, the Company repriced certain warrants held by
investors to purchase 80,700 shares of Common Stock in order to promote their
exercise prior to pending expiration. The warrants were repriced to an amount
which was ten percent less than the average closing price for the Common Stock
for the thirty days leading up to and including the day prior to the date of
exercise. The fair market value of the warrant was reflected as a cost of
capital.

During November 1996, the Company repriced certain warrants held by
investors to purchase 130,000 shares of Common Stock in order to promote their
exercise prior to pending expiration. The warrants were repriced to an amount
which was ten percent less than the average closing price for the Common Stock
for the thirty days leading up to and including the day prior to the date of
exercise. The fair market value of the warrant was reflected as a cost of
capital.

In December 1995, the Company granted its President a ten-year warrant to
purchase 350,000 common shares at an exercise price determined by the $5.50
trading price of the stock on the date of grant. The grant of the warrant was
approved by shareholders at its Annual Meeting held June 3, 1996.

On February 2, 1995 exercise prices for certain granted and outstanding
warrants were offered to be repriced to $1.50 per share. The benefit of the
repricing was confined to individuals who continued to serve the Company as
employees or consultants, and 2,048,217 warrants were repriced. In consideration
for the offer of repricing, those choosing to accept the repriced warrants are
to pay the Company the difference in value before and after repricing as
calculated by use of the Black-Scholes model, which payment can be made through
promissory notes to the Company. The closing trading price of the Company's
common stock on February 2, 1995 was $.69.

F-15
<PAGE>

The outstanding warrants expire and are exercisable for the number of
shares of Common Stock as shown below:

March 1997.................................................... 728,500
December 1999................................................. 47,820
March 2000.................................................... 12,300
July 2000..................................................... 72,000
August 2000................................................... 925,000
November 2000................................................. 12,720
March 2001.................................................... 2,500
May 2001...................................................... 1,112,805
June 2003..................................................... 12,000
December 2005................................................. 350,000
----------
Total............................................. 3,275,645
==========

Options and Warrants

In 1996, the Company adopted the provisions of SFAS No. 123, "Accounting
for Stock Based Compensation". The following table summarizes the weighted
average fair value of stock options and warrants granted during years ended
December 31, 1996 and 1995:

<TABLE>
<CAPTION>
Option Plans Warrant Plans
----------------------------------- ----------------------------------
1996 1995 1996 1995
------------------ -------------- ------------- -----------------
Shares $ Shares $ Shares $ Shares $
---------- ------ -------- ----- ------ ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise price equals market value at date
of grant ..................................... 1,077,875 $5.56 602,000 $1.07 23,220 $5.39 1,434,300 $0.64

Exercise price exceeds market value at date of
grant ........................................ -- $ -- 795,000 $0.32 -- $ -- 2,048,217 $0.29
</TABLE>

The above table share amounts for 1995 reflect the impact of the re-pricing
as discussed in Notes 8(a) and (b).

The fair value of stock options and warrants was estimated using the
Black-Scholes option pricing model. The Black-Scholes model considers a number
of variables including the exercise price and the expected life of the option,
the current price, the expected volatility and the dividend yield of the
underlying stock, and the risk-free interest rate during the expected term of
the option. The following summarizes the weighted average assumptions used:

<TABLE>
<CAPTION>
Option Plans Warrant Plans
--------------------------------- --------------------------------
1996 1995 1996 1995
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Expected life (years)............... 3.5 2.5 2.0 (1) 2.0
Interest rate....................... 5.00% 5.00% 5.00% 5.00%
Volatility.......................... 85.13% 85.13% 85.13% 85.13%

</TABLE>

(1) The weighted average expected life does not include the warrants repriced
in 1996 as they were exercised simultaneously.

The estimated volatility reflects the performance of the Company's Common
Stock over the twelve-month period ended December 31, 1996. The expected life of
the options and warrants reflects the anticipated holding period prior to
exercise. The estimated risk-free interest rate used is based on risk-free
investment products with similar terms.

