SPARTA PHARMACEUTICALS INC
S-3/A, 1996-10-17
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)
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<PAGE>
 As filed with the Securities and Exchange Commission on October 17, 1996.
                                                                   -----

                                                     Registration No. 333-13621

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                      ------------------------------------
   
                                Amendment No. 1
                                    FORM S-3
                             REGISTRATION STATEMENT
                                      Under
                           THE SECURITIES ACT OF 1933

                         -------------------------------
                          SPARTA PHARMACEUTICALS, INC.
               (Exact name of Issuer as specified in its charter)

                                 ---------------
    
<TABLE><CAPTION>
<S>                              <C>                            <C>
            Delaware                        2836                    56-1755527
(State or other jurisdiction of  (Primary Standard Industrial    (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification Number)
</TABLE>

                                  111 Rock Road
                           Horsham, Pennsylvania 19044
                                 (215) 442-1700

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

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

                              JERRY B. HOOK, Ph.D.
                      President and Chief Executive Officer
                          Sparta Pharmaceuticals, Inc.
                                  111 Rock Road
                           Horsham, Pennsylvania 19044
                                 (215) 442-1700

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

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

                                   Copies to:

                             L. KEVIN SHERIDAN, JR.
              Roberts, Sheridan & Kotel, a professional corporation
                                640 Fifth Avenue
                            New York, New York 10019
                                 (212) 262-5700

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

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

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

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

 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 that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to such Section 8(a), may determine.


<PAGE>
                         CALCULATION OF REGISTRATION FEE
   
<TABLE>
<CAPTION>
                                                 Proposed maximum   Proposed maximum
       Title of Each Class of     Amount to be    offering price      aggregate            Amount of
    Securities to be Registered    registered      per Unit (1)     offering price(1)   registration fee
- --------------------------------------------------------------------------------------------------------
      <S>                          <C>                   <C>             <C>                     <C>
       Common Stock, $.001 par      
       value (2) . . . . . . .      11,309,822            $1.65625         18,731,892             $6,459  
       Class C Warrants  . . .      11,309,722                1.50         16,964,583                  0*
                                                                                                 
       Common Stock, $.001 par      
       value (3) . . . . . . .      11,309,722             1.65625         18,731,727              6,459* 
       Common Stock, $.001 par                                                                   
       value (4) . . . . . . .       1,131,000             1.65625          1,873,219                646  
                                                                                                 
       Common Stock, $.001 par                                                                   
       value (5) . . . . . . .       1,131,000             1.65625          1,873,219                646  

       Common Stock, $.001 par                                                                   
       value (6) . . . . . . .         155,100             1.65625            256,884                 78  
                                                                                                 
       Common Stock, $.001 par                                                                   
       value (7) . . . . . . .         264,000             1.65625            437,250                132  
                                                                                                 
       Common Stock, $.001 par          
       value (8) . . . . . . .          23,209             1.65625             38,440                 12  
                                                                                  
       Total Registration Fee                                                                    $12,710
</TABLE>
    

(1)  Determined solely for purposes of computing the amount of the registration
     fee pursuant to Rule 457(c) (except for the items noted with an asterisk) 
     on the basis of the average of the high and low prices reported on the 
     Nasdaq SmallCap Market for the Common Stock on September 30, 1996.
(2)  Represents shares of Common Stock issuable upon the conversion of 1,696,472
     shares of series B' Convertible Preferred Stock (includes 399,971 shares of
     series B' Preferred Stock issued to the holders of Series A Convertible
     Stock upon the conversion of the Series A Convertible Preferred Stock).
(3)  Represents shares of Common Stock underlying the Class C Warrants 
     (includes 2,666,464 Class C Warrants issued to the holders of Series A 
     Convertible Preferred Stock upon the conversion of the Series A Convertible
     Preferred Stock). 
(4)  Represents shares of Common Stock issuable upon the conversion of 169,650
     shares of series B' Convertible Preferred Stock underlying certain warrants
     (the "Preferred Stock Warrants") issued to the placement agent (the
     "Placement Agent"). 129,650 Preferred Stock Warrants were issued for the
     private placement of the series B' Convertible Preferred Stock and Class C
     Warrants and 40,000 were issued for the private placement of the Series A
     Convertible Preferred Stock.
(5)  Represents shares of Common Stock issuable upon the exercise of certain
     warrants (the "Common Stock Warrants") to purchase Common Stock issued to
     the Placement Agent (864,333 Common Stock Warrants were issued for the
     private placement of the series B' Convertible Preferred Stock and Class C
     Warrants and 266,667 were issued for the private placement of the Series A
     Convertible Preferred Stock).
(6)  Represents shares of Common Stock issuable upon the exercise of the unit
     purchase option ("UPO") issued to the underwriters (the "Underwriters") of
     the Issuer's initial public offering.
(7)  Represents shares of Common Stock issuable upon the exercise of the Class A
     warrants and Class B Warrants issuable to the Underwriters upon exercise of
     the UPO.
(8)  Represents shares of Common Stock held by Yale University and registered
     for resale.

          Pursuant to Rule 416, also being registered hereunder are an
          indeterminable number of shares of Common Stock which may be issued
          pursuant to anti-dilution provisions of the series B' Preferred
          Stock, the Class C Warrants, the Preferred Stock Warrants and the
          Common Stock Warrants, the UPO, the Class A Warrants and the Class B
          Warrants.

     * Calculated pursuant to Rule 457(g) and 457(i)


<PAGE>
   
                                                                      PROSPECTUS
                  Subject to Completion October 17, 1996
                                                 
                          SPARTA PHARMACEUTICALS, INC.

                        25,323,853 Shares of Common Stock
                           11,309,722 Class C Warrants

This Prospectus relates to an offering (the "Offering") by the Securityholders
named herein under the caption "Selling Securityholders" (collectively, the
"Selling Securityholders") for sale to the public of the following securities of
Sparta Pharmaceuticals, Inc. (the "Company"): (i) 11,309,822 shares of the
Company's Common Stock, $.001 par value ("Common Stock"), issuable upon the
conversion of currently outstanding shares of the Company's series B' 
Convertible Preferred Stock, $.001 par value ("series B' Preferred Stock"), 
(ii) 11,309,722 of the Company's redeemable Common Stock Class C Warrants 
("Class C Warrants"), (iii) 11,309,722 shares of Common Stock issuable upon 
the exercise of the Class C Warrants, (iv) 1,131,000 shares of Common Stock 
issuable upon the conversion of the shares of series B' Preferred Stock 
issuable upon exercise of certain preferred stock warrants issued to the 
placement agent in respect of the offering of the series B' Preferred Stock 
and Class C Warrants (the "Preferred Stock Warrants"), (v) 1,131,000 shares 
of Common Stock issuable upon the exercise of certain common stock warrants 
issued to such placement agent (the "Common Stock Warrants" and, together with 
the Preferred Stock Warrants, the "Placement Warrants"), (vi) 155,100 shares 
of Common Stock issuable upon the exercise of a unit purchase option ("UPO") 
issued to the underwriters of the Company's initial public offering, 
(vii) 132,000 shares of Common Stock issuable upon the exercise of Class A 
Warrants and 132,000 Shares of Common Stock issuable upon the exercise of the 
Class B Warrants of the Company issuable upon the exercise of the UPO and 
(viii) 23,209 shares of Common Stock held by Yale University. This 
Prospectus also relates to the issuance by the Company of 11,309,722 shares 
of Common Stock issuable upon the exercise of the Class C Warrants (other than
an exercise by the original holder thereof).  The number of shares of Common 
Stock issuable upon conversion of the series B' Preferred Stock and upon 
exercise of the Class C Warrants, the Placement Warrants, the UPO, the 
Class A Warrants and the Class B Warrants is subject to adjustment in 
certain events.
    
The Common Stock and Class C Warrants are separately tradable. Each Class C
Warrant entitles the registered holder thereof to purchase one share of Common
Stock at a price of $1.50, subject to adjustment, at any time from issuance
until August 23, 2001 (the "Expiration Date"). The Class C Warrants are subject
to redemption by Sparta commencing August 23, 1997 at a redemption price of
$0.10 per Class C Warrant upon 60 days' prior written notice, provided that the
average closing bid price (or last sales price) of the Common Stock as reported
on the National Association of Securities Dealers Automated Quotation System
("Nasdaq") (or on such exchange on which the Common Stock is then traded),
equals or exceeds $3.00 per share (being 200% of the exercise price per share),
subject to adjustment, for any 20 trading days within a period of 30 consecutive
trading days ending on the 3rd trading day prior to the date of notice of
redemption. See "Description of Securities." The Common Stock is traded on The
Nasdaq SmallCap Market under the symbol "SPTA." On September 30, 1996 the last
sale price of the Common Stock was $1.65625 per share. The Company has applied
for quotation of the Class C Warrants on The Nasdaq SmallCap Market.

The Company will not receive any proceeds from the sale of shares of Common
Stock or Class C Warrants by the Selling Securityholders. In the event that all
the Class C Warrants are exercised, net cash proceeds (after estimated expenses
associated with the exercise of the Class C Warrants of $1,025,000) to the
Company would be approximately $15,940,000. The Company intends to use any such
net cash proceeds for general working capital purposes. The Company is not
expected to receive any proceeds from the exercise of the Placement Warrants
since the Placement Warrants may be exercised pursuant to a cashless exercise
provision. In the event that the Placement Warrants are exercised for cash, the
Company intends to use such net cash proceeds for general working capital
purposes. Proceeds, if any, from the exercise for cash of all the Placement
Warrants, before deduction of estimated expenses of this Offering, would be
approximately $3,756,950. Whether, how and to what extent any of the Class C
Warrants or Placement Warrants will be exercised, and whether the Placement
Warrants are exercised for cash or not, cannot be predicted by the Company.

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

              THE 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 Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act of 1933. It is
anticipated that usual and customary brokerage fees will be paid by
the Selling Securityholders in all open market transactions. The Company will
pay all other expenses of this Offering. See "Plan of Distribution." 

The Company has informed the Selling Securityholders that the anti-manipulation
provisions of Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company also has
advised the Selling Securityholders of the requirement for delivery of this
Prospectus in connection with any sale of the shares offered hereby.

              THE DATE OF THIS PROSPECTUS IS OCTOBER _____, 1996
<PAGE>

                              AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock and the Class C Warrants offered by this Prospectus. Certain
portions of the Registration Statement have not been included in this
Prospectus. For further information, reference is made to the Registration
Statement and the Exhibits thereto. 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, proxy statements and other
information with the Commission. The Registration statement (with exhibits), as
well as such reports, proxy statements and other information, can be inspected
and copied at the public reference facilities maintained by the Commission at
its principal offices at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and its regional offices at 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The Commission maintains a site on World Wide Web at http://www.sec.gov
that contains reports, proxy and other information statements regarding
registrants that file electronically with the Commission.


              INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K/A for the fiscal year ended December 
31, 1995; Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 
and June 30, 1996; Current Reports on Form 8-K dated March 15, 1996, April 30,
1996, May 15, 1996, August 7, 1996, August 23, 1996, August 28, 1996, 
September 3, 1996, September 23, 1996 and September 24, 1996; Amended 
Current Report on Form 8-K/A dated March 15, 1996 and all other reports filed 
by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since 
December 31, 1995 are hereby incorporated herein by reference.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the offering covered hereby will be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference modifies or replaces such
statement.

The Company will provide without charge to each person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the documents incorporated by reference in this Prospectus, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates. In
addition, a copy of the Company's most recent annual report to stockholders will
be promptly furnished, without charge, upon written or oral request. All such
requests should be directed to Sparta Pharmaceuticals, Inc., 111 Rock Road,
Horsham, Pennsylvania 19044, Attention: Ronald H. Spair, telephone number (215)
442-1700.







                                       2




<PAGE>
                               PROSPECTUS SUMMARY

                                   THE COMPANY

The Company is a development stage pharmaceutical company engaged in the
business of acquiring rights to, and developing for commercialization,
technologies and drugs for the treatment of a number of life threatening
diseases including cancer, cardiovascular disorders and acute inflammation. The
Company has focused on acquiring compounds that have been previously tested in
humans or animals and technologies that may improve the delivery or targeting of
previously tested, and in some cases marketed, anticancer agents. The Company
has received approval of Investigational New Drug ("IND") applications by the
United States Food and Drug Administration ("FDA") with respect to three of its
product candidates, one of which is currently in phase I clinical trials. On
March 15, 1996, the Company acquired (the "Lexin Purchase") the assets and
business of Lexin Pharmaceutical Corporation ("Lexin"). The assets acquired in
the Lexin Purchase are designed primarily as potential therapeutic agents for
acute inflammatory and cardiovascular diseases.

The Company's lead products under development are:
<TABLE><CAPTION>

 PRODUCT CANDIDATE       INDICATION                                    STAGE OF DEVELOPMENT
 -----------------       ----------                                    --------------------
<S>                     <C>                                           <C>
 Spartaject(TM)          busulfan Providing injectable delivery of     IND approved
                         drug for ablating bone marrow prior to bone
                         marrow transplant      
                                                
 RII retinamide          Treatment of Myelodysplastic                  Phase I Clinical Trial Commenced
                         Syndromes (MDS)                               

 L.A.D.D.(TM) 5-FP       Providing oral delivery of 5-FU for the       IND approved
                         treatment of colorectal, breast, liver 
                         and other cancers

 LEX032                  Treatment of reperfusion injury, (e.g.,       Preclinical
                                                           ----
                         occurring after myocardial infarction
                         and stroke)
</TABLE>


In addition to the Company's lead product candidates, the Company has also
identified, and in some instances has undertaken some development of, other
applications of its licensed technologies and other product candidates, one of
which is in joint Phase I clinical trials in the United Kingdom.

The technology acquired in the Lexin Purchase is licensed exclusively from two
universities and directed at the potential treatment of a number of life
threatening diseases. LEX032 is intended to treat serine protease-mediated
inflammatory tissue damage. Serine proteases are enzymes which digest proteins.
They have been implicated in a number of serious diseases, especially those of
major organs, e.g., the lung and pancreas, where uncontrolled inflammation may
be fatal. LEX032 has exhibited what may be a unique spectrum of activity in
certain animal models of reperfusion injury. A drug with such a spectrum of
activity may be useful in the treatment of myocardial infarction, stroke,
shock-resuscitation, replantation surgery, frostbite, burns and organ
transplants. The compound is currently under evaluation, pursuant to an option
granted to Astra Merck Inc., for the treatment of acute pancreatitis, or
inflammation of the pancreas.

The Company was incorporated in Delaware on June 12, 1990 under the name
MediRx Pharmaceuticals, Inc. and commenced operations in January 1991.  It
changed its name to Sparta Pharmaceuticals, Inc. on May 31, 1991.


Spartaject(TM) and L.A.D.D.(TM) are trademarks of the Company.








                                       3

<PAGE>
                                  THE OFFERING

   
Securities Offered by 
     Selling Securityholders ................25,323,853 shares of Common Stock 
                                             and 11,309,722 Class C Warrants. 
                                             The Common Stock and Class C 
                                             Warrants are separately tradable. 
                                             Each Class C Warrant entitles the 
                                             registered holder thereof to 
                                             purchase one share of Common Stock 
                                             at a price of $1.50 subject to 
                                             adjustment, from issuance until 
                                             August 23, 2001 (the "Expiration 
                                             Date"). The Class C Warrants are 
                                             subject to redemption by the 
                                             Company commencing August 23, 1997
                                             at a redemption price of $0.10 per
                                             Class C Warrant upon 60 days' prior
                                             written notice, provided that the 
                                             average closing bid price (or last
                                             sales price) of the Common Stock as
                                             reported on the National 
                                             Association of Securities Dealers 
                                             Automated Quotation System 
                                             ("Nasdaq") (or on such exchange on
                                             which the Common Stock is then 
                                             traded), equals or exceeds $3.00
                                             per share (being 200% of the
                                             exercise price per share), subject
                                             to adjustment, for any 20 trading
                                             days within a period of 30
                                             consecutive trading days ending on
                                             the 3rd trading day prior to the
                                             date of notice of redemption. The
                                             Company will not receive any
                                             proceeds from the sale of these
                                             securities by the Selling
                                             Securityholders. See "Use of
                                             Proceeds," "Description of
                                             Securities," "Certain 
                                             Transactions," and "Selling
                                             Securityholders."

Securities Offered by the Company .......... 11,309,722 shares of Common
                                             Stock issuable upon the exercise
                                             of the Class C Warrants (other
                                             than an exercise by the original
                                             holders thereof).

Common Stock Outstanding 
     Prior to the Offering ................. 8,192,219 shares (1)

Common Stock Outstanding 
     After the Offering .................... 19,502,041 shares (2)

Class C Warrants Outstanding 
     After the Offering .................... 11,309,722

Nasdaq SmallCap symbols .................... Common Stock: SPTA              
                                             Class C Warrants: SPTAL   
                                             Class A Warrants: SPTAW          
                                             Class B Warrants: SPTAZ          
                                             Previously Issued Units: SPTAU   

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

(1)  Does not include (i) 11,309,722 shares issuable upon conversion of the
     series B' Convertible Preferred Stock and (ii) 11,309,722 shares issuable
     upon the exercise of the Class C Warrants, (iii)1,518,000 shares issuable
     upon exercise of outstanding Class A Warrants, (iv) 1,518,000 shares
     issuable upon exercise of outstanding Class B Warrants, (v) 64,415 shares
     issuable upon exercise of outstanding private placement warrants, (vi)
     419,100 shares issuable upon exercise in full of a unit purchase option
     ("UPO") issued to the underwriters of the Company's initial public
     offering, (vii) 2,338,172 shares reserved for issuance under stock rights
     granted or to be granted under the Company's 1991 Stock Plan, (viii) 56,042
     shares reserved for issuance under several license and option agreements,
     (ix) 93,576 shares reserved for issuance to Cato Research Ltd. under a
     contract research agreement and (viii) 2,262,000 shares issuable upon the
     exercise of the Placement Warrants.
    
                                        4

<PAGE>
(2)  Does not include (i) 1,518,000 shares issuable upon exercise of outstanding
     Class A Warrants, (ii) 1,518,000 shares issuable upon exercise of
     outstanding Class B Warrants, (iii) 64,415 shares issuable upon exercise of
     outstanding private placement warrants, (iv) 419,100 shares issuable upon
     exercise in full of the UPO, (v) 2,338,172 shares reserved for issuance
     under stock rights granted or to be granted under the Company's 1991 Stock
     Plan, (vi) 56,042 shares reserved for issuance under several license and
     option agreements, (vii) 93,576 shares reserved for issuance to Cato
     Research Ltd. under a contract research agreement and (viii) 13,571,722
     shares issuable upon the exercise of the Class C Warrants and the Placement
     Warrants.


Use of Proceeds: ........................... The Company will not receive any
                                             proceeds from the sale of Class C
                                             Warrants or shares of Common Stock
                                             by the Selling Securityholders. In
                                             the event that all the Class C
                                             Warrants are exercised, net cash
                                             proceeds to the Company would be
                                             approximately $15,940,000 (after
                                             estimated offering expense of
                                             approximately $1,025,000 associated
                                             with the exercise of Class C 
                                             Warrants which includes a 6%
                                             commission payable to the Placement
                                             Agent upon the exercise of the
                                             Class C Warrants and up to $5,000
                                             payable to reimburse the Placement
                                             Agent for out-of-pocket costs
                                             incurred in connection with the
                                             solicitation of Class C Warrant
                                             exercise or the redemption of the
                                             Class C Warrants.) The Company
                                             intends to use any such net cash
                                             proceeds for general working
                                             capital purposes. The Company is
                                             not expected to receive any
                                             proceeds from the exercise of the
                                             Placement Warrants since the
                                             Placement Warrants may be exercised
                                             pursuant to a cashless exercise
                                             provision. In the event that the
                                             Placement Warrants are exercised
                                             for cash, the Company intends to
                                             use such net cash proceeds for
                                             general working capital purposes.
                                             Proceeds, if any, from the exercise
                                             for cash of all the Placement
                                             Warrants, before deduction of
                                             estimated expenses of this
                                             Offering, would be approximately
                                             $3,756,950. Whether, how and to
                                             what extent any of the Class C
                                             Warrants or Placement Warrants will
                                             be exercised, and whether the
                                             Placement Warrants are exercised
                                             for cash or not, cannot be 
                                             predicted by the Company.



                                        5

<PAGE>
                                  RISK FACTORS

An investment in the securities offered hereby involves a high degree of risk
and the securities should not be purchased by persons who cannot afford the loss
of their entire investment. In addition to the other information in this
Prospectus, the following factors should be considered carefully in evaluating
an investment in the securities offered hereby.

EARLY STAGE OF DEVELOPMENT. The Company's product candidates are in the early
stages of research and development and no revenues have been generated to date
from product sales, nor are any product revenues expected for at least the next
several years, if at all. To date, only limited human testing has been conducted
on any of the Company's proposed product candidates. The Company has received
approval of Investigational New Drug ("IND") applications by the United States
Food and Drug Administration ("FDA") relating to proposed Phase I clinical
trials in the United States for three product candidates of which one is
currently in Phase I Clinical Trials. The Company's other product candidates,
are in the preclinical stage of development and testing or their development has
not yet commenced. As a result, the Company must be evaluated in light of the
problems, delays, uncertainties and complications encountered in connection with
a development stage biopharmaceutical business. The risks include, but are not
limited to, the possibilities that any or all of the Company's potential
products will be found to be ineffective or toxic, or fail to receive necessary
regulatory clearances. To achieve profitable operations, the Company must
successfully develop, obtain regulatory approval for, introduce and successfully
market at a profit products that are currently in the research and development
phase. The great majority of the preclinical research and clinical development
work and testing for the Company's product candidates remains to be completed.
The Company is currently not profitable, and no assurance can be given that the
Company's research and development efforts will be successful, that required
regulatory approvals will be obtained, that any of the Company's proposed
products will be safe and effective, that any such products, if developed and
introduced, will be successfully marketed or achieve market acceptance, or that
such products can be marketed at prices that will allow profitability to be
achieved. Failure of the Company to successfully develop, obtain regulatory
approval for, introduce and market its products under development would have a
material adverse effect on the business, financial condition and results of
operations of the Company. See "Business."

NEED FOR SUBSTANTIAL ADDITIONAL FUNDS. The Company expects that existing capital
resources and interest earned on invested funds, will be sufficient to fund its
operations through March, 1998. However, the Company may be required to seek
additional financing to continue operations during such period in the event of
cost overruns or unanticipated expenses. The Company has experienced delays in
funding its planned research and development activities and will require
substantial additional funds to finance its business activities on an ongoing
basis. The Company's future capital requirements will depend on numerous
factors, including, but not limited to, progress in its research and development
programs, including preclinical and clinical trials, costs of filing and
prosecuting patent applications and, if necessary, enforcing issued patents or
obtaining additional licenses to patents, competing technological and market
developments, the cost and timing of regulatory approvals, the ability of the
Company to establish collaborative relationships, and the cost of establishing
manufacturing, sales and marketing capabilities. The Company has no current
commitment to obtain other additional funds and is unable to state the amount or
potential source of such other additional funds. Moreover, because of the
Company's potential long-term capital requirements, it may undertake additional
equity offerings whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. There can be no assurance
that the Company will be able to obtain additional funding when needed, or that
such funding, if available, will be obtainable on reasonable terms. Any such
additional funding may result in significant dilution to existing stockholders.
If adequate funds are not available, the Company may be required to delay,
reduce or eliminate research and development programs, capital expenditures, and
marketing and other operating expenses. The Company may be required to obtain
funds through arrangements with collaborative partners that may require the
Company to relinquish material rights to its products that it would not
otherwise relinquish.

HISTORY OF LOSSES; GOING CONCERN REPORTS; UNCERTAINTY OF FUTURE FINANCIAL
RESULTS. The Company has experienced significant operating losses since its
inception in June 1990. As of June 30, 1996, the Company's accumulated deficit
was $14,830,999. The majority of the Company's income to date has been derived
from interest earned on invested funds. The Company's former independent
auditors have included an explanatory paragraph in their report on the Company's
financial statements for each fiscal year since inception, including as of
December 31, 1995, which paragraph expresses substantial doubt concerning the
Company's ability to continue as a going concern. The Company has not introduced
any product commercially. The Company expects to incur increasing operating
losses over the next several years as its product research



                                        6

<PAGE>
programs expand and various preclinical and clinical trials commence. The amount
of net losses may vary significantly from year-to-year and quarter-to- quarter
and depend on, among other factors, the timing of Company payments in connection
with sponsored research, and the progress of preclinical and clinical
development programs. The Company's ability to attain profitability will depend,
among other things, on its successfully completing development of its product
candidates, obtaining regulatory approvals, establishing manufacturing, sales
and marketing capabilities and obtaining sufficient funds to finance its
activities. There can be no assurance that the Company will be able to achieve
profitability or that profitability, if achieved, can be sustained. See
"Business."

RELIANCE ON PATENTS AND OTHER PROPRIETARY RIGHTS. The pharmaceutical industry
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes. The Company's success will depend,
in part, on its ability to enjoy or obtain protection for its products and
technologies under United States and foreign patent laws and other intellectual
property laws, to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. The patent position of pharmaceutical
firms is often highly uncertain and usually involves complex legal and factual
questions.

Some of the planned product candidates or technologies that the Company has
licensed or has rights to license are covered by United States and foreign
patents issued, assigned or licensed to the Company's licensors, and
applications for additional United States and foreign patents for certain of its
products and technologies have been filed or are expected to be filed.

There is a substantial backlog of pharmaceutical and biotechnology patent
applications at the United States Patent and Trademark Office ("PTO") and
equivalent foreign agencies. There can be no assurance that patent applications
relating to the Company's potential products, or technologies licensed by the
Company from others or that it may license in the future or file itself will,
result in patents being issued, that any issued patents will afford adequate
protection to the Company or not be challenged, invalidated, infringed or
circumvented, or that any rights granted thereunder will provide competitive
advantages to the Company. Furthermore, patent applications in the United States
are maintained in secrecy until patents issue. Accordingly, there can be no
assurance that all United States and foreign patents or patent applications that
may pose a risk of infringement have been identified. Publication of discoveries
in the scientific or patent literature, if made, tends to lag actual discoveries
by several months. There can be no assurance that others have not independently
developed or will not independently develop similar products and/or
technologies, duplicate any of the Company's products or technologies or, if
patents are issued to or licensed by the Company, design around such patents.
There can be no assurance that patents issued to others will not adversely
affect the development or commercialization of the Company's products or
technologies, or that, if patents are issued in one jurisdiction, patents will
also issue in any other jurisdiction. Further, patents owned by or licensed to
the Company may expire prior to the Company's commercializing its technology
applications and product candidates covered by the applicable patents.

Moreover, the Company conducts some research through academic advisors and
collaborators, who may be prohibited from entering into inventors' rights
agreements by the academic institutions that employ them. Furthermore, there can
be no assurance that the validity of any of the patents licensed to, or that may
in the future be owned by, the Company would be upheld if challenged by others
in litigation or that the Company's activities would not infringe patents owned
by others. The Company could incur substantial costs in defending itself in
suits brought against it or any of its licensors, or in suits in which the
Company may assert its patents or patents in which it may have rights against
others or in suits contesting the validity of a patent. Any such proceedings may
be protracted. In any suit contesting the validity of a patent, the patent being
contested would be entitled to a presumption of validity and the contesting
party would be required to demonstrate invalidity of such patent by clear and
convincing evidence. The Company could also incur substantial costs in
connection with any suits relating to matters for which the Company has agreed
to indemnify its licensors. In addition, the Company may be required to obtain
licenses to patents or other proprietary rights of third parties. No assurance
can be given that any licenses required under any such patents or proprietary
rights would be made available on terms acceptable to the Company, if at all. If
the Company is required to, and does not obtain such licenses, it could be
prevented from or encounter delays in the development, manufacturing or
marketing of its products and technologies while it attempts to design around
such patents or other rights.

Some of the compounds the Company intends to or may develop are believed to be
in the public domain, or not presently subject to patent protection as
compounds, in the United States, including aphidicolin, busulfan, camptothecin,
etoposide, 5-FP, paclitaxel and RII retinamide. Where the Company chooses to
apply the Spartaject Technology and L.A.D.D.


                                        7

<PAGE>
Technology licensed by it to compounds that are not patented, any patent
protection for any products which may be so developed will be dependent upon the
patent protection, if any, applicable to the particular technology applied.

L.A.D.D. Technology and IPdR. In June 1996 the PTO issued an office action on
the Company's application indicating that sixteen claims were allowed, which
claims are drawn to the administration of 5-FP and IPdR, and other compounds
with similar structures, for the treatment of liver associated diseases. Other
claims were finally rejected, including claims which relate to the application
of the L.A.D.D. Technology to the oral administration of 5-FP and other 
compounds with similar structures. The Company believes that further negotiation
with the examiner or, if necessary, an appeal of the examiner's position to the
PTO Board of Patent Appeals and Interferences, will result in the allowance of
additional claims, including, at the least, a claim drawn to the oral
administration of 5-FP, although the Company cannot predict with certainty
whether or not a patent thereon will be granted.

Two patents (the "Antichymotrypsin Patents") were assigned to Sonoran Desert
Chemicals LLC in 1990 and 1991, respectively, relating to certain uses of
antichymotrypsin. The Antichymotrypsin Patents include claims covering methods
for treating pulmonary and/or bowel inflammations in a mammal using -1-
antichymotrypsin, derivatives and salts thereof, methods for treating
inflammation using -1-antichymotrypsin topically and pharmaceutical compositions
of -1-antichymotrypsin, its salts or derivatives. To the Company's knowledge,
products embodying the Antichymotrypsin Patents have not yet been developed.
Claims of the Antichymotrypsin Patents may cover the use of LEX032, the lead
compound which the Company acquired in the purchase of the assets and business
of Lexin Pharmaceutical Corporation on March 15, 1996 (the "Lexin Purchase").
The Company believes, however, that such claims would not cover the Company's
intended use of LEX032. Nevertheless, there can be no assurance in this regard,
and if such claims are found to cover the Company's intended use of LEX032, and
the Antichymotrypsin Patents are not invalid, then the Company will require a
license from the holders of the patents in order to develop or commercialize
LEX032 in the United States or any other country where the Antichymotrypsin
Patents may have issued. There can be no assurance that a license will be
obtainable on acceptable terms, if at all, and any negotiations to obtain a
license may be protracted. If the Company is unable to obtain such a license on
commercially reasonable terms, such inability to obtain such a license could
have a material adverse effect on the Company's business and its future results
of operations. 

Three patents (the "Third Party Patents") have been issued in the
United States (in September 1992 (No. 5,145,684), March 1995 (No. 5,399,363) and
February 1996 (No. 5494683), respectively) and are believed by the Company to be
assigned to Eastman Kodak Company or a subsidiary thereof. The March 1995 patent
is a continuation-in-part of the September 1992 patent. The February 1996 patent
is a divisional of the March 1995 patent. The Third Party Patents include
numerous claims that, based on presently available information, may cover
certain embodiments of the Spartaject Technology, including formulations of
camptothecins, etoposide and certain taxanes. If the Third Party Patents are not
invalid insofar as their claims relate to those embodiments of the Spartaject
Technology, then (i) the Company will require a license from the holder of the
Third Party Patents to commercialize those embodiments of the Spartaject
Technology and sell or sublicense products utilizing those embodiments of the
Spartaject Technology in the United States and (ii) the extent to which the
Company might require such a license will depend on the final formulations of
its and any sublicensee's products and whether they utilize those embodiments of
the Spartaject Technology that are covered by the Third Party Patents. If the
Company is required to obtain a license under the Third Party Patents to
practice those embodiments of the Spartaject Technology and sell or sublicense
others to sell products utilizing those embodiments of the Spartaject Technology
in the United States and is unable to do so on commercially reasonable terms,
then the inability to obtain such a license could have a material adverse effect
on the Company's business and its future results of operations. 

Patent applications corresponding to the Third Party Patents have been filed in 
various countries outside the United States, including certain European 
countries through the European Patent Office ("EPO"), in Japan and in Canada, 
also with pending claims that, based on presently available information, may 
cover certain embodiments of the Spartaject Technology. The applications filed 
by the holder of the Licensed Patent in various foreign countries, including 
certain European countries through the EPO and, in Japan and in Canada, have 
earlier effective filing dates than the application filed with the EPO, in Japan
and in Canada corresponding to the Third Party Patents. The Company believes 
that generally, in most foreign countries, in the case of conflicting 
applications claiming the same patentable invention, the application with the 
earlier effective filing date (in this case the patent applications filed by the
holder of the Licensed Patent) is entitled to the issuance of the patent. 
Accordingly, although there can be no assurance that foreign law will be applied
in this manner, the Company believes that a patent issued in such European 
countries, Japan or Canada corresponding to the Third Party Patent should



                                        8

<PAGE>
be invalid (or susceptible to cancellation) insofar as it pertains to the
practice of the Spartaject Technology. Therefore, the Company believes it should
not be prevented ultimately from commercializing the Spartaject Technology in
such European countries, Japan or Canada, respectively, solely by reason of the
issuance of such patent. However, if the Company is required to obtain a license
under any patent issued in such European countries, Japan or Canada and is
unable to do so on commercially reasonable terms, then the inability to obtain
such a license could have a material adverse effect on the Company's business
and its future results of operations.

A patent was issued in the United States (the "Orphan Patent") and a patent
application which designated various countries outside the United States was
published under the PCT (the "Orphan Application") which the Company understands
have been licensed exclusively to Orphan Medical, Inc. The Orphan Patent
includes claims, and the Orphan Application is seeking claims, covering methods
of treating patients with malignant conditions using an intravascularly
administrable busulfan preparation and treating leukemia or lymphoma patients
undergoing a bone marrow transplant using an intravenously administrable
busulfan preparation that the Company believes do not cover the use of
Spartaject busulfan. However, there can be no assurances in this regard, and if
such claims do cover the Company's intended use of Spartaject busulfan, and the
Orphan Patent is not invalid, then the Company may require a license from the
holder or exclusive licensee of such patent or patents in order to develop or
commercialize Spartaject busulfan in the United States. There can be no
assurance that a license will be obtainable on acceptable terms, if at all, and
any negotiations to obtain a license may be protracted. If the Company is unable
to do so on commercially reasonable terms, then the inability to obtain such a
license could have material adverse effect on the Company's business and its
future results of operations. Furthermore, there can be no assurances that a
different interpretation with respect to coverage of the use of Spartaject
busulfan will not be obtained in countries outside the United States in the
event any claims are allowed pursuant to the Orphan Applications.

The Company is aware that two international patent applications by The Wellcome
Foundation Limited ("Wellcome") were published under the PCT in 1992,
designating the United States, major European countries and Japan, among other
countries. As published, the applications have broad claims that the Company
believes may cover certain of the prodrugs which may be used by the Company in
practicing the L.A.D.D. Technology licensed by the Company to which the prodrugs
are intended to be converted in vivo. A patent in Australia based on one of such
applications was issued on March 7, 1995 and expires in 2011. Two patent
applications in New Zealand based on one of such applications were allowed and
published for opposition in November 1995 and unless opposed will be granted and
will expire in 2011 (such Australian patent and potential New Zealand patent
being called collectively the "ANZ Patents"). The claims of the ANZ Patents do
not appear to cover the application of the L.A.D.D. Technology to 5-FP but may
cover its application to IPdR as a radiosensitizer. There can be no assurance
however that another patent or patents based on such published applications will
not issue in the United States or other jurisdictions or that the ANZ Patents
and any other such issued patent or patents would not contain claims which could
affect the practice of the L.A.D.D. Technology. The Company believes that if the
ANZ Patents are valid as issued or any such other patent or patents issue in any
jurisdiction, it may be required to seek a license under such claims in order to
develop, market and sell certain of the applications of its L.A.D.D. Technology
in such jurisdictions. There can be no assurance that such licenses will be
obtainable on reasonable terms to the Company, if at all. If any such license
were required to practice the L.A.D.D. Technology, the inability to obtain such
license could have a material adverse effect on the Company's business.