The following table summarizes information concerning stock options
outstanding at December 31, 1996:

Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/96 Term Price at 12/31/96 Price
----------------- ----------- ----------- -------- ----------- --------

F-16
<PAGE>

As of December 31, 1996, the outstanding warrants to purchase 3,275,645
common shares were all exercisable. The weighted average remaining contractual
term at December 31, 1996 for the 12,300 outstanding warrants exercisable at
$.63 per share is 3.2 years, the 24,600 exercisable at $.69 per share is 3.0
years, the 2,285,525 exercisable at $1.50 per share is 3.6 years, the 498,500
exercisable at $3.00 per share is 5.8 years, the 21,500 exercisable at $4.00 per
share is 0.2 years, the 350,000 exercisable at $5.50 per share is 9.0 years, the
12,000 exercisable at $7.00 per share is 6.5 years, the 23,220 exercisable at
$9.69 per share is 3.0 years, the 6,000 exercisable at $10.00 per share is 3.9
years, and the 42,000 exercisable at $13.33 per share is 4.3 years.

Pro forma net loss and loss per share reflect compensation cost of $3.6
million and $2.1 million, respectively, for the years ended December 31, 1996
and 1995. The fair value of combined stock options and stock warrants awarded in
1996 and 1995 were as follows:

(Thousands of dollars,
except per share amounts) 1996 1995
- ------------------------- ---- ----
Net loss As reported $(16,015) $ (9,641)
Pro forma $(19,653) $(11,728)

Loss per share As reported $ (0.83) $ (0.72)
Pro forma $ (1.01) $ (0.88)

The amounts disclosed may not be representative of the effects on reported
net loss for future years.

(9) Income Taxes

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and December 31, 1995 are presented below.
<TABLE>
<CAPTION>

December 31, December 31,
1996 1995
------------ -------------
Deferred tax assets:
<S> <C> <C>
Liability to reacquire IL-6m rights and materials............. $863,000 $ 1,147,000
Gain on sale of Cadus shares ................................. -- 1,367,000
Equity in loss of affiliate .................................. -- 917,000
Research and development credit carryforward ................. 1,883,000 1,757,000
Compensation relating to the issuance of
stock options and warrants .................................. 2,740,000 3,038,000
Net operating loss carryforwards ............................. 44,374,000 31,870,000
Other ........................................................ 958,000 540,000
------------ ------------
Total gross deferred tax assets ..................... 50,818,000 40,636,000
Less valuation allowance ............................ (50,818,000) (40,636,000)
------------ ------------
Net deferred tax assets ............................. $ -- $ --
------------ ------------
Deferred tax liabilities:
Property and equipment, principally due to
depreciation and amortization............................... $ -- $ --
------------ ------------
Total gross deferred tax liabilities ................ $ -- $ --
============ ============
Net deferred tax asset .............................. $ -- $ --
============ ============
</TABLE>

For the years ended December 31, 1996 and December 31, 1995, the Company
established an aggregate valuation allowance of $50,818,000 and $40,636,000
respectively, to reflect management's belief that significant uncertainty exists
regarding the ultimate realization of its deferred tax assets.

At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $97,350,000 which expire at various
dates from 2000 through 2011. At December 31, 1996 the Company had research
credit carryforwards of approximately $1,883,000 which expire at various dates
between years 2001 and 2011. Pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended, the annual utilization of the Company's net operating
loss and research credit carryforwards may be limited if the Company experiences
a change in ownership of more than 50% within a three-year period. The Company
believes that one or more of such ownership changes may have occurred since
1986. Therefore, the Company may be significantly limited in utilizing its tax
net operating loss carryforwards arising before such ownership change(s) to
offset future taxable income. Similarly, the Company may be restricted in using
its research credit carryforwards arising before such ownership change(s) to
offset future federal income tax expense.

F-17
<PAGE>

(10) Commitments

Leases

The Company leases premises under an operating lease, a portion of which
expired in 1993 and a portion of which expires in 1999. The Company has extended
the 1993 expired portion of the lease through 1997 at 85% of each year's fair
market rental value and from 1997 to 1999 at 100% of each year's fair market
rental value, for a portion of the premises. The rate for the remaining portion
of the premises is $264,000 annually through March 31, 1997 and $285,000
annually through March 31, 1999. The estimated future lease payment schedule
below is based on the exercise of the renewal options described above, using a
fair market rental value of $10.00 per square foot. Rent expense for leased
premises was approximately $508,000, $493,000, and $467,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

Future minimum lease payments under the capital and operating leases are as
follows:

Capital Operating
Leases Leases
------------ ------------
Years ending December 31,
- -------------------------
1997 ................................... $ 203,000 $ 516,000
1998 ................................... 142,000 513,000
1999 ................................... 141,000 291,000
2000 ................................... 71,000 8,000
2001 ................................... -- 1,000
Thereafter ............................. -- --
----------- ----------
$ 557,000 $1,329,000
Less interest expense .................. (203,000) --
----------- ----------
$ 354,000 $1,329,000
=========== ==========

Supported Research

The Company has entered into various research and license agreements with
certain universities to supplement the Company's research activities and to
obtain for the Company rights to certain technology. The agreements generally
require the Company to fund the research and to pay royalties based upon
percentages of revenues, if any, on sales of products developed from technology
arising under these agreements.

Consulting Agreements

The Company has consulting agreements with several of its Scientific
Advisory Board members and other consultants. These agreements generally are for
a term of one year or are terminable at the Company's option.

F-18
<PAGE>

(11) Supplemental Cash Flow Information and Non-cash Investing and Financing
Activities are as Follows:
<TABLE>
<CAPTION>

(In Thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental Cash Flow Information
Cash paid during the period for:
Interest............................................. $ 817.0 $ 504.0 $ 504.0
------- ------- -------
Supplemental Non-cash Investing and Financing Activities
Finova capital asset and lease obligation additions.... 421.0 -- --
Fair value of Finova warrant........................... 125.0 -- --
Extinguishment of Oracle Group debt for stock.......... 2,500.0 -- --
Extinguishment of director debt for stock.............. 180.0 -- --
Unrealized loss on securities available for sale....... 49.0 -- --
</TABLE>

(12) Related Party Transactions

The outstanding balance of total miscellaneous noninterest-bearing cash
advances to the President and CEO of the Company on December 31, 1994 totaled
approximately $156,000. The officer has provided the Company with a demand
promissory note pursuant to which the officer is obligated to repay the debt
over a twenty four month period ending April 30, 1997.

During the year ended December 31, 1995, the Company made additional
miscellaneous non-interest-bearing cash advances to the officer totaling $7,000.
In addition, the officer repaid $31,000 of the demand promissory note during the
year ended December 31, 1995. This brought the outstanding balance of total
miscellaneous non-interest-bearing cash advances to the officer of $132,000 at
December 31, 1995.

During the year ended December 31, 1996, the Company made additional
miscellaneous non-interest-bearing cash advances to the officer totaling $8,000.
In addition, the officer repaid $39,000 of the demand promissory note during the
year ended December 31, 1996. This brought the outstanding balance of total
miscellaneous non-interest-bearing cash advances to the officer of $101,000 at
December 31, 1996.

In March 1995, two directors (one of whom is an officer) each loaned the
Company $20,000 in exchange for short-term notes due sixty days from issuance.
As part of the transaction, the directors were each granted 2,460 five-year
warrants to purchase Company common stock at $.625 per share, the stock closing
price on the date of the promissory note. Each lender could accept payment of
principal and interest at 15% in Company shares in lieu of cash, also at $.625
per share. In May 1995, one director accepted payment of $20,493 which included
principal and interest at 15%. The second lender accepted principal and interest
totaling $15,493 and 8,000 shares of Company common stock at $.625 per share.

F-19
<PAGE>

Also in March 1995, a director and a shareholder each loaned the Company
$30,000 in exchange for short-term notes due sixty days from issuance. As a part
of the transaction, the director and shareholder were each granted 3,690
five-year warrants to purchase Company common stock at $.625 per share, the
stock closing price on the date of the promissory note. Each lender could accept
payment of principal and interest at 15% in Company shares in lieu of cash, also
at $.625 per share. During May 1995, the director accepted payment of 49,184
shares of Company common stock at $.625 per share, while the shareholder
accepted $30,740 which included principal and interest at 15%.