All of the Company's product candidates and proposed technology applications are
in the early stage of development. Even if development of such product
candidates and technology applications is successful and approval for sale is
obtained, there can be no assurance that applicable patent coverage, if any,
will not have expired or will not expire shortly after such approval, which
expiration, in the absence of other regulatory protection, could have a material
adverse effect on the sales and profitability of such product or application.
The United States patent on asulacrine expires in 1999 and other United States
and foreign patents covering compounds or technologies the Company intends to
develop expire in 1998 and subsequent years. The Company also seeks to protect
its proprietary technology, including technology which may not be patented or
patentable, in part by confidentiality agreements and, if applicable, inventors'
rights agreements with its employees. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise be
disclosed to, or discovered by, competitors. There can also be no assurance that
others will not independently develop similar or superior products or
technologies or otherwise obtain access to the Company's proprietary products or
technologies.




                                        9

<PAGE>
Proprietary protection of the Company's products and technologies is important
to the Company's business, and the Company's failure or inability to maintain
the proprietary nature of its products and technologies could have a material
adverse effect on the Company's financial condition and the results of its
operations.  See "Business--Potential Technology Applications and Product
Candidates."

LICENSE AGREEMENTS; RISK OF LOSS OF SPARTAJECT TECHNOLOGY. The Company has
contractual rights to certain compounds and technologies through various license
agreements. These agreements are generally terminable by the licensor if the
Company does not meet its financial obligations thereunder or otherwise for
cause upon short notice or in the event the Company is insolvent or bankrupt,
does not apply minimum resources and efforts to develop the compounds and
technologies under licenses or does not achieve certain filing goals with
respect to new drug applications, the earliest of which is January 1997. There
can be no assurance that the agreements will not be so terminated and, if
terminated, that the Company will be able to enter into similar agreements on
terms as favorable to the Company as those contained in its existing license
agreements. Furthermore, the Company may seek additional licenses in the future,
and there can be no assurance that the Company will be able to enter into
similar license agreements for additional products in the future on terms
acceptable to it.

The Company is a party to a license with Research Triangle Pharmaceuticals Ltd.
("RTP"), a wholly-owned subsidiary of Cato Holding Co, relating to the
Spartaject Technology. Such license requires the Company, subject to extensions
and qualifications in certain circumstances, to fund, prepare and file New Drug
Applications ("NDAs") for a fixed number of products by specified dates, the
earliest of which is January 1997. In the event that the Company is unable to
prepare and file such NDAs in accordance with the time requirements set forth in
the license, the Company's rights under the license could become subject to
termination and, if terminated, the Company would be unable to commercialize any
products utilizing the Spartaject Technology.

RISKS OF NEW PRODUCT DEVELOPMENT; MARKET UNCERTAINTY. The Company has received
approval by the FDA for IND applications relating to three product candidates,
Spartaject busulfan, L.A.D.D., 5-FP and RII retinamide, one of which is
currently in Phase I clinical trials. LEX032, is in the preclinical stage of
development. One of the Company's product candidates, asulacrine, is in a second
Phase I clinical trial in England being conducted by the Cancer Research
Campaign ("CRC"). The Company has not filed an IND with the FDA for asulacrine.
Because of the incidence of vein inflammation apparently caused by the
injectable formulation of the compound used in the first clinical trial, CRC
developed an oral formulation of the compound which has recently entered a
second Phase I clinical trial in the U.K. Another potential product candidate,
IPdR, is a nucleoside analogue. It is possible that as a result of severe
complications and deaths associated with the use of another nucleoside analogue,
which was under clinical investigation for hepatitis, more extended preclinical
toxicity testing may be required by the FDA for any nucleoside analogues under
investigation for any use, and there can be no assurance that similar toxicities
from the use of IPdR will not result.

The Company has not commenced development of some of its other product
candidates and has done only limited development on others.  None of
the products the Company proposes to develop or is developing has been approved
for marketing by regulatory authorities and all of the Company's products will
require significant research and development, including lengthy clinical
testing, prior to their commercialization. The results of clinical trial and
preclinical testing discussed in this Prospectus for the Company's compounds and
technologies are subject to varying interpretations. Furthermore, studies
conducted with alternative designs or on alternative populations could produce
results that vary from those discussed in this Prospectus. Therefore, there can
be no assurance that the results discussed in this Prospectus or the Company's
interpretation of them will be accepted by governmental regulators or the
medical community. Even if the development of the Company's products in the
preclinical phase advances to the clinical stage, there can be no assurance that
they will prove to be safe and effective. The products that are successfully
developed, if any, will be subject to requisite regulatory approval prior to
their commercial sale, and the approval, if obtainable, may take several years.
Generally, only a very small percentage of the number of new pharmaceutical
products initially developed is approved for sale. Even if they are approved for
sale, there can be no assurance that they will be commercially successful. The
Company may encounter unanticipated problems relating to development,
manufacturing, distribution and marketing, some of which may be beyond the
Company's financial and technical capacity to solve. The failure to address such
problems adequately could have a material adverse effect on the Company's
business and prospects. No assurance can be given that the Company will succeed
in the development and marketing of any new drug products, or that they will not
be rendered obsolete by products of competitors.


                                       10

<PAGE>
This Prospectus includes estimates by the Company of the number of patients with
a particular type of cancer or other diseases, the number of patients who were
administered a particular drug and the number of patients who received or might
have been candidates for a particular type of treatment.  There can be no
assurance of the extent to which any of the Company's products, if successfully
developed, will actually be used by patients.  Furthermore, there can be no
assurance that the Company's sales of its products for such uses will be
profitable even if patient use occurs.  See "Business--Potential Technology
Applications and Product Candidates."

UNCERTAINTY OF HEALTH CARE REFORM MEASURES. Federal, state and local officials
and legislators (and certain foreign government officials and legislators) have
proposed or are reportedly considering proposing a variety of reforms to the
health care systems in the United States and abroad. The Company cannot predict
what health care reform legislation, if any, will be enacted in the United
States or elsewhere. Significant changes in the health care system in the United
States or elsewhere are likely to have a substantial impact over time on the
manner in which the Company conducts its business. Such proposals and changes
could have a material adverse effect on the Company's ability to raise capital.
Furthermore, the Company's ability to commercialize its potential products may
be adversely affected to the extent that such proposals have a material adverse
effect on the business, financial condition and profitability of other companies
that are prospective corporate partners with respect to certain of the Company's
proposed products.

UNCERTAIN EXTENT OF PRICE FLEXIBILITY AND THIRD-PARTY REIMBURSEMENT. The
Company's ability to commercialize its products successfully will depend in part
on the extent to which appropriate reimbursement levels for the cost of such
products and related treatment are obtained from government authorities, private
health insurers and other organizations, such as health maintenance
organizations ("HMOs"). Third party payers are increasingly challenging the
prices charged for medical products and services. Also the trend towards managed
health care in the United States and the concurrent growth of organizations such
as HMOs, which could control or significantly influence the purchase of health
care services and products, as well as legislative proposals to reduce
government insurance programs, may all result in lower prices for the Company's
products. The cost containment measures that health care providers are
instituting could affect the Company's ability to sell its products and may have
a material adverse effect on the Company.

GOVERNMENT REGULATION; NEED FOR FDA AND OTHER REGULATORY APPROVAL; ORPHAN DRUG
STATUS. Prior to marketing, each of the Company's drugs must undergo an
extensive regulatory approval process conducted by the FDA and applicable
agencies in other countries. The process, which focuses on safety and efficacy
and includes a review by the FDA of preclinical testing and clinical trials and
investigating as to whether good laboratory and clinical practices were
maintained during testing, takes many years and requires the expenditure of
substantial resources. The Company is, and will be dependent on the external
laboratories and medical institutions conducting its preclinical testing and
clinical trials to maintain both good laboratory practices established by the
FDA and good clinical practices. Data obtained from preclinical and clinical
testing are subject to varying interpretations which could delay, limit or
prevent regulatory approval. In addition, delays or rejection may be encountered
based upon changes in FDA policy for drug approval during the period of
development and by the requirement for regulatory review of each IND and NDA.
There can be no assurance that even after such time and expenditures regulatory
approval will be obtained for any of the Company's product candidates. Moreover,
such approval may entail significant limitations on the indicated uses for which
a drug may be marketed. Even if such regulatory approval is obtained, a marketed
therapeutic product and its manufacturer are subject to continual regulatory
review, and later discovery of previously unknown problems with a product or
manufacturer may result in restrictions on such product or manufacturing,
including withdrawal of such product from the market. Change in the
manufacturing procedures used by the Company for any of the Company's approved
drugs are subject to FDA review, which could have an adverse effect upon the
Company's ability to continue the commercialization or sale of a drug. The
process of obtaining FDA approval is costly and time consuming, and there can be
no assurance that any product that the Company may develop will be deemed to be
safe and effective by the FDA. The Company will not be permitted to market any
product it may develop in any jurisdiction in which the product does not receive
regulatory approval. 


The Company intends to seek orphan drug status for some of its product 
candidates pursuant to the Orphan Drug Act of 1983 (the "Orphan Drug Act") and 
has been granted orphan drug status for busulfan as preparative therapy for 
malignancies treated with bone marrow transplantation and for RII retinamide for
the treatment of myelodysplastic syndromes. There can be no assurance orphan 
drug status will be granted for other product candidates or that for any grant 
of orphan drug status, such grant will provide the Company with any benefits. 
Although under the Orphan Drug Act as now in effect orphan drug status may 
provide an applicant exclusive marketing rights in the United States for a 
designated indication for seven




                                       11

<PAGE>
years following marketing approval, in order to obtain such benefits, the
applicant must be the sponsor of the first NDA approved for that drug and
indication. If a third party receives prior FDA approval for an orphan drug
indication, the Company may be precluded by the Orphan Drug Act from obtaining
market approval for seven years. Orphan Medical, Inc., a United States company
which is not affiliated with the Company's distributors of Spartaject busulfan
in Europe and Sweden, has disclosed that it is in Phase I clinical trials with
an intravenous form of busulfan for use in bone marrow transplants using a
formulation with solvents licensed from a university. It cannot be predicted
whether such development by Orphan Medical, Inc., will be successful and whether
it will adversely affect the ability of the Company to obtain FDA approval of
Spartaject busulfan for the orphan drug indication of use in bone marrow
transplants. In addition, amendments to the Orphan Drug Act have been introduced
in Congress, which if adopted, would limit the benefits available for sellers of
orphan drugs, including limiting the exclusivity period to four years generally
and providing for the loss or sharing of exclusivity in some circumstances.
There can be no assurance that such amendments or other amendments will not be
adopted, and therefore the Company is unable to predict the extent to which or
whether any benefits currently provided by the Orphan Drug Act will continue to
be available. 

COMPETITION; TECHNOLOGICAL CHANGE. There is substantial competition in the 
pharmaceutical field and in the areas of the Company's proposed business in 
cancer, cardiovascular disorders and acute inflammation, engaged in by companies
with financial resources, and licensing, research and development staffs and 
facilities substantially greater than those of the Company. Competitors include 
pharmaceutical companies with recognized, well established development programs 
in these areas, and biotechnology firms and pharmaceutical companies with 
therapies in the development stage. Many such companies have extensive 
experience in undertaking preclinical testing and clinical trials and obtaining 
FDA and other regulatory approvals. There can be no assurance that the Company's
competitors will not succeed in developing similar technologies and products 
more rapidly than the Company and that these technologies and products will not 
be more effective than any of those that are being or will be developed by the 
Company, or render the Company's technologies and products obsolete or 
noncompetitive. The Company intends to or may apply its Spartaject Technology 
and L.A.D.D. Technology to compounds that are believed to be in the public 
domain, or not presently subject to patent protection as compounds, in the 
United States, including aphidicolin, busulfan, camptothecin, etoposide, 5-FU 
and paclitaxel. As a result, the Company cannot prevent other companies from 
developing products or applying delivery technologies other than the Spartaject 
Technology and the L.A.D.D. Technology to such compounds in a manner than 
competes with technologies and product candidates under development by the 
Company. Several pharmaceutical companies are developing protease inhibitors 
with potential application in pulmonary inflammation, pancreatitis, coagulative 
disorders and reperfusion injury. It is widely acknowledged that proteases are a
critical component in the inflammatory cascade and their inhibition has been 
pursued by companies engaged in the development of both traditional 
pharmaceuticals and biotech compounds. 

DEPENDENCE UPON OTHERS FOR MANUFACTURING AND MARKETING. The Company currently 
has no capability to manufacture any of its products for preclinical testing or 
clinical trials, and, if appropriate, for commercial purposes, or to market 
them. The Company does not intend to establish in the foreseeable future 
manufacturing facilities to produce drug chemicals or product formulations, 
except possibly with respect to its Spartaject Technology, or marketing 
capabilities, other than potentially in the United States to specialists in 
oncology/hematology practices. Accordingly, the Company will be required to 
enter into arrangements with other companies for the manufacture and marketing 
of its products. If the Company is unable to obtain or maintain third party 
manufacturing and marketing arrangements, it may not be able to commercialize 
its product candidates as planned. In addition, manufacturers of the Company's 
products will be subject to applicable current good manufacturing practices 
("cGMP") prescribed by the FDA or other rules and regulations prescribed by 
foreign regulatory authorities. There can be no assurance that the Company will
be able to enter into manufacturing agreements either domestically or abroad 
with companies whose facilities and procedures comply with cGMP or applicable 
foreign standards. Should such agreements be entered into, the Company will be 
dependent on such manufacturers for continued compliance with cGMP and 
applicable foreign standards. Failure by a manufacturer of the Company's 
products to maintain cGMP or applicable foreign standards could result in 
significant time delays or the inability of the Company to commercialize a 
product and could have a material adverse effect on the Company. In addition, 
the Company's dependence on third parties for the manufacture and marketing of 
its products may adversely affect profit margins on its products.

PRODUCT LIABILITY. The testing, marketing and sale of human health care products
entail an inherent risk of adverse side effects and/or personal injury and
product liability, and there can be no assurance that product liability claims
will not be asserted against the Company. The Company currently has no product
liability insurance. Under the terms of most of its license agreements, the
Company is required both to indemnify its licensor against product liability
risks and to obtain such



                                       12

<PAGE>
coverage prior to the sale of the products covered by the license, and in
certain instances, at coverage levels specified in the license agreement by the
licensor. If the Company fails to do so, its licensor will be entitled to
terminate the license. Although the Company will seek to carry reasonable levels
of product liability insurance, it is not certain that such coverage will be
obtainable on reasonable terms and at levels required by its licensors, or if
obtained, that such amounts ultimately will prove adequate or will be renewable
for any period. If such insurance is not obtained and maintained at sufficient
levels, or if any product liability claim against the Company were sustained,
the Company's business and prospects could be materially adversely affected and
its rights to market certain of its products could be terminated.

DEPENDENCE ON KEY PERSONNEL AND SCIENTIFIC ADVISORS. The Company is highly
dependent on having qualified experienced management, the loss of one or more of
whom could have a material adverse effect on the Company if an appropriate
successor is not available with reasonable promptness. The Company currently
holds "key person" insurance for coverage against the unanticipated death of
particular executives in the amount of $4,000,000. The Company has $2,000,000 of
such coverage in respect of each of William M. Sullivan, Chairman of the Board
and Jerry B. Hook, Ph.D., the Company's President and Chief Executive Officer.
The relevant insurance policies name the Company as beneficiary. The loss of
services of a key person could have a material adverse effect on the Company.
Although the Company has employment agreements with Dr. Hook and Dr. McCulloch,
each such executive officer may terminate his employment at any time upon thirty
days notice, and there can be no assurance that such agreements will not be so
terminated.

The Company's scientific advisors are employed on a full time basis by unrelated
employers and some have one or more consulting or other advisory arrangements
with other entities which may conflict with their obligations to the Company.
Inventions or processes discovered by such persons, other than those to which
the Company's licenses relate or, those to which the Company is able to acquire
licenses for or those which were invented while performing consulting services
under contract to the Company, will most likely not become the property of the
Company, but will remain the property of such persons or such persons' full-time
employers. Failure to obtain needed patents, licenses or proprietary information
held by others could have a material effect on the Company. See
"Management--Scientific Advisory Board."

LIMITED PERSONNEL; DEPENDENCE ON CORPORATE AND ACADEMIC COLLABORATORS FOR
RESEARCH AND DEVELOPMENT. The Company has nine full-time employees. With these
exceptions, the Company relies, and for the foreseeable future will rely, on
contract development organizations, other academic collaborators and other
consultants for its preclinical and clinical planning, development, monitoring
and regulatory registration services. Contract development organizations and the
Company's advisors and consultants are employed or retained by other entities,
and they have commitments to, or consulting or advisory contracts with, such
entities that may limit their availability to the Company and that may compete
with the Company. There can be no assurance that their services will be
available to the Company on a timely basis when needed, or at all, and as
non-employees, the Company has limited control over their activities. In
addition, the academic collaborators are not actively involved in the Company's
business or in the development of its products from a commercial perspective.
Contract development organizations and the Company's advisors and consultants
generally sign agreements that provide for confidentiality of the Company's
proprietary information and results of studies. However, there can be no
assurance that the Company will be able to maintain the confidentiality of the
Company's technology, the dissemination of which could have a material adverse
effect on the Company's business. Because of the nature of its business, the
Company will require a wide range of skilled personnel to conduct its proposed
operations and will be dependent upon its ability to attract and retain
qualified management, scientific and marketing personnel. There is intense
competition among pharmaceutical companies for such personnel, and there is no
assurance that the Company will be successful in recruiting or retaining them.

CONDUCTING BUSINESS ABROAD. To the extent the Company conducts business outside
the United States, it intends to do so through licenses, joint ventures or other
contractual arrangements for the development, manufacturing and marketing of its
products. Although the Company has entered into a development and marketing
arrangement for Spartaject busulfan for Europe and the Scandinavian countries,
no assurance can be given that the Company will be able to establish other
foreign operations successfully through such a plan, that the necessary foreign
regulatory approvals for its product candidates will be obtained, that foreign
patent coverage will be available or that the manufacturing and marketing of its
products through such licenses, joint ventures or other arrangements will be
commercially successful. The Company might also have greater difficulty
obtaining proprietary protection for its products and technologies outside the
United States rather than in it, and enforcing its rights in foreign courts
rather than in United States courts.