In May 1995, the Company loaned an officer $20,000 in exchange for a demand
promissory note. The officer was obligated to repay the debt over a sixteen
month period ended September 17, 1996. The loan was paid in full in December
1995.

In January 1996, the Company paid Concord International Investment Group,
LP, approximately $163,000 for services rendered by it to the Company in
connection with structuring a contemplated product related financing for C225.
Mr. Robert F. Goldhammer, Chairman of the Board of Directors, is a limited
partner of Concord International Investment Group, LP.

In August 1995 and January 1996, the Company paid Delano & Kopperl
Financial Advisors, Inc. a total of approximately $69,000 for services rendered
by it to the Company in connection with structuring a contemplated product
related financing for C225. Paul B. Kopperl, a director of the Company, is
President, director, and 25% shareholder of Delano & Kopperl Financial Advisors,
Inc.

F-20
<PAGE>

(13) Fair Value of Financial Instruments

For the years ended December 31, 1996 and 1995, the following methods and
assumptions were used to estimate the fair value of each class of financial
instrument:

Cash and cash equivalents, accounts payable, accrued and other current
liabilities

The carrying amounts approximate fair value because of the short maturity
of those instruments.

Long-term debt and notes payable

Discounted cash flow analyses were used to determine the fair value of
long-term debt and notes payable because quoted market prices on these
instruments were unavailable. The fair value of these instruments approximated
the carrying amount.

(14) Summary of Quarterly Results of Operations (Unaudited)

The following unaudited quarterly financial information includes, in
management's opinion, all normal and recurring adjustments necessary to fairly
present the Company's results of operations and related information for the
periods presented. Net loss per share has been computed using the weighted
average shares outstanding during each quarter. Common stock equivalent shares
are excluded where the effect of their inclusion would result in decreasing the
net loss per share.

<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------
(In thousands, except per share data) 3/31 6/30 9/30 12/31
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Revenues ................................. $ 75 $ 75 $ 75 $ 375
Operating expenses ....................... 3,066 3,438 3,714 5,225
------- ------- ------- -------
Operating loss ........................... (2,991) (3,363) (3,639) (4,850)
Net interest and other expense(income) ... 154 (61) (97) (91)
------- ------- ------- -------
Loss before extraordinary item ........... (3,145) (3,302) (3,542) (4,759)
Extraordinary loss on extinguishment
of debt................................ -- 1,267 -- --
------- ------- ------- -------
Net loss ................................. $(3,145) $(4,569) $(3,542) $(4,759)
======= ======= ======= =======
Net loss per common share:
Loss before extraordinary item ........... $ (0.18) $ (0.17) $ (0.18) $ (0.25)
Extraordinary loss on extinguishment
of debt ............................... -- 0.06 -- --
------- ------- ------- -------
Net loss per common share ................ $ (0.18) $ (0.23) $ (0.18) $ (0.25)
======= ======= ======= =======

Year ended December 31, 1995
Revenues ................................. $ 75 $ 75 $ 575 $ 75
Operating expenses ....................... 2,871 2,745 2,823 4,068
------- ------- ------- -------
Operating loss ........................... (2,796) (2,670) (2,248) (3,993)
Net interest and other expense(income) ... 218 (2,837) 267 286
------- ------- ------- -------
Net income (loss) ........................ (3,014) 167 (2,515) (4,279)
------- ------- ------- -------
Net income (loss) per share .............. $ (0.24) $ 0.01 $ (0.19) $ (0.29)
======= ======= ======= =======
</TABLE>

F-21
<PAGE>

PART II

Information Not Required in Prospectus

Item 14. Other Expenses of Issuance and Distribution

The following table sets forth all expenses payable by the Company in
connection with the sale of the Shares:

SEC registration fee.......................................... $ 7,614.00
Nasdaq listing fee............................................ $17,500.00
Blue Sky fees and expenses*................................... $ 3,000.00
Legal fees and expenses*...................................... $18,000.00
Accounting fees and expenses*................................. $ 3,000.00
Printing fees and expenses*................................... $ 8,000.00
Miscellaneous*................................................ $ 2,886.00
----------
Total*.................................................... $60,000.00
==========
- ----------
*Estimated

Item 15. Indemnification of Directors and Officers

The Company's Certificate of Incorporation sets forth the extent to which
officers or directors of the Company may be indemnified against any liabilities
which they may incur. The general effect of such charter provision is that any
person made a party to an action, suit or proceeding by reason of the fact that
he is or was a director or officer of the Company, or of another corporation or
other enterprise which he served as such at the request of the Company, shall be
indemnified by the Company against expenses (including attorneys' fees,
judgments, fines and amounts paid in settlement) reasonably incurred by him in
connection with such action, suit or proceeding, to the full extent permitted
under the laws of the State of Delaware. The Company's Certificate of
Incorporation gives the Board of Directors the authority to extend such
indemnification to employees and other agents of the Company as well.

The general effect of the indemnification provisions contained in Section
145 of the Delaware General Corporation Law is as follows: A director or officer
who, by reason of such directorship or officership, is involved in any action,
suit or proceeding (other than an action by or in the right of the corporation)
may be indemnified by the corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was unlawful.
A director or officer who, by reason of such directorship or officership, is
involved in any action or suit by or in the right of the corporation may be
indemnified by the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which he shall have been adjudged to be liable to the
corporation unless and only to the extent that a court of appropriate
jurisdiction shall approve such indemnification.

The Company's Certificate of Incorporation provides that, to the maximum
extent permitted under the Delaware General Corporation Law, a director of the
Company shall not be personally liable to the Company or to any of its
stockholders for monetary damages for breach of fiduciary duty as a director of
the Company. Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to include in its certificate of incorporation a provision that

II-1
<PAGE>

eliminates or limits 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 Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.

The Company maintains $1 million in insurance for its officers and
directors in connection with claims against them in their capacity as officers
or directors.

Item 16. Exhibits

5 - Opinion of Law Offices of Brian W Pusch

23.1 - Consent of Law Offices of Brian W Pusch (included in Exhibit 5)

23.2 - Consent of KPMG Peat Marwick LLP

24 - Power of Attorney (see page II-4)

27 - Financial Data Schedule

Item 17. Undertakings

(a) 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 of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of this 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 this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;

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

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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.

II-2
<PAGE>

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

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

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

(i) The undersigned registrant hereby undertakes that:

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

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

II-3
<PAGE>

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-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 25th day of
February, 1997.

IMCLONE SYSTEMS INCORPORATED

By /s/ SAMUEL D. WAKSAL
------------------------------------
Samuel D. Waksal
President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes
Samuel D. Waksal, Harlan W. Waksal and John B. Landes, or any one of them, to
execute in the name of each such person and to file any amendment to this
Registration Statement and appoints Samuel D. Waksal, Harlan W. Waksal and John
B. Landes, or any one of them, as attorney-in-fact to sign on his behalf
individually and in each capacity stated below and to file any amendments to
this Registration Statement, including any and all post-effective amendments.

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

Signature Title Date
--------- ----- ----

/s/ ROBERT F. GOLDHAMMER Chairman of the Board and February 25, 1997
- ------------------------ Director
(Robert F. Goldhammer)

/s/ SAMUEL D. WAKSAL President, Chief Executive February 25, 1997
- ------------------------ Officer and Director
(Samuel D. Waksal) (Principal Executive Officer)

/s/ HARLAN W. WAKSAL Executive Vice President, February 25, 1997
- ------------------------ Chief Operating Officer
(Harlan W. Waksal) and Director

/s/ CARL GOLDFISCHER Vice President of Financial and February 25, 1997
- ------------------------ Strategic Planning and
(Carl Goldfischer) Chief Financial Officer
(Principal Financial Officer)

II-4
<PAGE>

/s/ RICHARD BARTH Director February 25, 1997
- ------------------------
(Richard Barth)

/s/ JEAN CARVIS Director February 25, 1997
- ------------------------
(Jean Carvais)

/s/ VINCENT T. DEVITA, JR. Director February 25, 1997
- ------------------------
(Vincent T. DeVita, Jr.)