                                       13

<PAGE>
RISK OF REDEMPTION OF CLASS C WARRANTS. Commencing on August 23, 1997, the
Company may redeem the Class C Warrants for $0.10 per Class C Warrant upon 60
days prior written notice, provided that the average closing bid price for the
Common Stock exceeds 200% of the Exercise Price for 20 consecutive trading days
ending three days prior to the notice of redemption. Notice of redemption of the
Class C Warrants could cause the holders thereof to exercise the Class C
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holders to do so, to sell the Class C Warrants at the current market price
when they might otherwise wish to hold the Class C Warrants, or to accept the
redemption price, which is likely to be less than the market value of the Class
C Warrants at the time of the redemption. See "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Of the 8,192,219 shares of
Common Stock outstanding as of the date of this Prospectus, approximately
4,170,749 shares will be eligible for sale in the public market without
restriction on the date of this Prospectus. In addition to such outstanding
shares of Common Stock, there are 5,362,415 shares of Common Stock issuable
under currently outstanding warrants (excluding the Class C Warrants) and
approximately 3,000,000 shares of Common Stock issuable or reserved for issuance
under the Company's 1991 Stock Plan and under various license, option and
research agreements. No prediction can be made as to the effect, if any, that
sale or the availability for sale of such securities will have on the market
prices prevailing from time to time for the Common Stock and the Class C
Warrants, the Common Stock and/or the Class C Warrants. Nevertheless, the
possibility that substantial amounts of such securities may be sold in the
public market may adversely affect prevailing market prices for the Company's
equity securities, and could impair the Company's ability to raise capital in
the future through the sale of equity securities. Certain stockholders have also
been granted demand and piggy-back rights with respect to future registrations
by the Company. Sales of Common Stock, or the possibility of such sales, in the
public market may adversely affect the market price of the Common Stock
underlying the securities being offered hereby.

ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW.
The Board of Directors has the authority to issue shares of preferred stock with
rights and preferences senior to those of the Common Stock without further vote
or action by the stockholders of the Company. In addition, the Company's
Restated By-Laws and Restated Certificate of Incorporation contain certain
provisions (including a classified Board of Directors) that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Common Stock or other equity securities.
These provisions could also make it more difficult for stockholders to change
the management of the Company or to effect certain transactions. See
"Management" and "Description of Securities."

ABSENCE OF DIVIDENDS. The Company has never declared or paid any cash dividends
and does not anticipate paying dividends on its Common Stock or other equity
securities for the foreseeable future. Management of the Company anticipates
that all earnings and other resources of the Company, if any, will be retained
by the Company for investment in its business.

POTENTIAL VOLATILITY OF PRICE; LOW TRADING VOLUME. The market price of the
Common Stock, like that of many other development-stage public pharmaceutical or
biotechnology companies, has been highly volatile and may be in the future.





                                       14

<PAGE>
Factors such as announcements of technological innovations or new commercial
products by the Company or its competitors, disclosure of results of preclinical
and clinical testing, adverse reactions to products, governmental regulation and
approvals, developments in patent or other proprietary rights, public or
regulatory agency concerns as to the safety of products developed by the Company
and general market conditions may have a significant effect on the market price
of the Common Stock and its other equity securities. In addition, in general,
the Common Stock has been thinly traded on the Nasdaq SmallCap Market, which may
affect the ability of the Company's stockholders to sell shares of the Common
Stock in the public market. There can be no assurance that a more active trading
market will develop in the future.

CONTROL BY DIRECTORS AND OTHERS. Prior to consummation of the Offering, the
Company's directors, executive officers and principal stockholders will
beneficially own (excluding exercisable options, warrants and convertible
securities) approximately 44% of the outstanding shares of Common Stock.
Accordingly, although such percentage will be reduced as a result of the
Offering, the Company's executive officers, directors, principal stockholders
and certain of their affiliates will have the ability to exert substantial
influence over the election of the Company's Board of Directors, and to control
the outcome of substantially all issues submitted to the Company's stockholders.

LIMITED AVAILABILITY OF NET OPERATING LOSS CARRY FORWARDS. At December 31, 1995,
the Company had accumulated approximately $9,427,000 in net operating loss carry
forwards. Based on the number of shares of Common Stock, convertible notes and
shares of convertible preferred stock issued in 1993, the Company exceeded the 
limits allowable under the Tax Reform Act of 1986 related to changes in 
ownership percentage governing future utilization of net operating loss carry 
forwards under Internal Revenue code Section 382. The effect of these 
occurrences is to limit the annual utilization of the net operating loss carry 
forwards to an amount determined by multiplying the fair market value of the 
Company immediately prior to the change in ownership percentage by the Federal 
long term tax exempt interest rate at the time of the change. There can be no 
assurance that further limitations on utilization of net operating loss carry 
forwards will not occur resulting from ownership changes that have taken place 
subsequent to December 31, 1996 and those that may occur in the future.

POSSIBLE DELISTING FROM NASDAQ AND MARKET ILLIQUIDITY. Continued inclusion of
the Common Stock and, if accepted for quotation, the Class C Warrants, for
quotation on The Nasdaq SmallCap Market will require that (i) the Company
maintain at least $2,000,000 in total assets (the "Minimum Asset Requirement")
and $1,000,000 in capital and surplus, (ii) the minimum bid price for the Common
Stock be at least $1.00 per share, (iii) the public float consist of at least
100,000 shares of Common Stock, valued in the aggregate at more than $200,000,
(iv) the Common Stock have at least two active market makers and (v) the Common
Stock be held by at least 300 holders. As of December 31, 1995, the Company did
not meet all of the criteria for continued listing. The listing qualifications
committee of The Nasdaq Stock Market granted the Company a temporary exception
from such requirements subject to meeting certain conditions (including
completion of the offering by the Company of the Series A Convertible Preferred
Stock), which conditions have been satisfied. The Company anticipates that the
proceeds of the recently concluded private placement of series B' Preferred 
Stock and Class C Warrants will enable the Company to satisfy the Minimum Asset
Requirement for continued listing until December 31, 1997. In the event that the
Company does not raise additional funds in addition to those received in the
recently concluded private placement, the Company may be required to reduce
materially its planned research and development expenditures in order to
continue to satisfy the Minimum Asset Requirement. However, if the Company is
unable to continue to satisfy the Minimum Asset Requirement or the other
maintenance requirements, the securities may be delisted from Nasdaq. In such
event, trading, if any, in the Common Stock and Class C Warrants would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or the NASD's "Electronic Bulletin Board", and it would be more
difficult to dispose of the securities or to obtain as favorable a price for the
securities. Consequently, the liquidity of the securities could be impaired, not
only in the number of securities that could be bought and sold at a given price,
but also through delays in the timing of transactions and reduction in security
analysts' and the media's coverage of the Company, which could result in lower
prices for the securities than might otherwise be attained and in a larger
spread between the bid and asked prices for the securities.













                                       15

<PAGE>
RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY
FOR THE COMPANY'S SECURITIES. If the Company's securities were delisted from
Nasdaq, they may become subject to Rule 15g-9 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors." For transactions
covered by this Rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Consequently, such Rule may affect the
ability of broker-dealers to sell the Company's securities and may affect the
ability to sell any of the Company's securities in the secondary market.

The Commission has adopted regulations which define a "penny stock" to be any
equity security that has a market price (as therein defined) of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock.

The foregoing required penny stock restrictions will not apply to the Company's
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis, or if the Company
meets certain minimum net tangible assets or average revenue criteria. There can
be no assurance that the Company's securities will qualify for exemption from
the penny stock restrictions. In any event, even if the Company's securities
were exempt from such restrictions, the Company would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that engages in unlawful conduct while participating in a
distribution of penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest.

If the Company's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities would be materially adversely
affected.









                                       16

<PAGE>
                                 USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Class C Warrants or
shares of Common Stock by the Selling Securityholders. In the event that all the
Class C Warrants are exercised, net cash proceeds to the Company would be
approximately $15,940,000 (after estimate offering expense of approximately
$1,025,000 which includes a 6% commission payable to the Placement Agent upon
the exercise of the Class C Warrants and up to $5,000 payable to reimburse the
Placement Agent for out-of-pocket costs incurred in connection with the
solicitation of Class C Warrant exercise or the redemption of the Class C
Warrant). The Company intends to use any such net cash proceeds for general
working capital purposes. The Company is not expected to receive any proceeds
from the exercise of the Placement Warrants since the Placement Warrants may be
exercised pursuant to a cashless exercise provision. In the event that the
Placement Warrants are exercised for cash, the Company intends to use such net
cash proceeds for general working capital purposes. Proceeds, if any, from the
exercise for cash of all the Placement Warrants, before deduction of estimated
expenses of this Offering, would be approximately $3,756,937. Whether, how and
to what extent any of the Class C Warrants or Placement Warrants will be
exercised, and whether the Placement Warrants are exercised for cash or not,
cannot be predicted by the Company.

                                 DIVIDEND POLICY

The Company has never declared or paid any dividends and does not anticipate
paying dividends on the Common Stock in the foreseeable future. The Company
currently intends to retain future earnings, if any, for use in the Company's
business. The payment of any future dividends will be determined by the Board of
Directors taking into account the Company's financial condition and
requirements, its future prospects, restrictions in its financing agreements,
business conditions and other factors deemed relevant by the Board of Directors.








                                       17

<PAGE>

                                    BUSINESS

GENERAL

The Company is a development stage biopharmaceutical company engaged in the
business of acquiring rights to, and developing for commercialization,
technologies and drugs for the treatment of a number of life threatening
diseases including cancer, cardiovascular disorders and acute inflammation. The
Company has focused on acquiring compounds that have been previously tested in
humans or animals and technologies that may improve the delivery or targeting of
previously tested, and in some cases marketed, anticancer agents. The Company
has received approval of IND applications by the FDA relating to proposed Phase
I clinical trials in the United States for three of its product candidates, one
of which has commenced such trials. On March 15, 1996, the Company acquired the
assets and business of Lexin Pharmaceutical Corporation ("Lexin"). The assets
acquired in the Lexin Purchase are designed primarily as potential therapeutic
agents for acute inflammatory and cardiovascular diseases.

The Company's lead product candidates under development are:

PRODUCT CANDIDATE  INDICATION                            STAGE OF DEVELOPMENT
- -----------------  ----------                            --------------------

Spartaject(TM)     busulfan Providing injectable         IND approved 
                   delivery of drug for ablating 
                   bone marrow prior to bone 
                   marrow transplant

RII retinamide     Treatment of myelodysplastic          Phase I Clinical Trial
                   syndromes (MDS).                      Commenced

L.A.D.D.(TM) 5-FP  Providing oral delivery of 5-FU       IND approved
                   for the treatment of colorectal, 
                   breast, liver and other cancers

LEX032             Treatment of reperfusion injury       Preclinical   
                   (e.g. occurring after myocardial
                   infarction and stroke)

In addition to the Company's lead products, the Company has also identified, and
in some instances has undertaken some development of, other applications of its
licensed technologies and other product candidates, one of which is in joint
Phase I clinical trials in the United Kingdom.

The technology acquired in the Lexin Purchase is licensed exclusively from two
universities and directed at the potential treatment of a number of life
threatening diseases. LEX032, is intended to treat serine protease-mediated
inflammatory tissue damage. Serine proteases are enzymes which digest proteins.
They have been implicated in a number of serious diseases, especially those of
major organs, e.g., the lung and pancreas, where uncontrolled inflammation may
be fatal. LEX032 has exhibited what may be a unique spectrum of activity in
certain animal models of reperfusion injury. A drug with such a spectrum of
activity may be useful in the treatment of myocardial infarction, stroke,
shock-resuscitation, replantation surgery, frostbite, burns and organ
transplants. The compound is currently under evaluation, pursuant to an option
granted to Astra Merck Inc., for treatment of acute pancreatitis, or
inflammation of the pancreas.

While numerous innovative biotechnology approaches are being explored for the
treatment of cancer, the Company believes that chemotherapeutic drugs will
continue to make substantial contributions to the treatment of cancer in the
near-to-mid-term. Furthermore, the Company believes that the application of
technologies that improve the delivery or targeting of chemotherapeutic agents
may provide greater commercial opportunities for such agents. Moreover, advances
in biotechnology that have already been made, such as the development of growth
factors, may facilitate the development of more promising chemotherapeutic
compounds.







                                       18

<PAGE>
In addition to the Company's anticancer program, the Company's strategy also
currently includes the planned development of viral disease applications of the
L.A.D.D. Technology and certain compounds. Such development will depend on the
Company's ability to raise funds in addition to the proceeds of this Offering or
engage in out-licensing, joint development or other collaborative arrangements.
The treatment of antiviral diseases may present a significant market opportunity
because currently there are relatively few effective medications available.

OVERVIEW OF CANCER

Cancer afflicts millions of people worldwide and caused 6 million deaths in 1995
according to The World Health Organization. It is the second leading cause of
mortality in the industrialized world. The American Cancer Society estimates
that in the United States in 1996 there will be about 1.3 million new cases of
cancer and approximately 555,000 deaths attributed to the disease. In addition,
it is estimated that one in three Americans will eventually contract cancer, and
the disease will affect three out of four families.

Cancer is a generic term used to describe a number of related diseases. There
are many different forms of cancer that attack different parts of the body.
Cancer generally is characterized by the uncontrolled, abnormal growth and
spread of malignant tumors or by the proliferation of immature cells in blood or
bone marrow. Tumors in a tissue or organ result from rapid growth of immature
and essentially nonfunctional cells that are not controlled by the body's normal
regulatory functions. A tumor is considered malignant, and therefore a cancer,
when it demonstrates unrestrained local growth and a capacity to invade remote
areas of the body (metastasis).

Chemotherapy. Chemotherapy, surgery and radiation are the three most common
forms of cancer treatment. Each year in the United States, over 800,000 patients
with cancer receive chemotherapy, which involves the administration of drugs
designed to kill or inhibit the growth of cancer cells. Chemotherapeutic drug
research focuses mainly on identifying agents that negatively impact tumor cell
growth and have the ability to distinguish between growing cancer cells and
normal cells. In general, the difference between a drug's effectiveness at
combating a disease and its toxicity to the system is known as its therapeutic
index. When chemotherapeutic drugs or new formulations of such drugs act to
impact tumor cell growth to a greater extent than previously available therapies
and/or reduce the harm to healthy cells as compared to previously available
therapies, the therapeutic index has been expanded.

Methods of Administering Chemotherapeutics. Chemotherapeutics are administered
primarily by injection, usually into veins. This method has traditionally been
preferred by practitioners when it is feasible, because it generally ensures
more timely administration of the required medication and provides more
consistent and predictable availability of the drug within the body. To be
delivered by injection, the compound must be placed in a liquid solution, blend
or mixture that can readily pass through the body's circulatory system.
Unfortunately, many chemotherapeutic agents are poorly soluble in water, and
therefore either are not available in injectable form or require the use of
potentially toxic solubilizing agents to facilitate the preparation of
injectable formulations. Some patients experience adverse side effects
associated with the solubilizing chemicals used in the delivery of
chemotherapeutics.

Although less frequently used, oral administration of chemotherapeutics is also
employed if possible, primarily in outpatient cancer treatment, but also in a
hospital setting when an intravenous form of a chemotherapeutic is not
available. Generally, oral administration is more convenient and less expensive
than other methods, and the Company believes such administration will achieve
wider use in the future if more severe cost constraints are imposed on cancer
treatment. However, those chemotherapeutics which are available only in oral
form and administered in a hospital setting may have limited use in that form
because of variability in patient absorption, nausea and difficulties in
administering them to debilitated patients or children.

Market for Chemotherapeutics. The market for chemotherapeutics consists
primarily of cytotoxic (literally, cell toxic) and other drugs used to treat
cancer. This market is estimated to have generated United States sales of
approximately $1.5 billion and worldwide sales of approximately $5.0 billion in
1992. Worldwide sales of anticancer chemotherapeutic agents have been forecasted
to reach approximately $11.8 billion in 1999.












                                       19

<PAGE>
It is estimated that the costs associated with treating cancer currently account
for approximately 10% of total annual health-care costs in the United States.
The National Cancer Institute ("NCI") estimates the economic impact of cancer at
$104 billion in 1990, of which $35 billion represents direct medical costs.
Nevertheless, while total costs associated with cancer treatment are
substantial, in 1992 chemotherapy costs represented only approximately 4% of
such costs and other treatment costs, including those occasioned by the relative
efficacy and toxicity of existing cancer treatments, accounted for approximately
96%. To the extent improved chemotherapy reduces these other treatment costs,
the total cost of cancer care is likely to be positively impacted.

POTENTIAL TECHNOLOGY APPLICATIONS AND PRODUCT CANDIDATES

The Company's development efforts in 1995 were directed almost exclusively to
seeking and obtaining FDA approval to commence initial clinical trials of
Spartaject busulfan and RII retinamide and preparatory work related to seeking
clearance for initial clinical trials of L.A.D.D. 5-FP. The Company's rights
with respect to the product candidates and technologies described herein have
been generally acquired by license, and in one instance, under an option to
license. Rights with respect to the serine protease inhibitors were acquired
pursuant to the Lexin Purchase. The Company is aware of patents that have been
issued to or applied for by third parties which may affect the Company's ability
to commercialize certain of its technology applications and product candidates.

The Company's other technology applications and product candidates are targeted
at the treatment of various cancers (use of the Spartaject Technology with
etoposide, taxanes and camptothecin, use of the L.A.D.D. Technology with IPdR,
and PT-523) and various inflammatory conditions and clotting disorders
(recombinant and small molecule serine protease inhibitors). All such technology
applications and product candidates are in the preclinical stage of development.

USE OF THE SPARTAJECT TECHNOLOGY. Many anticancer drugs either are poorly water
soluble or are literally water insoluble. Some are currently available only in
tablet or capsule form, and may be limited in their potential use because of
variability in patient absorption, nausea or other difficulty in administering
them to debilitated patients or children. Others that are poorly water soluble
have been formulated for administration intravenously using undesirable
detergents and other organic solvents that can create irritation at the site of
administration, sensitivity reactions and other side effects.

The Company's Spartaject Technology is a drug delivery system that accommodates
poorly water soluble and water insoluble compounds by encapsulating them with a
fatty (phospholipid) layer. The technology involves coating particles of drug
which are of submicron or near micron size with a membrane-forming phospholipid
layer, thereby permitting the creation of a suspension of the drug rather than a
solution, and its intravenous injection without the use of potentially toxic
solubilizing agents. As a result, the Spartaject Technology may reduce toxicity
created by other injectable forms of delivery and potentially increase efficacy
by facilitating delivery of compounds whose prior intravenous administration was
impractical because of solubility-related formulation difficulties.

The Company believes this technology can be used in a number of ways, including:

          -    improving the delivery of existing drugs by allowing injectable
               forms to be used that previously may have been unavailable;

          -    improving existing injectable dosage forms of anticancer drugs by
               reducing formulation associated toxicities; and

          -    permitting the renewed development of anticancer agents whose
               investigation may have been halted because of formulation
               difficulties attributable to poor solubility.

In addition to such improvements, formulations of unpatented compounds with the
Spartaject Technology may be covered by the already issued patents relating to
the Spartaject Technology thereby affording the drugs renewed protection. New
formulations of patented, approved and investigational drugs with the Spartaject
Technology be afforded longer periods of patent protection than they would
without such reformulation.

Spartaject Busulfan. The Company has received approval for an IND in respect of
its development program for Spartaject intravenous delivery of busulfan.
Busulfan is currently marketed in an oral dosage form by Glaxo Wellcome Inc.
("GW").








                                       20

<PAGE>
It is frequently used "off-label" as a bone marrow ablating agent prior to bone
marrow transplants ("BMT"). However, due to poor solubility in water, busulfan
has been available only in tablets containing a small amount of drug, and BMT
requires high dosage of drug, necessitating patients to take large numbers of
tablets, usually more than one hundred per day for four days, in order to absorb
enough active drug to achieve the desired effect on the bone marrow. The need to
swallow large numbers of tablets is one of the major limitations on the wider
use of busulfan for BMT procedures, especially in children. Furthermore, oral
administration of busulfan may result in variations in the amount of drug
actually absorbed (bioavailablity) leading to widely variable blood levels and
some unpredictable and serious toxicities.

The Company believes that an intravenous form of busulfan is needed to overcome
these limitations. GW has supplied the Company with busulfan for the Company's
testing program and formulations of Spartaject busulfan have been prepared.
Although an IND has been approved by the FDA, the Company has not yet commenced
Phase I clinical trials. In addition, the Company has been granted orphan drug
status by the FDA for the use of busulfan as preparative therapy for
malignancies treated with bone marrow transplantation. The Orphan Drug Act, as
now in effect, can provide a period of market exclusivity for seven years
following approval, if the compound is initially approved by the FDA for use in
malignancies treated with bone marrow transplantation under the Company's
sponsorship. (See "Risk Factors"). 

In December 1995, the Company signed an agreement with Orphan Europe SARL, 
Paris, and Swedish Orphan, AB, Stockholm, for the exclusive clinical testing, 
registration, distribution and marketing of Spartaject busulfan in certain 
countries outside the United States. Under the agreement, Orphan Europe will
be the Company's exclusive distributor in Western European countries outside 
of Scandinavia and will handle clinical testing and product registration for 
those countries. Swedish Orphan will have similar rights and responsibilities 
for Scandinavian countries. Orphan Europe and Swedish Orphan are obligated at
their own expense to use their best efforts to clinically test and register 
Spartaject busulfan in Europe and Scandinavia and to distribute and market 
the product in those territories. The Orphan companies must also make certain 
milestone payments to the Company upon achievement of specified development 
and registration objectives. The Company is obligated to use its best efforts 
to supply Spartaject busulfan for clinical testing and marketing on terms to 
be established from time to time.

The Company estimates that in 1995 there were 9,000 bone marrow transplants
performed in the United States and that the number of such procedures will grow
at the rate of about 1,000 transplants per year. The Company believes there is a
similar or greater number of such procedures performed elsewhere in the world,
and the frequency of such transplants is increasing worldwide.

RII RETINAMIDE (RETINOID). In trials in China, conducted by the Company's
licensor, involving more than 600 patients, RII retinamide has shown activity
against myelodysplastic syndromes ("MDS") and a number of other conditions. The
Company is developing the compound in the United States for MDS and began a
Phase I clinical trial in August, 1996. MDS are a related group of conditions
that have in common an abnormality in the blood-producing cells of the bone
marrow. The conditions are invariably fatal, although patients can live for
several years after diagnosis. Treatment of patients with MDS has generally
proven disappointing and no chemotherapy has impacted survival to date. The most
common current treatment is management by supportive measures, such as blood
transfusion, or the administration of antibiotics to fight infections. RII
retinamide may be effective because retinoids have a cell differentiating effect
that potentially can cause abnormal cells in the bone marrow to become normal.
The Company has also been granted orphan drug status for RII retinamide for the
treatment of MDS. The Orphan Drug Act as now in effect can provide a period of
market exclusivity for seven years following approval, if the compound is
initially approved by the FDA for treatment of MDS under the Company's
sponsorship. The Company estimates that in 1995 there were at least 12,000
patients in the United States with MDS.

L.A.D.D. TECHNOLOGY. L.A.D.D. Technology involves administering an inactive
compound, known as a prodrug, which passes through the body and is converted in
the liver to an active agent by an enzyme located there. L.A.D.D. Technology may
enable adjusting the dosage of the prodrug so that either: (i) appropriate
therapeutic levels of the active agent remain in the liver allowing targeted
treatment of liver-associated cancers and viral diseases, with only low levels
entering the system, thereby reducing the agent's potential for harming healthy
cells elsewhere in the body, or (ii) higher levels of the activated agent pass
out of the liver into the circulation, thereby allowing chemotherapy to occur
throughout the body. The Company is applying the technology to prodrugs selected
for their potential either to treat liver cancer and metastases to the liver
from primary tumors occurring elsewhere in the body, or to serve as oral
delivery agents for certain systemically active chemotherapeutic drugs
previously available only in intravenous form.




                                       21

<PAGE>
Use of L.A.D.D. Technology with 5-FP.  5-FP, or 5-fluoro pyrimidinone, is a
pyrimidinone-based prodrug that converts into 5-FU, or 5-fluorouracil.  5-FU is
currently sold generically only in an intravenous form.  It is widely used in
the treatment of breast, colorectal and other cancers.

Many current schedules of intravenous administration of 5-FU require prolonged
infusion of the drug, sometimes over several weeks, which can be costly and
inconvenient for patients. The Company believes that an oral form of the drug
could provide the advantages of convenience of administration and potential cost
saving, and it is developing 5-FP as an oral form of 5-FU for treatment of
breast, colorectal and other cancers. The Company has received approval by the
FDA of an IND application to commence Phase I clinical trials and expects to
commence such trials in the latter part of 1996. Based on those studies, the
Company should learn from the FDA whether the compound will be treated as a new
chemical entity or a new method of administration for the generic drug.

The intravenous formulation of 5-FU is available generically. Accordingly, an
oral form of 5-FU that may be more costly than the intravenous formulation is
likely to have more limited use than it otherwise might experience. The Company
estimates that of the approximately 195,000 patients with breast, colorectal,
liver or other cancers who might have been candidates for treatment with 5-FU in
1995 in the United States, approximately 30,000 might have been candidates for
treatment with an oral form of 5-FU.

The Company also expects to investigate the use of 5-FP using the L.A.D.D.
Technology for targeted treatment of liver tumors and tumors that metastasize to
the liver. The targeted approach is intended to achieve effective 5-FU
concentrations in the liver, while decreasing the presence, and therefore the
side effects, of 5-FU elsewhere in the body. The Company estimates that in the
United States in 1995 there were approximately 190,000 patients who were
candidates for a targeted liver chemotherapeutic directed at primary liver
cancer or liver cancer from primary tumors occurring elsewhere in the body which
first metastasize to the liver. In addition, the incidence of these cancers is
particularly high in the Pacific Rim countries. Although the development of 5-
FP as an oral form of 5-FU is expected to have applicability to the Company's
development of 5-FP for targeted treatment of liver cancer, the Company does not
expect to separately develop 5-FP for targeted treatment of liver cancer until
and unless the development of 5-FP as an oral form of 5-FU advances into late
stage clinical trials. The separate development of 5-FP for targeted treatment
of liver cancer will be dependent upon receipt of funding from a financing
(other than the Offering) or out-licensing, joint development or other
collaborative arrangements, of which there can be no assurance.

LEX032. The technology and compounds acquired in the Lexin Purchase were
licensed to Lexin exclusively from the University of Pennsylvania and Wichita
State University and are directed at the potential treatment of a number of life
threatening diseases. LEX032 is intended to treat serine protease-mediated
inflammatory tissue damage. Serine proteases are enzymes which digest proteins.
They have been implicated in a number of serious diseases, especially those of
major organs, e.g., the lung and pancreas, where uncontrolled inflammation may
be fatal. LEX032 has exhibited what may be a unique spectrum of activity in
certain animal models of reperfusion injury. A drug with such a spectrum of
activity may be useful in the treatment of myocardial infarction, stroke, shock-
resuscitation, replantation surgery, frostbite, burns and organ transplants. The
compound is currently under evaluation pursuant to an option granted to Astra
Merck Inc. for treatment of acute pancreatitis, or inflammation of the pancreas.

Use of LEX032 in Reperfusion Injury. Reperfusion injury occurs when blood flow
is restored to the heart, brain, or other tissue after flow has been blocked.
Cellular damage takes place in the organ not only during the time of oxygen
deprivation but also occurs during the reperfusion period. Several mechanisms
appear to play a role in the generation of reperfusion injury. Most involve, to
some extent, a class of white blood cells known as neutrophils. These cells are
activated and then are attracted to the injured site as part of the inflammatory
response. Neutrophils release proteases in order to fight bacteria and to remove
damaged tissue prior to wound healing. Unfortunately, if not properly
controlled, the presence of a large number of neutrophils can have damaging
consequences. As part of the acute phase of the inflammatory response, balance
is maintained by the synthesis and release of inhibitory proteins by the liver.
These proteins bind to and thus inactivate the protein digesting proteases
released from invading neutrophils. In many severe inflammatory conditions,
control of this activity is lost due to insufficient or untimely synthesis of
inhibitors, resulting in extensive, life-threatening multi-organ damage. The
infiltration of neutrophils into the previously ischemic area has been
implicated as playing a major role in tissue damage following reperfusion. A
preliminary and necessary step to block reperfusion injury is the attachment of
the neutrophil onto the lining of the blood vessels, a process requiring the
breakdown of a key cellular protein. In addition to




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<PAGE>
the extracellular release of intracellular proteolytic enzymes, a second type of
tissue damage is caused by other enzymes within the neutrophils that produce
tissue-damaging free radicals. Administration of a drug that prevents excessive
neutrophil accumulation at a site of inflammation should result in a reduction
in the degree of reperfusion injury.


OTHER PRODUCT CANDIDATES

The Company's other technology applications and product candidates are focused
on at the treatment of various cancers (use of the Spartaject Technology with
etoposide, taxanes and campothecin, use of the L.A.D.D. Technology with IPdR,
and PT-523) and various inflammatory conditions and clotting disorders
(recombinant and small molecule serine protease inhibitors). All such technology
applications and product candidates are in the preclinical stage of development,
other than asulacrine which is in Phase I clinical trials in the United Kingdom.

RESEARCH AND DEVELOPMENT

Since the Company's business strategy includes acquiring the rights to
therapeutic product candidates that have demonstrated potential efficacy in
preclinical or clinical testing, the Company does not have its own research
facilities and does not plan to establish them in the foreseeable future. The
Company has funded and may from time to time fund research programs in
collaboration with academic and other institutions, primarily those with which
it has or will have established license agreements. The Company supported
research at four institutions with which it has entered into license agreements,
Yale University ("Yale"), the Institute of Materia Medica, Beijing, China
("BIMM"), the University of Pennsylvania ("Penn") and Wichita State University
("Wichita State"). The University of Pennsylvania and Wichita State University.
At Yale, the Company supported work in the laboratory of Dr. Yung-chi Cheng, Co-
Chairman of the Company's Scientific Advisory Board, some of which was directed
at synthesizing and characterizing compounds to which the L.A.D.D. Technology
may be applicable. The Company should have rights to the results of such work to
the extent the results are embodied in any of the licensed patents covered by
the Company's existing license agreement with Yale. In the event there are other
patentable inventions arising out of the research, in order to obtain rights to
such inventions, the Company will be required to negotiate new licensing
arrangements, and there can be no assurance that such negotiations will be
successful. See "Licensing -- Licenses of L.A.D.D. Technology to the Company."
The Company has also funded research at BIMM directed by its special consultant
to the Scientific Advisory Board, Professor Jui (Rui) Han, M.D., which focuses
on synthesizing and characterizing new retinoid compounds with reduced
teratogenic (fetal malformation) potential from that experienced with many
existing retinoid compounds. Some compounds have been synthesized under the
program. The Company expects to have exclusive rights (outside of China) to the
results of such work under the terms of its existing license agreement with
BIMM.

At Penn, the Company is supporting the work of Dr. Harvey Rubin, a member of the
Company's Scientific Advisory Board aimed at the development of new variants of
protein based serine proteases for the treatment of inflammation and other life
threatening diseases. The Company has the rights to all future related
inventions developed at Penn. At Wichita State, the Company is supporting the
work of Dr. William Groutas which focuses on the discovery of new small molecule
inhibitors of serine proteases. The advantages of these new compounds are their
novel heterocyclic templates which provide flexibility with respect to: potency;
protease specificity; aqueous solubility; toxicity; oral activity and ease and
cost of synthesis. The Company has exclusive rights to any patents resulting
from this program.

Under the terms of its agreement with Dana-Farber Cancer Institute, Inc. ("Dana
Farber"), the Company also has a right of first refusal to negotiate exclusive,
worldwide licenses on certain new compounds developed during the term of the
agreement by, under the direction of, or in the laboratories of, Dr. Andre
Rosowsky, who is a special consultant to the Company.  See "Licensing --Other
Licenses and Options."

To assist with the development of its products while permitting the Company to
maintain a minimal infrastructure, it has established a relationship with Cato
Research Ltd. ("Cato") which extends until June 1997 (with provision for earlier
termination by the Company, and in certain circumstances, Cato), to provide
preclinical and clinical planning, development and drug registration services.
Cato's services to the Company are paid for with a combination of cash and
Common Stock up to a maximum total of 150,000 shares, of which 93,576 shares
remain available for issuance to Cato for services provided after August 31,
1996. See Note 11 of Notes to Financial Statements. Cato is an independent
clinical research and drug development company providing the following services:
planning, implementing and analyzing preclinical and clinical trials,



                                       23

<PAGE>
and devising and conducting regulatory strategies for obtaining FDA approval for
the testing and marketing of new drugs. The Company has also contracted with
other independent clinical research organizations besides Cato.

The Company also depends upon academic, research and non-profit institutions,
and some commercial service organizations, for chemical synthesis and analysis,
product formulation, assays and preclinical and clinical testing of its
compounds. Preclinical work has been, is currently being or is expected to be
conducted at the Roswell Park Cancer Institute, the Southern Research Institute,
the Universities of Iowa and Wisconsin, RTP and other organizations.

For the years ended December 31, 1993, 1994 and 1995, the Company expended
$1,434,956, $2,013,934 and $1,819,887 respectively, on research and development
activities. From its inception in June 1990 through June 30, 1996 the Company
expended $7,038,407 on research and development.

MANUFACTURING AND MARKETING

The Company does not have, and does not intend to establish in the foreseeable
future, manufacturing facilities to produce either drug chemicals or product
formulations (except possibly with respect to its Spartaject Technology).
Accordingly, it will have to rely on third parties to manufacture its product
candidates. There can be no assurance that third party manufacturers will be
available and perform as required or, if available, will give the Company's
orders the highest priority, or that the Company would be able to readily find a
substitute manufacturer, if needed, on short notice. The Company will be
dependent upon contract manufacturers to meet the Company's manufacturing
standards and to comply with cGMP or other applicable requirements imposed by
United States or foreign regulators and with health, safety and environmental
regulations. There can be no assurance that such compliance will be achieved or
that the FDA and other regulators would not take action against a contract
manufacturer for violating cGMP or similar standards or regulations.

The market for oncology therapeutics in the United States is highly
concentrated. There are approximately 3,000 to 3,500 oncology practices in the
United States. Many are concentrated geographically in populated areas near the
approximately 50 major cancer centers in the United States. Currently, the
Company has no marketing personnel or arrangements, other than for the marketing
of Spartaject busulfan in Europe and Scandinavia. It plans to market its
products, if successfully developed, with its own sales force, with co-marketers
or through distributors, licensees or strategic partners.

LICENSING

The Company's license or sublicense agreements (the "Licenses") generally
require the Company to undertake and pursue with diligence and best efforts
development of the compounds and technologies licensed, and to report on a
regular basis on the Company's development progress and plans. Each of the
Licenses requires payments of royalties on sales of products covered by the
License and, in several instances, minimum annual royalties. Under most of the
Licenses, the licensor has the first right to sue for infringement of, and
defend invalidity charges against, the licensed patents. All of the Licenses
provide that in the event of the Company's default of its obligations, including
the obligations to diligently pursue and apply best efforts to the development
of the licensed compound or technology, and, in some instances, in the event of
its insolvency or bankruptcy, all or a portion of the license or sublicense may
be terminated by the licensor or sublicensor. A termination of any of the
Licenses could have a material adverse effect upon the Company. The Company
believes it has complied in all material respects with the terms of all of its
Licenses to date. The Company intends to continue its licensing program and
engage in product acquisitions with a primary focus on clinical stage or
marketed anticancer compounds. There can be no assurance that any such licenses
or acquisitions will be on terms similar to the Licenses.

The Company was obligated to make minimum royalty and annual maintenance fee
payments in the aggregate amount of $137,000 during 1995, and is obligated to
make payments of $232,000 during 1996.