/s/ DAVID M. KIES Director February 25, 1997
- ------------------------
(David M. Kies)

/s/ PAUL B. KOPPERL Director February 25, 1997
- ------------------------
(Paul B. Kopperl)

/s/ WILLIAM R. MILLER Director February 25, 1997
- ------------------------
(William R. Miller)

II-5
<PAGE>

EXHIBIT INDEX

Exhibit No. Exhibit Page No.
----------- ------- --------

5 Opinion of Law Offices of Brian W. Pusch

23.1 Consent of Law Offices of Brian W.
Pusch (included in Exhibit 5)

23.2 Consent of KPMG Peat Marwick LLP

24 Power of Attorney (see page II-4)

27 Financial Data Schedule

EXHIBIT 5
LAW OFFICES OF
BRIAN W PUSCH
ATTORNEYS AT LAW

PENTHOUSE SUITE
29 WEST 57TH STREET
NEW YORK, NY 10019
TELEPHONE (212) 980-0408
FACSIMILE (212) 980-7055

February 25, 1997

ImClone Systems Incorporated
180 Varick Street
New York, New York 10014

IMCLONE SYSTEMS INCORPORATED
Registration of 3,000,000 Shares of
Common Stock, par value $.001 per share,
on Form S-3 Registration Statement

Ladies and Gentlemen:

We are acting as special counsel to ImClone Systems Incorporated, a
Delaware corporation (the "Company"), in connection with the filing by the
Company with the U.S. Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), of a Registration
Statement on Form S-3 (the "Registration Statement") pursuant to which 3,000,000
shares (the "Shares") of the Company's Common Stock, par value $.001 per share,
may be offered and sold from time to time by the Company.

This opinion is being furnished pursuant to the requirements applicable to
Item 16 of Part II of the Registration Statement.

In connection with this opinion, we have examined and relied on originals
or copies, certified or otherwise identified to our satisfaction, of such
corporate records, documents, agreements or other instruments of the Company,
orders, rulings and certificates of public officials, officers and
representatives of the Company and such other persons, have made investigations
of law, and have discussed with officers and other representatives of the
Company such questions of fact, as we have deemed proper and necessary as a
basis for the opinions hereinafter expressed. As to certain questions of fact we
have relied, without independent verification, on information provided to us by
the Company. We have assumed the genuineness of all signatures appearing on the

<PAGE>

ImClone Systems Incorporated
February 25, 1997
Page 2

documents furnished to or reviewed by us and we have also assumed that any
person purporting to execute any document in a representative capacity is a duly
authorized representative of the person for whom such person executed such
document.

Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized, and when (1) the Registration Statement shall
have become effective, (2) the applicable provisions of the securities or blue
sky laws of certain jurisdictions shall have been complied with, and (3) the
Shares shall have been issued and paid for in accordance with the terms of sale
thereof, the Shares will be validly issued, fully paid and non-assessable under
the laws of the State of Delaware.

We are admitted to practice in the State of New York and we express no
opinion herein concerning any laws other than the laws of the State of New York
and the General Corporation Law of the State of Delaware.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.

Very truly yours,

/s/ Brian W. Pusch
----------------------
Brian W. Pusch

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
ImClone Systems Incorporated:

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

/s/ KPMG Peat Marwick LLP
---------------------------
KPMG PEAT MARWICK LLP

New York, New York
February 25, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,734
<SECURITIES> 10,780
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,216
<PP&E> 20,156
<DEPRECIATION> (9,606)
<TOTAL-ASSETS> 25,885
<CURRENT-LIABILITIES> 6,521
<BONDS> 4,113
0
0
<COMMON> 20
<OTHER-SE> 16,569
<TOTAL-LIABILITY-AND-EQUITY> 25,885
<SALES> 0
<TOTAL-REVENUES> 600
<CGS> 0
<TOTAL-COSTS> 15,443
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14,748)
<INCOME-TAX> 0
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