Sublicense of Spartaject Drug Delivery Technology to the Company. On July 1992,
RTP granted the Company a worldwide patent and know-how sublicense under RTP's
license with Pharma-Logic, Inc. to make, have made, use and sell pharmaceutical
formulations embodying the Spartaject Technology for use as anticancer agents
for cancer treatment in humans, for use as agents for ancillary care related to
cancer treatment in humans and for any use of busulfan in humans (the "RTP
License"). The Company's sublicense is exclusive, subject to RTP's exclusive
right to make, have made, use and sell, and to contract to make, have made, use
and sell, products based on any anti-cancer agent invented by RTP or an
affiliate after





                                       24

<PAGE>
the date of the RTP License which is patented in the United States or the
subject of a pending United States patent application. RTP has not informed the
Company that any such inventions have been made to date. If the Company does not
develop or sublicense an agent, or is not engaged in developing or sublicensing
activities of an agent, in a chemotherapeutic category, prior to July 1997, then
RTP will be entitled to exclusive rights to make, have made, use and sell and to
sublicense the right to make, have made, use and sell one or possibly more
products in that chemotherapeutic category if subsequent to July 1997 RTP
develops or licenses the rights to such products prior to the Company's
developing or sublicensing a product within that category.

The RTP License requires the Company, subject to extensions and qualifications
in certain circumstances, to fund, prepare and file NDAs for a fixed number of
products by specified dates, the earliest of which is January 1997. The Company
is obligated to pay royalties, including minimum amounts, on product sales until
the expiration of the underlying patents, to pay an annual fee to maintain
exclusivity, and must pay all or a portion of patent prosecution, maintenance
and defense costs. The Company is required under certain circumstances to
provide information regarding its preclinical and clinical research, regulatory
filings and proceedings, manufacturing processes and related information to RTP,
and under certain circumstances RTP may disclose this information to other
licensees, but during its term the RTP License limits the use of such
information by RTP or its licensees to uses outside the field of use licensed to
the Company. Unless sooner terminated, the RTP License continues, with respect
to an issued patent, until the patent expires or has been found invalid. With
respect to pending patent applications, the obligation to pay royalties ceases
upon abandonment of the application or after the application has been pending
for five years, whichever occurs first. Should the patent application
subsequently issue as a patent, the royalty obligation resumes.

License of L.A.D.D. Technology to the Company. Yale University ("Yale") granted
the Company in October 1991 an exclusive worldwide license to make, have made,
use and sell products under certain patent rights covering a defined invention
("Yale License"). These patent rights relate to the L.A.D.D Technology.
Exclusivity under the Yale License is subject to rights required to be granted
to the United States Government (related to government sponsorship of any
research) and Yale's right to make, use and practice the invention for
noncommercial purposes. The Company's obligations to Yale Include (i) payments
upon the achievement of certain milestones, (ii) royalty payments, including
minimum amounts, on product sales, and (iii) payment of the costs of preparing,
prosecuting and maintaining patent applications and patents. For products
covered by pending patent applications, royalties cease five years after the
filing date if no patent has issued. Royalties for products covered by issued
patents are payable until the patents expire or are found invalid or
unenforceable. The Company also issued shares of its Common Stock to Yale,
granted Yale certain stock registration rights, and provided for the Company to
have a right of first refusal to repurchase such shares if Yale desires to sell
and/or transfer the shares.

License of Retinoid to the Company. The Company obtained an exclusive worldwide
(except for China) patent and know-how license from BIMM in October 1991 to
specified classes of retinoids, including RII retinamide. The Company is
obligated to use its reasonable best efforts to prepare, prosecute and maintain
patent applications and patents for such compounds outside China at its expense,
and has provided and may continue to provide support to BIMM for research
projects. The Company issued to BIMM shares of Common Stock and is obligated to
issue additional shares as a result of the FDA's clearance of the RII retinamide
IND. The Company is obligated to pay royalties on product sales for different
periods, depending on whether the product is covered by a patent, is covered by
a patent application, or embodies know-how.

In September 1994, the Company obtained a non-exclusive license from BASF
Aktiengesellschaft ("BASF") under BASF's patents concerning RII retinamide in
Europe and Canada. The Company made a payment consisting of cash and Common
Stock to obtain the license, a portion of which is creditable against royalties
due on sales of RII retinamide, and is obligated to pay royalties on such sales
for the life of the patents covered by the license.

Licenses Relating to the Technology Purchased from Lexin. The technology and
compounds acquired in the Lexin Purchase were licensed to Lexin exclusively from
The University of Pennsylvania ("Penn") and Wichita State University
("Wichita"). Pursuant to the terms of the Lexin Purchase, rights and obligations
under Lexin's license agreements with Penn and Wichita were assigned to the
Company. The Penn license agreement grants the Company an exclusive worldwide
license to make, have made, use and sell products under certain patent rights
owned by Penn. Exclusivity under the Penn license is subject to potential rights
required to be granted to the United States Government (related to government
sponsorship of any research) and Penn's right to use and to permit the use of
the licensed products by non-profit organizations. The Company's obligations to
Penn include (i) royalty payments, including minimum amounts, on product sales,
and (ii) payment of the costs of


                                       25

<PAGE>
preparing, prosecuting and maintaining patent applications and patents. The
Wichita license agreement grants the Company an exclusive worldwide license
(except for agricultural uses and applications) to make, have made, use, sell
and have sold products under certain patent rights owned by Wichita. Exclusivity
under the Wichita license is subject to rights required to be granted to the
United States Government (related to government sponsorship of any research).
The Company's obligations under the Wichita license include (i) royalty payments
on product sales, and (ii) payment of the costs of preparing, prosecuting and
maintaining patent applications and patents.

Other Licenses and Options. In addition to the licenses and sublicense described
above, The Research Foundation of the State University of New York ("SUNY")
granted the Company an exclusive worldwide patent and know-how license to make,
have made, use and sell IPdR and certain other nucleoside analogues, in exchange
for certain royalty and other payments by the Company. The Company has a
collaboration and option agreement with CRC and Cancer Research Campaign
Technology ("CRCT") for an exclusive worldwide patent and know-how license to
manufacture, use and sell asulacrine. CRC is obligated to use reasonable efforts
to carry out a research program aimed at conducting Phase II clinical trials of
asulacrine in the United Kingdom, provided CRC, CRCT and the Company agree on
protocols for further studies. Under the agreement, the Company would be
obligated to pay up to $225,000 of such costs, of which approximately $72,000
had been paid as of August 31, 1996. If the Company elects to exercise the
option, the parties have agreed to enter into good faith negotiations of a
license agreement based on certain provisions stipulated in the option
agreement. However, there can be no assurance that a license agreement on
acceptable terms to the Company will be entered into. Dana-Farber has granted
the Company a substantially exclusive worldwide patent and know-how license for
PT-523 for all uses except the topical treatment of conditions other than
cancer, subject to (i) a non-exclusive license previously granted by Dana Farber
to the United States Government (related to government sponsorship of any
research) and (ii) Dana Farber's right to make and use PT-523 for its own
noncommercial basic research purposes and to convey PT-523 to other
organizations for use in noncommercial basic research. The Company issued Common
Stock to Dana-Farber, and agreed to issue additional Common Stock upon an IND
filing and to pay royalties and make certain other payments. The Company also
has a right of first refusal to license other inventions from the laboratory of
Dr. Andre Rosowsky.

PATENTS, REGULATORY EXCLUSIVITY AND TRADE SECRETS

The Company considers the protection of its property, whether owned or licensed,
to the exclusion of its use by others, vital to its business. While it intends
to focus primarily on patented or patentable technology, it may also rely on
trade secrets, unpatented proprietary know-how, regulatory exclusivity, patent
extensions and continuing technological innovation to develop its competitive
position. In the United States and certain foreign countries, the exclusivity
period provided by patents covering pharmaceutical products may be extended by a
portion of the time required to obtain regulatory approval for a product.

Patents. Patent applications in the United States are maintained in secrecy
until patents issue. Publication of discoveries in the scientific or patent
literature, if made, tends to lag actual discoveries by several months.
Consequently, the Company cannot be certain that its licensor or sublicensor was
the first to invent certain technology or compounds covered by pending patent
applications or issued patents or that it was the first to file patent
applications for such inventions. In addition, the patent positions of
pharmaceutical firms, including the Company, are generally uncertain, partly
because they involve complex legal and factual questions.

There can be no assurance that any patents will issue from the patent
applications licensed to the Company or acquired in the Lexin Purchase. Further,
even if patents issue, there can be no assurance that they or patents which have
issued will not be challenged, invalidated or infringed upon or designed around
by others or that the practice of the claims contained in such patents will not
infringe the patent claims of others or that they will provide the Company with
significant protection against competitive products or otherwise be commercially
valuable. There can be no assurance that the Company will not need to acquire
licenses under patents belonging to others for technology potentially useful or
necessary to the Company or, if any such licenses are required, that they will
be available on terms acceptable to the Company, if at all. To the extent that
the Company is unable to obtain patent protection for its products or
technology, the Company's business may be adversely affected by competitors who
develop substantially equivalent technology.

Waxman-Hatch Act and Orphan Drug Act. Certain provisions of the Drug Price
Competition and Patent Term Restoration Act of 1984 (the "Waxman-Hatch Act")
grant market exclusivity for a period of up to five years from the date of FDA




                                       26

<PAGE>
approval for certain new drugs and dosage forms. Separately, orphan drug status
under the Orphan Drug Act can confer market exclusivity in the United States for
seven years from the date of FDA approval of the drug. The Waxman-Hatch Act and
Orphan Drug Act protections run simultaneously, not consecutively.


Under the Waxman-Hatch Act, a product patent or use patent covering a drug may
be extended for up to five years under certain circumstances, but in no event
for an effective patent life of longer than fourteen years, to compensate the
patent holder for the time required for testing of the product and its FDA
regulatory review. The benefits of the Waxman-Hatch Act are available only to
the first approved use of the active ingredient in the drug product and may be
applied only to one patent per drug product.

The Waxman-Hatch Act also establishes a period of time from the date of FDA
approval of certain new drug applications during which the FDA may not accept or
approve short-form applications for generic versions of the drug from other
sponsors, although it may accept or approve long-form applications, that is,
another complete NDA for such drug. The applicable period is five years in the
case of drugs containing an active ingredient not previously approved, and three
years for new uses of previously approved ingredients.

Pursuant to the Orphan Drug Act, as currently in effect, the FDA may grant
orphan drug status to certain drugs intended to treat a "rare disease or
condition," defined as a disease or condition which affects fewer than 200,000
people in the United States, or which affects more than 200,000 people but for
which the cost of development and of making the drug available will not be
recovered from sales of the drug in the United States. Orphan drug status may
provide certain benefits, including exclusive marketing rights in the United
States for the drug for the designated and approved indication for seven years
following marketing approval.

An applicant may receive marketing exclusivity only if it is the sponsor of the
first NDA approved for the drug for an indication for which it has received
orphan drug status designation prior to the time of such NDA submission.
Therefore, unlike patent protection, orphan drug status does not prevent other
companies from attempting to develop the drug for the designated indication or
from obtaining NDA approval prior to approval of the Company's NDA. If another
sponsor's NDA for the same drug and the same indication is approved first, that
sponsor is entitled to exclusive marketing rights if that sponsor has received
orphan drug designation for the drug. In that case, the FDA will refrain for at
least seven years from approving the Company's application to market the
product.

Orphan drug status does not prevent the FDA from approving the same drug for a
different indication. Furthermore, doctors are not restricted by the FDA from
prescribing an approved drug for unapproved uses. Therefore, another company's
approval of a drug for different uses could adversely affect the marketing
potential of a Company drug for which orphan drug status as to a different
indication has been obtained.

The Company believes that it will be advantageous to obtain orphan drug status
for eligible products. There can be no assurance, however, that such products
will receive such status. Furthermore, proposed amendments to the Orphan Drug
Act have been introduced into Congress from time to time, including proposals
which would reduce the period of exclusive marketing rights granted under the
Orphan Drug Act from its present level of seven years; provide for the loss of
exclusive marketing rights if the orphan drug treats a patient population
exceeding 200,000 people; and possibly grant such rights to two or more
companies if they develop a drug simultaneously. Accordingly, there can be no
assurance as to the availability of orphan drug status for the Company's
products, or as to the precise scope of protection that may be afforded by
orphan drug status in the future, or that the current level of exclusivity will
remain in effect.

Status of Technologies and Compounds

Spartaject Technology. A United States patent relating to the Spartaject
Technology (the "Licensed Patent"), expiring in 2009, is licensed by the Company
from RTP. Corresponding patent applications relating to the Spartaject
Technology have been filed in various foreign countries, including certain
European countries, Japan and Canada and have been licensed to the Company.
Patents relating to the Spartaject Technology have issued in Taiwan and South
Africa, which expire in 2008 and 2011, respectively, and have been licensed to
the Company.









                                       27

<PAGE>
Patents (the "Third Party Patents") were issued in the United States in
September 1992 and March 1995 and are believed by the Company to be assigned to
Eastman Kodak Company, or a subsidiary thereof. The Third Party Patents include
numerous claims that, based on presently available information, may cover
certain embodiments of the Spartaject Technology including formulations of
camptothecin, etoposide and certain taxanes. If the Third Party Patents are not
invalid insofar as their claims relate to those embodiments of the Spartaject
Technology, then (i) the Company will require a license from the holder of the
Third Party Patents to commercialize those embodiments of the Spartaject
Technology and sell or sublicense others to sell products utilizing those
embodiments of the Spartaject Technology in the United States and (ii) the
extent to which the Company might require such a license will depend on the
final formulations of its and any sublicensee's products and whether they
utilize those embodiments of the Spartaject Technology that are covered by the
Third Party Patents. There can be no assurance that a license will be obtainable
on acceptable terms, if at all, and any negotiations to obtain a license may be
protracted. If the Company is required to obtain a license under the Third Party
Patents to practice those embodiments of the Spartaject Technology and sell or
sublicense others to sell products utilizing those embodiments of the Spartaject
Technology in the United States and is unable to do so on commercially
reasonable terms, then the inability to obtain such a license could have a
material adverse effect on the Company's business and its future results of
operations.

The application for the Licensed Patent was filed in the United States nearly
nine months prior to the application for the initial Third Party Patent and,
based on presently available information, the work relating to the inventions
claimed in the Licensed Patent, insofar as such claimed inventions cover those
embodiments of the Spartaject Technology which also appear to be covered by the
initial Third Party Patent, was commenced more than two years prior to the
filing date of the application for the initial Third Party Patent. However,
there can be no assurance that the inventions claimed in the Licensed Patent
covering those embodiments of the Spartaject Technology were made prior to the
inventions claimed in the Third Party Patents, which appear to cover those
embodiments of the Spartaject Technology. If such inventions claimed in the
Licensed Patent did have such priority and such priority were established in a
United States court proceeding or otherwise with respect to each such claimed
invention in the Third Party Patents which appears to cover embodiments of the
Spartaject Technology, then the Third Party Patents would be invalid to the
extent its claims extend to those embodiments of the Spartaject Technology and
would not prevent the Company from practicing those embodiments of the
Spartaject Technology in the United States.

Patent applications corresponding to the Third Party Patents have been filed in
various countries outside the United States, including certain European
countries through the European Patent Office ("EPO"), in Japan and in Canada,
also with pending claims that, based on presently available information, may
cover certain embodiments of the Spartaject Technology. The applications filed
by the holder of the Licensed Patent in various foreign countries, including
certain European countries through the EPO, in Japan and in Canada, have earlier
effective filing dates than the application filed with the EPO, in Japan and in
Canada corresponding to the Third Party Patents. The Company believes that
generally, in most foreign countries, in the case of conflicting applications
claiming the same patentable invention, the application with the earlier
effective filing date (in this case the patent applications filed by the holder
of the Licensed Patent) is entitled to the issuance of the patent. Accordingly,
although there can be no assurance that foreign law will be applied in this
manner, the Company believes that a patent issued in such European countries,
Japan, or Canada corresponding to the Third Party Patents should be invalid (or
susceptible to cancellation) insofar as it pertained to the practice of the
Spartaject Technology. Therefore, the Company believes it should not be
prevented ultimately from commercializing the Spartaject Technology in such
European countries, Japan or Canada, respectively, solely by reason of the
issuance of such patent.

A patent was issued in the United States (the "Orphan Patent") and a patent
application which designated various countries outside the United States was
published under the Patent Cooperation Treaty (the "Orphan Application") which
the Company understands have been licensed exclusively to Orphan Medical, Inc.
The Orphan Patent includes claims, and the Orphan Application is seeking claims,
covering methods of treating patients with malignant conditions using an
intravascularly administrable busulfan preparation and treating leukemia or
lymphoma patients undergoing a bone marrow transplant using an intravenously
administrable busulfan preparation that, based on presently available
information, may cover methods by which Spartaject busulfan will be used. The
Company believes, based on advice of patent counsel, that such claims do not
cover the use of Spartaject busulfan. However, there can be no assurances in
this regard and if such claims do cover the Company's intended use of Spartaject
busulfan, and the Orphan Patent or any patents issuing on the Orphan Application
are not invalid, then the Company will require a license from the holder or
exclusive licensee of such patent or patents in order to develop or
commercialize Spartaject busulfan in any country, including possibly the United
States, where such patent or patents are issued. There can be no assurance that
a license will be obtainable on acceptable terms, if at all, and any 
negotiations to obtain a license may be protracted.  If the Company is unable to
do so on commercially reasonable terms, then

                                       28

<PAGE>
the inability to obtain such a license could have a material adverse effect on
the Company's business and its future results of operations.

A patent application filed by Sandoz Ltd. and Sandoz-Patent-GmbH (the "Sandoz
Application") was published under the Patent Cooperation Treaty ("PCT") in
October 1992 and designated various European countries for filing. The Sandoz
Application includes claims covering certain embodiments of the Spartaject
Technology applicable to formulations containing certain electrostatic lipids.
Although the patents which have issued in the European Patent Office and the
United Kingdom pursuant to such application do not contain any such claims, if a
Spartaject formulated product contained such lipids and patents containing such
claims issue on such application in any country and such claims are not invalid,
then the Company will require a license from the holder of such patents in order
to develop or commercialize such product in any such country. There can be no
assurance that a license will be obtainable on acceptable terms, if at all, and
any negotiations to obtain a license may be protracted. If the Company is unable
to do so on commercially reasonable terms, then the inability to obtain such a
license could have a material adverse effect on the Company's business and its
future results of operations.

L.A.D.D. Technology and IPdR. In June 1996 the PTO issued an office action on
the Company's application indicating that sixteen claims were allowed, which
claims are drawn to the administration of 5-FP and IPdR, and other compounds
with similar structures, for the treatment of liver associated diseases. Other
claims were finally rejected, including claims which relate to the application
of the L.A.D.D. Technology to the oral administration of 5-FP and other
compounds with similar structures. The Company believes that further negotiation
with the examiner or, if necessary, an appeal of the examiner's position to the
PTO Board of Patent Appeals and Interferences, will result in the allowance of
additional claims, including, at the least, a claim drawn to the oral
administration of 5-FP, although the Company cannot predict with certainty
whether or not a patent thereon will be granted.

The Company is aware that two international patent applications by The Wellcome
Foundation Limited ("Wellcome") were published under the PCT in 1992,
designating the United States, major European countries, Japan, Australia and
New Zealand, among other countries. As published, the applications have broad
claims that the Company believes may cover certain of the prodrugs which may be
used by the Company in practicing the L.A.D.D. Technology licensed by the
Company, or methods of formulating or using such prodrugs, or may cover the
active compound to which the prodrugs are intended to be converted in vivo. A
patent in Australia based on one of such applications was issued on March
7,1995, and expires in 2011. Two patent applications in New Zealand, based on
one of such PCT applications, were allowed and published for opposition in
November 1995 and , unless successfully opposed, will be granted and will expire
in 2011 (such Australian patent and potential New Zealand patents being called
collectively the "ANZ Patents"). The claims of the ANZ Patents do not appear to
cover the application of the L.A.D.D. Technology to 5-FP but may cover its
application to IPdR as a radiosensitizer prodrug. The Company believes that to
the extent that it is possible to interpret such claims as covering such
applications to IPdR, they are invalid and that the issuance of the ANZ Patents
to such extent were in error. The Company had filed timely oppositions to the
issuance of the New Zealand applications based on prior art of which the Company
is presently aware. Both opposition proceedings are currently for post-grant
reexamination with respect to the Australian patent at an appropriate time. The
Company is also maintaining a watch with respect to the publication or allowance
of corresponding applications in other jurisdictions. There can be no assurance,
however, that such issuance in Australia and allowances in New Zealand were in
error, or that another patent or patents based on such published applications
will not issue in the United States or other jurisdictions or that the ANZ
Patents and any other such issued patent or patents would not contain claims
which could affect the practice of the L.A.D.D. Technology. The Company believes
that if the ANZ Patents are valid as issued or any such other patent or patents
issue in any jurisdiction, it may be required to seek a license under such
claims in order to develop, market and sell certain of the applications of its
L.A.D.D. Technology in such jurisdictions. THERE can be no assurance that such
licensed will be obtainable on reasonable terms to the Company, if at all. If
any such license were required to practice the L.A.D.D. Technology, the
inability to obtain such license could have a material adverse effect on the
Company's business.

A patent licensed to the Company and expiring in 2007 has issued in the United
States on IPdR. A patent licensed to the Company on certain other nucleoside
analogues expires in 2005.

RII retinamide. RII retinamide is not patented in the United States, and the
Company believes it is no longer patentable in the United States. An EPO patent
on RII retinamide licensed to the company expires in 1998 and pursuant thereto
patent rights have been perfected in various European countries. A patent in
Canada also licensed to the Company expires in 1999.



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<PAGE>
In June 1995, the Company, on behalf of BIMM, arranged for the filing of several
patent applications with the United States Patent Office for novel retinoid
compounds which may be potentially non-teratogenic. The filings were based on
research at BIMM sponsored by the Company which focused on synthesizing and
characterizing new retinoid compounds devoid of teratogenic potential.

The Company has been granted orphan drug status for RII retinamide for the
treatment of MDS.

Patent Rights Acquired from Lexin. The Company has obtained, through the
assignment to the Company of the Penn license agreement, exclusive rights to
four issued United States patents expiring in 2009, 2011 (two), and 2013. An
additional five United States patent applications and three corresponding PCT
applications designating various countries outside the United States are pending
(all of which are covered by the Penn license agreement).

The Company has obtained, through the assignment to the Company of the Wichita
license agreement, exclusive rights to four pending United States patent
applications and corresponding foreign applications, covering a novel family of
serine protease inhibitors. One of the United States applications has been
officially allowed by the PTO, and the patent is expected to issue in 1996.

Two patents (the "Antichymotrypsin Patents"), were assigned to Sonoran Desert
Chemicals LLC in 1990 and 1991, respectively, relating to certain uses of
antichymotrpsin. The Antichymotrypsin Patents include claims covering methods
for treating pulmonary and/or bowel inflammations in a mammal using -1-
antichymotrypsin, derivatives and salts thereof, methods for treating
inflammation using -1-antichymotrypsin topically and pharmaceutical compositions
of -1-antichymotrypsin, its salts or derivatives. To the Company's knowledge,
products embodying the Antichymotrypsin Patents have not yet been developed.
Claims of the Antichymotrypsin Patents may cover the intended use of LEX032, the
lead compound which the Company acquired in the Lexin Purchase. The Company
believes, however, based on the advice of patent counsel, that such claims would
not cover the Company's intended use of LEX032. Nevertheless, there can be no
assurance in this regard, and if such claims are found to cover the Company's
intended use of LEX032, and the Antichymotrypsin Patents are not invalid, then
the Company will require a license from the holders of the patents in order to
develop or commercialize LEX032 in the United States or any other country where
the Antichymotrypsin Patents may have issued. There can be no assurance that a
license will be obtainable on acceptable terms, if at all, and any negotiations
to obtain a license may be protracted. If the Company is unable to obtain such a
license on commercially reasonable terms, such inability to obtain such a
license could have a material adverse effect on the Company's business and its
future results of operations.

Asulacrine. An issued United States patent on asulacrine under a license option
to the Company expires in 1999. Patents on asulacrine have also issued in
several European countries and Japan, which patents expire in 2001.

PT-523. A United States patent licensed by the Company and expiring in 2005 has
been issued on the PT-523 compound, its pharmaceutical composition and its use
as a methotrexate resistant cell inhibitor. Corresponding Japanese and Canadian
patents and patents in several European countries have issued, expiring in 2007,
2010 and 2008, respectively.

Other Compounds. The following compounds which the Company may develop are
believed to be in the public domain or not presently subject to patent
protection as compounds in the United States: busulfan, 5-FP, RII retinamide,
paclitaxel, etoposide, camptothecin and aphidicolin. Any patent coverage for any
formulations of these compounds with the Spartaject Technology will be primarily
dependent upon the patent coverage for the Spartaject Technology, to the extent
available. The Company has been granted orphan drug status by the FDA for its
intended uses of busulfan and RII retinamide described. Any patent protection
for 5-FP will be dependent upon the issuance of patents covering the L.A.D.D.
Technology and the scope of the coverage provided by such patents.

TRADE SECRETS

The Company also relies on trade secrets and proprietary know-how to protect
certain of its technologies and potential products. To protect them, the Company
requires all employees, consultants, advisors and collaborators to enter into
confidentiality agreements which prohibit disclosure to any third party or use
of such secrets and know-how for commercial purposes. Company employees also
agree to disclose and assign to the Company all methods, improvements,
modifications,









                                       30

<PAGE>
developments, discoveries and inventions conceived during their employment that
relate to the Company's business. There can be no assurance, however, that these
agreements will be observed and prevent disclosure or provide adequate
protection for the Company's confidential information and inventions.

GOVERNMENT REGULATION

The manufacturing and marketing of the Company's potential products and its
research and development activities are and will continue to be subject to
regulation by federal, state and local governmental authorities in the United
States and other countries. In the United States, pharmaceuticals are subject to
rigorous regulation by the FDA's Center for Drug Evaluation and Research, which
reviews and approves marketing of drugs. The Federal Food, Drug and Cosmetic
Act, as amended, the regulations promulgated thereunder, and other federal and
state statutes and regulations govern, among other things, the testing,
manufacture, labeling, storage, record keeping, advertising and promotion of the
Company's potential products. The process of obtaining FDA approval for a new
drug takes several years and involves the expenditure of substantial resources.
The steps required before such a product can be produced and marketed for human
use include preclinical studies, the making of an IND filing, human clinical
trials and the approval of a NDA. No assurance can be given that the Company
will be able to satisfy the requirements of the FDA with respect to any of its
proposed products.

"Preclinical" or "pre-Phase I" activities include studies and other tests
conducted in the laboratory and in animals, such as animal pharmacology, drug
kinetics/metabolism, initial toxicology, small scale chemical synthesis, assay
development and validation and initial drug formulation to obtain preliminary
information on a drug's efficacy and safety. The results of these studies and
tests are submitted to the FDA as part of the IND filing before approval can be
obtained for the commencement of testing in humans.

The human clinical testing program usually involves three phases which are
generally conducted sequentially, but which may overlap or be combined.
Particularly in the case of anticancer and other life saving drugs, these phases
are often combined. Clinical trials are conducted in accordance with protocols
that detail the objectives of the study, the parameters to be used to monitor
safety and the efficacy criteria to be evaluated. Each protocol is submitted to
the FDA as part of the IND filing. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ("IRB") for each
institution at which the study will be conducted. The IRB will consider, among
other things, all existing pharmacology and toxicology information on the
product, ethical factors, the risk to human subjects, and the potential benefits
of therapy relative to risk.

In "Phase I Clinical Trials", studies are usually conducted on healthy
volunteers but, in the case of anticancer agents, are conducted on patients with
disease which usually has failed to respond to other treatment to determine the
maximum tolerated dose, side effects of a product and pharmacokinetics. Phase II
studies are conducted on a small number of patients having a specific disease to
determine initial efficacy (activity) in humans for that specific disease, the
most effective doses and schedules of administration and possible adverse
effects and safety risks. "Phase II/III" differs from Phase II in that the
trials involved may include more patients and, at the sole discretion of the
FDA, be considered the pivotal trial or trials for NDA approval. Phase III
normally involves the pivotal trials of a drug, consisting of widescale studies
on patients with the same disease in order to evaluate the overall benefits and
risks of the drug for the treated disease compared with other available
therapies. At least two such studies demonstrating safety and efficacy are
normally required for FDA approval. The FDA continually reviews the clinical
trial plans and results and may suggest study design changes or may require
termination of the trials at any time if significant safety or other issues
arise.

While certain of the compounds which the Company intends to develop are
currently marketed or have been the subject of clinical trials by other
companies or institutes, the Company will have to submit an IND filing and
obtain FDA approval in order to commence clinical trials in the United States,
and additional preclinical studies may be required before such trials can
commence. Where the drug formulation in which the compound to be studied is
different from that which was used in other studies, the Company either will
have to establish that it is biologically equivalent to the formulation
previously used or will have to conduct its own preclinical program before
approval of an IND filing can be obtained.

Data from preclinical studies and tests and the clinical trial phases and of
validated manufacturing and quality control procedures are submitted to the FDA
with the NDA for marketing approval. The NDA involves considerable data
collection, verification and analysis, as well as the preparation of summaries
of the manufacturing and testing processes, preclinical studies and clinical
trials. The FDA must approve the NDA before the drug may be marketed in the
United States. In selected

                                       31


<PAGE>
cases, which the FDA has stated will apply where life threatening diseases are
involved, and particularly where no alternate treatments are available, the
various phases and the numbers of patients required for them may be condensed,
and the FDA review period accelerated. There can be no assurance that the review
period of the Company's NDAs will be accelerated.

The testing and approval process is likely to require substantial time and
effort, and there can be no assurance that any FDA approval will be granted on a
timely basis, if at all. The approval process is affected by a number of
factors, primarily the side effects of the drug (safety) and its therapeutic
benefits (efficacy). Additional preclinical or clinical trials may be requested
during the FDA review period and may delay marketing approval. A task force
established by the FDA has recently proposed significant changes in the design,
analysis and reporting of clinical studies conducted under an IND. The task
force recommended increased requirements for reporting adverse effects and new,
more stringent rules that would require clinical trial investigators to assume
that toxicities reported by patients are drug-related. If these recommendations
are implemented, the length of time and costs associated with obtaining market
approval by the FDA are likely to be significantly increased.

The FDA may also require post marketing testing to support the conclusion of
efficacy and safety of the product, which can involve significant expense. After
FDA approval is obtained for initial indications, further clinical trials may be
necessary to gain approval for the use of the product for additional
indications.

The Company intends to enter into joint development or licensing arrangements
with pharmaceutical companies in which it will seek to have such companies
assume many of the costs of clinical testing and comparable foreign regulatory
approval for the products licensed. To the extent that the Company is unable to
enter into such arrangements, it may not have the resources to complete the
regulatory approval process with respect to the products it intends to develop.

The manufacture of the Company's products, whether done by outside contractors
or the Company, will be subject to rigorous regulation, including the need to
comply with the FDA's cGMP standards. As part of obtaining the FDA approval for
each product, each of the Company's own or contract manufacturing facilities
must be inspected, approved by and registered with the FDA. In addition to
obtaining NDA approval of the prospective manufacturer's quality control and
manufacturing procedures, domestic and foreign manufacturing facilities are
subject to periodic FDA inspections and/or inspections by foreign regulatory
authorities.

For marketing outside the United States, the Company will be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for its products. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursements vary widely from country to
country.

The Company's business is also subject to regulation relating to safety, health
and environmental matters and other factors at both the state and federal level,
and internationally.

COMPETITION

More than 300 companies are reported to have approximately 1,250 cancer drugs
under development worldwide, of which a substantial number are under development
in the United States. Many of such drugs or other substances under development
may compete directly with the treatments which the Company is developing or may
develop in the future, and such drugs may perform more effectively or safely
than the Company's product candidates. Many of the companies engaged in
anticancer research and development and in acquiring rights to the products of
such research and development, including biotechnology companies, have
substantially greater financial, technical, scientific, manufacturing, marketing
and other resources than the Company and have more experience in developing,
marketing and manufacturing therapeutics, including performing the preclinical
testing and clinical trials that are required for obtaining FDA and other
regulatory approvals. Included among the Company's competitors are: (i) large
established pharmaceutical companies with commitments to oncology or antiviral
research, development and marketing; (ii) smaller biotechnology companies with
similar strategies; and (iii) many development stage companies licensing and/or
developing oncology therapeutics.

A number of companies are developing a variety of delivery systems in the form
of microspheres, microcapsules, nanoparticles and liposomes, some of which
technologies may have characteristics that are similar or superior to the
Company's Spartaject Technology. Orphan Medical, Inc., a United States company
which is not affiliated with the Company's licensees of Spartaject busulfan in
Europe and Sweden, Orphan Europe and Swedish Orphan, has disclosed that




                                       32


<PAGE>
it is in Phase I clinical trials with an intravenous form of busulfan for use in
bone marrow transplants using a formulation with solvents licensed from a
university.

The development of technologies in which toxic agents are selectively carried to
a tumor site by mechanical, other chemical or biological means is a recognized
strategy for oncological research, and such technologies may have
characteristics similar or superior to the Company's L.A.D.D. Technology. The
concept of targeted therapeutics in cancer is not a new one, and includes such
approaches as the injection of toxic agents into the tumor, the use of prodrugs
activated by other means in the body, monoclonal antibodies and gene therapy.
The Company is aware of at least three other approaches to the delivery of an
oral 5-FU, which may compete with the Company's L.A.D.D. delivered 5-FP, one
possibly being developed by Hoffmann-La Roche Inc., one by GW and the other by
the Japanese company, Taiho Pharmaceutical Co., Ltd.

Several pharmaceutical companies (including a number of the world's largest
pharmaceutical companies) are developing protease inhibitors with potential
application in pulmonary inflammation, pancreatitis, coagulative disorders and
reperfusion injury. It is widely acknowledged that proteases are a critical
component in the inflammatory cascade and their inhibition has been pursued by
companies engaged in the development of both traditional pharmaceuticals and
biotech compounds.

Significant numbers of antiviral drugs are also under development by other
companies. Generally, the companies engaged in antiviral research and
development have substantially greater resources and experience than the
Company.


EMPLOYEES

As of September 16, 1996, the Company had nine full-time employees and one
part-time employee. Four employees are officers, three are administrative and
three are involved in the coordination of scientific endeavors. The Company
believes that its relationship with its employees is satisfactory.


PROPERTIES

The Company currently operates from 12,800 square feet of leased laboratory and
office space in Horsham, Pennsylvania which was acquired as part of the Lexin
Purchase. The remaining initial lease term expires in July 1999. The Company has
the option to extend the lease for an additional five years or to terminate the
lease in July 1997. The Company has also retained an office in Durham, North
Carolina which it subleases on a month to month basis. The Company believes that
its facilities are adequate to meet the Company's needs for at least the next
three years.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS:

Certain of the statements set forth under the captions "Risk Factors", "Use of
Proceeds" and "Business" and set forth elsewhere in this Registration Statement
(including in the Exhibits hereto) constitute "Forward Looking Statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. All such forward
looking statements involve risks and uncertainties, including those statements
regarding the Company's research and development programs; the intention to
contract with other organizations for development and registration, if
applicable, of its product candidates, as well as seeking joint development or
licensing arrangements with pharmaceutical companies; the research and
development of particular compounds and technologies for particular indications;
and the period of time for which available funds will enable the Company to
sustain its operations and to continue to satisfy certain requirements for the
quotation of its securities on the Nasdaq SmallCap Market. Many important
factors affect the Company's ability to achieve the stated outcomes and to
successfully develop and commercialize its product candidates, including, among
other things, the ability to obtain substantial additional funds, obtain and
maintain all necessary patents or licenses, to demonstrate the safety and
efficacy of product candidates at each stage of development, to meet applicable
regulatory standards and receive required regulatory approvals,







                                       33

<PAGE>
to meet obligations and required milestones under its license agreements, to be
capable of producing drug candidates in commercial quantities at reasonable
costs, to compete successfully against other products and to market products in
a profitable manner. As a result, there also can be no assurance that the
forward looking statements included in this Registration Statement will prove to
be accurate. In light of the significant uncertainties inherent in the forward
looking statements included herein, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.






                                       34

<PAGE>
                            DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 42,000,000 Common Stock,
par value $.001 per share ("Common Stock"), and 11,000,000 shares of preferred
stock, par value $.001 per share ("Preferred Stock"). At September 19, 1996, the
Shares of Common Stock were held of record by 171 stockholders.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. Subject to preferences that
may be applicable to any then outstanding Preferred Stock, the holders of Common
Stock, are entitled to receive ratably such dividends as are declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock have the right to a ratable portion of assets
remaining after payment of liabilities and the liquidation preferences of any
then outstanding shares of Preferred Stock. Holders of Common Stock have neither
preemptive rights nor rights to convert their Common Stock into any other
securities and are not subject to future calls or assessments by the Company,
although certain holders of Common Stock have rights of first refusal with
respect to certain future issuances of shares of capital stock by the Company.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are, and the shares offered hereby
upon issuance and sale will be, fully paid and non-assessable.

CLASS C WARRANTS

The following statements are subject to the detailed provisions of the warrant
agreement ("Warrant Agreement") among the Company and F.C.T.C. Transfer
Services, Inc. (as successor to Midlantic National Bank), as warrant agent (the
"Warrant Agent"), a copy of which is filed as an exhibit hereto.. The Class C
Warrants are evidenced by Class C Warrant certificates issued in registered
form.

Each Class C Warrant entitles the registered holder thereof to purchase one
share of Common Stock at a price of $1.50, subject to adjustment (the "Exercise
Price"), at any time from issuance until August 23, 2001 (the "Expiration
Date"). The Class C Warrants are subject to redemption by the Company commencing
August 23, 1997 at a redemption price of $0.10 per Class C Warrant upon 60 days'
prior written notice, provided that the average closing bid price (or last sales
price) of the Common Stock as reported on the National Association of Securities
Dealers Automated Quotation System (or on such exchange on which the Common
Stock is than traded), equals or exceeds $3.00 per share (being 200% of the
exercise price per share), subject to adjustment, for any 20 trading days within
a period of 30 consecutive trading days ending on the 3rd trading day prior to
the date of notice of redemption.

The Class C Warrants may be exercised upon surrender of the certificate therefor
on or prior to their expiration or redemption date at the offices of the Warrant
Agent with the form of "Election to Purchase" on the reverse side of the
certificate filled out and executed as indicated, accompanied by payment (in the
form of a certified or cashier's check payable to the order of the Company). The
Company, in its discretion, has the right to reduce the Exercise Price of the
Class C Warrants.

The Class C Warrants contain provisions that provide the holders thereof certain
protections by adjustment of the Exercise Price and shares issuable upon
exercise in certain events, such as certain stock dividends, stock splits,
mergers, sales of all or substantially all of the Company's assets, sales of
stock at below market price and other unusual events. The Exercise Price may be
reduced and the Expiration Date may be extended upon notice to the holders of
the Class C Warrants.

The Company is not required to issue fractional warrants upon adjustment or
fractional shares of Common Stock upon exercise of the Class C Warrants. In lieu
thereof, an amount of cash equal to the same fraction of the then current market
value of a share of Common Stock or a Class C Warrant, as the case may be, will
be paid. No adjustment as to dividends will be made upon any exercise of Class C
Warrants. The holder of a Class C Warrant will not have any rights as a holder
of Common Stock unless and until the Class C Warrant is exercised.












                                       35

<PAGE>
series B'  CONVERTIBLE PREFERRED STOCK

The following is a brief summary of certain provisions of the series B' 
Preferred Stock, but this summary does not purport to be complete and is 
qualified in all respects by reference to the actual text of the Certificate of 
Designations relating to the series B' Preferred Stock, the form of which is 
filed as an exhibit hereto. The Board of Directors has authorized the issuance 
of up to 3,000,000 shares of preferred stock to be designated as series B' 
Convertible Preferred Stock. All shares of Common Stock to which this Prospectus
relates (other than those issuable upon exercise of the Class C Warrants and the
Placement Warrants) are issuable upon Conversion of shares of series B' 
Preferred Stock. As of September 19, 1996, there were 1,736,472 shares of series
B' Preferred Stock outstanding.

The holders of series B' Preferred Stock will be entitled to receive dividends
as, when and if declared by the Board of Directors out of funds legally
available therefor. No dividend or distribution, as the case may be, will be
declared or paid on any junior stock unless the dividend also is paid to holders
of the series B' Preferred Stock.

Each share of series B' Preferred Stock may be converted at the option of the
holder at any time after the initial issuance date into 6.666667 shares of
Common Stock at an initial conversion price (the "Conversion Price") equal to
$1.50. The Conversion Price is subject to adjustment upon the occurrence of a
merger, reorganization, consolidation, reclassification, stock dividend or stock
split which will result in an increase or decrease in the number of shares of
Common Stock outstanding. In addition, the Conversion Price is subject to
adjustment on August 23, 1997 (the "Reset Date") if the average closing bid
price of the Common Stock for the thirty consecutive trading days immediately
preceding the Reset Date (the "Reset Trading Price") is less than 130% of the
then applicable Conversion Price (a "Reset Event"). Upon a Reset Event, the then
applicable Conversion Price will be reduced to equal the greater of (i) the
Reset Trading Price divided by 1.3 and (ii) 50% of the then applicable
Conversion Price.

The Company has the right at any time after the Reset Date to cause the series 
B' Preferred Stock to be converted in whole or in part, on a pro rata basis,
                                                             --- ----
into shares of Common Stock if the closing price of the Common Stock exceeds
200% of the then applicable Conversion Price for at least 20 trading days in any
30 consecutive trading day period.

Upon (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary or (ii) a sale or other disposition of all or
substantially all of the assets of the Company (the "Liquidation Event"), or
(iii) any consolidation, merger, combination, reorganization or other
transaction in which the Corporation is not the surviving entity or the shares
of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property, after payment or provision for payment of the debts
and other liabilities of the Company, the holders of the series B' Preferred
Stock then outstanding will first be entitled to receive, pro rata (on the basis
of the number of shares of the preferred stock then outstanding), and in
preference to the holders of the Common Stock and any other series of preferred
stock, an amount per share equal to $13.00 plus accrued but unpaid dividends, if
any.

The holders of the series B' Preferred Stock have the right at all meetings of
stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the series B' Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as a
majority of the shares of series B' Preferred Stock remain outstanding, the
holders of 66.67% of the series B' Preferred Stock then outstanding are entitled
to approve (i) the issuance of any securities of the Company senior to or on
parity with the series B' Preferred Stock, (ii) any alteration or change in the
rights or preferences or privileges of the series B' Preferred Stock and (iii)
the declaration or payment of any dividend on any junior stock or the repurchase
of any securities of the Company. Except as provided above or as required by
applicable law, the holders of the series B' Preferred Stock will be entitled to
vote together with the holders of the Common Stock and not as a separate class.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Upon the consummation of the offering made hereby the Company will be subject to
the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the






                                       36

<PAGE>
date of the transaction in which the person became an interested stockholder,
unless the business combination is, or the transaction in which the person
became an interested stockholder was, approved in a prescribed manner or certain
other exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporations's voting stock.

The Company's Restated By-Laws provide for a Board of Directors classified into
three classes, with the directors elected in each class at the annual
stockholders meeting, respectively. Commencing at the 1995 annual stockholders'
meeting, Directors will be elected for three year terms. See "Management
Election and Compensation of Directors." The Board of Directors is authorized to
create new directorships and to fill such positions so created and is permitted
to specify the class to which such new position is assigned, and the person
filling such position would serve the term applicable to that class. The Board
of Directors (or its remaining members, even though less than a quorum) is also
empowered to fill vacancies on the Board of Directors occurring for any reasons
for the remainder of the term of the class of Directors in which the vacancy
occurred. Directors may be only removed for cause. These provisions are likely 
to increase the time required for stockholders to change the composition of the 
Board of Directors. For example, in general, at least two annual meeting will be
necessary for stockholders to effect a change in a majority of the members of 
the Board of Directors.

The Company's Restated By-Laws, provide that, for nominations to the Board of
Directors or for other business to be properly brought by a stockholder before a
meeting of stockholders, the stockholders must first have timely notice thereof
in writing to the Secretary of the Company. To be timely, a stockholder's notice
generally must be delivered not less than sixty days prior to the special
meeting and ten days following the day on which the public announcement of the
meeting is first made by the Company. Only such business shall be conducted at a
special meeting of stockholders as is brought before the meeting pursuant to the
Company's notice of meeting. The notice by a stockholder must contain, among
other things, certain information about the stockholder delivering the notice
and, as applicable, background information about the nominee or a description of
the proposed business to be brought before the meeting.

The Company's Restated Certificate of Incorporation also requires that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by a consent in writing. A special meeting may be called only by a
majority of the whole Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President of the Company or the Secretary upon written
request of holders of at least fifteen percent of the outstanding capital stock
entitled to vote.


The Delaware General Corporation Law provides generally that the affirmative
vote of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. The Company's Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 70% of the outstanding voting stock
of the Company to amend or repeal any of the provisions discussed in this
section entitled "Delaware Law and Certain Charter and By-Law Provisions" or to
reduce the number of authorized shares of Common Stock and Preferred Stock. Such
70% vote is also required for any amendment to or repeal of the Company's
Restated By-Laws by the stockholders. The Restated By-Laws may also be amended
or repealed by a majority vote of the Board of Directors. Such 70% stockholder
vote would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any Preferred Stock that might then be
outstanding.

The provisions of the Company's Restated Certificate of Incorporation and
Restated By-Laws discussed above could make more difficult or discourage a proxy
contest or other change in the management of the Company or the acquisition or
attempted acquisition of control by a holder of a substantial block of the
Company's stock. It is possible that such provisions could make it more
difficult to accomplish, or could deter, transactions which stockholders may
otherwise consider to be in their best interests.

As permitted by the Delaware General Corporation Law, the Company's Restated
Certificate of Incorporation provides that Directors of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duties as Directors, except for liability (i) for any
breach of their duty of loyalty to the Company and its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of





                                       37

<PAGE>
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions, as provided in Section 175 of the Delaware General Corporation Law
or (iv) for any transaction from which the Director derives an improper personal
benefit.


The Company's Restated Certificate of Incorporation and Restated By-Laws provide
that the Company shall indemnify its Directors, officers and SAB members to the
fullest extent permitted by Delaware law (except, in some circumstances, with
respect to suits initiated by the Director, officer or SAB member) and advance
expenses to such Directors, officers and SAB members to defend any action for
which rights of indemnification are provided. In addition, the Company's
Restated Certificate of Incorporation and Restated By-Laws also permit the
Company to grant such rights to its employees and agents. The Company's Restated
By-Laws also provide that it may enter into indemnification agreements with its
Directors and officers and purchase insurance on behalf of any person whom it is
required or permitted to indemnify. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as Directors, officers, SAB members and employees.


TRANSFER AGENT, REGISTRAR AND WARRANT AGENT

The Company's transfer agent, registrar and warrant agent is F.C.T.C. Transfer
Services, Inc.








                                       38

<PAGE>
                         SHARES ELIGIBLE FOR FUTURE SALE


As of September 19, 1996, the Company had 8,192,219 shares of Common Stock
outstanding. Of these shares, 4,170,749 shares are tradable without
restriction or future registration under the Securities Act.

SALES OF RESTRICTED SHARES

The remaining 4,021,470 shares (which include the two million shares of Common 
Stock issued to the Trust in connection with the Lexin Purchase) are deemed
"Restricted Shares"under Rule 144 promulgated under the Securities Act ("Rule
144") in that they were originally issued and sold by the Company in private
transactions in reliance upon exemptions from the Securities Act. Of the
Restricted Shares, 1,132,465 shares are eligible for sale in the public market 
upon the date of this Prospectus pursuant to Rule 144 or Rule 701 under the 
Securities Act ("Rule 701").

In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated with those of others), including an affiliate, whose
Restricted Shares have been fully paid and held for at least two years from the
later date such Restricted Shares were acquired from the Company and (if
applicable) the date they were acquired from an affiliate, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the number of the then outstanding shares of Common Stock
(81,922 shares based on the number of shares outstanding at September 19, 1996)
or an average weekly trading volume in the public market during the four
calendar weeks preceding such sale or the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales under Rule 144 are also
subject to certain requirements as to the manner and notice of sale and the
availability of public information concerning the Company. In addition, a person
who is not deemed to have been an affiliate of the Company at any time during
the three months preceding a sale, and whose Restricted Shares have been fully
paid and held for at least three years, would be entitled to sell such shares
under Rule 144(k) without regard to the requirements described above.

Any employee, officer or Director of or consultant to the Company who purchased
his or her shares pursuant to a written compensatory plan or contract is
entitled, absent contractual restrictions on transfer, to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell their Rule 701
shares without having to comply with the Public information, holding period,
volume limitation or notice provisions of Rule 144 and which permits affiliates
to sell their rule 701 shares without having to comply with Rule 144's holding
period restrictions, in each case commencing 90 days after February 14, 1994.

The Company has granted registration rights to certain of its stockholders.  See
"--Registration Rights."

LOCK-UP AGREEMENTS

The Selling Securityholders appearing with an asterisk before their name in the
list under the caption "Selling Securityholders" have agreed pursuant to certain
agreements not to offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, 25% of the shares
of Common Stock issuable upon the conversion of their shares of series B'
Preferred Stock and the exercise of their Class C Warrants without the prior
written consent of Paramount Capital, Inc. Such restrictions apply through
November 29, 1996.

With respect to the shares of Common Stock issued (and issuable) to Lexin (or
certain of its specified designees), Lexin has agreed (and any of its specified
designees are required to agree) pursuant to certain agreements, not to offer,
pledge, sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock held by it (or
them) and issued in connection with the Lexin Purchase, without the prior
written consent of the Company until April 16, 1997. Further resale restrictions
apply for a period of nine months after any registration of the such shares of
Common Stock pursuant to certain demand registration rights granted to Lexin and
certain of its specified designees. See "--Registration Rights." Such resale
restrictions apply to (i) 75% of such shares until three months after such
registration, (ii) 50% of such shares until six months after such registration
and (iii) 25% of such shares until nine months after such registration.










                                       39

<PAGE>
REGISTRATION RIGHTS

In connection with the Lexin Purchase, Lexin and certain of its specified
designees have been granted certain demand registration rights in respect of the
two million shares of Common Stock issued to the Lexin's designee. Such rights
require the Company, subject to certain exceptions, to cause a registration
statement on Form S-3, if available, registering such shares for resale to be
filed with the SEC no later than ninety days prior to the expiration of the
lock-up period applicable to such shares. In connection with the such rights,
the Company has undertaken to use its reasonable efforts to cause any such
registration statement to be declared effective. See "--Lock-Up Agreements" and
"Certain Transactions."










                                       40

<PAGE>

                             SELLING SECURITYHOLDERS

     The following table sets forth (i) the name of each Selling Securityholder,
(ii) the number of shares of Common Stock owned, whether outstanding or
issuable, by such holder before the Offering, (iii) the percentage of Common 
Stock (iv) the number of shares of Common Stock which may be offered by each 
Selling Securityholder. The number of Common Stock set forth above under the 
caption "Number of Shares of Common Stock which may be Offered" represents the 
aggregate number of shares of (a) Common Stock owned by each Selling 
Stockholder, (b) Common Stock issuable upon conversion of the series B' 
Preferred Stock owned by each Selling Securityholder, (c) Common Stock issuable 
upon exercise of the Class C Warrants and (d) Common Stock issuable upon the 
exercise of the UPO's. With respect to Selling Securityholder Paramount Capital,
Inc. the amounts of Common Stock set forth above under the caption "Number of 
Shares of Common Stock which may be Offered" represents the aggregate number of 
shares of (a) Common Stock issuable upon the conversion of the series B' 
Preferred Stock issuable upon the exercise of the Preferred Stock Warrants and 
(b) Common Stock issuable upon the exercise of the Common Stock Warrants.

     The following table sets forth the beneficial ownership of securities of
the Company by the Selling Securityholders as of the date of this Prospectus.


<TABLE><CAPTION>


                                NUMBER OF SHARES
 NAME OF SELLING                OF COMMON STOCK                           NUMBER OF SHARES OF
 ---------------                OWNED PRIOR TO       % OF COMMON STOCK    COMMON STOCK WHICH
 SECURITYHOLDER                 THE OFFERING(1)      OWNED                MAY BE OFFERED(2)
 --------------                 ------------------   -----------------    -------------------
<S>                                        <C>                  <C>                   <C>
 *Ross David Ain                            17,772               .070%                 13,329
                                                                                     
 *Vito R. Capotorto                         44,440               .176%                 33,330
 *Stephen & Linda Ciaccio                   44,440               .176%                 33,330
    JTWROS                                                                           
                                                                                     
 *Robert J. Conrads                         88,880               .351%                 66,660
                                                                                     
 *Robert B. Daly & Marietta Daly            44,440               .176%                 33,330
    JTWROS                                                                           
                                                                                     
 *Delaware Charter Guarantee &              44,440               .176%                 33,330
    Trust Co.                                                                        
    C/F Anthony G. Polak IRA                                                         
 *Domaco Venture Capital Fund               44,440               .176%                 33,330
                                                                                     
 *Isaac R. Dweck                           133,320               .527%                 99,990
                                                                                     
 *Richard Elkin                             44,440               .176%                 33,330
                                                                                     
 *Fahnestock & Co., Inc.                    44,440               .176%                 33,330
    C/F Ronald M. Lazar IRA                                                          

</TABLE>





                                       41

<PAGE>
<TABLE>
<S>                                        <C>                  <C>                   <C>
 *S. Edmond Farber                          44,440               .176%                 33,330
                                                                                    
 *Clara Glory & George Glory                44,440               .176%                 33,330
    JTWROS                                                                          
                                                                                    
 *Robert P. Gordon                          71,106               .281%                  53330
 *Stanley Gottlieb & Elaine                 44,440               .176%                 33,330
    Gottlieb JTWROS                                                                 
                                                                                    
 *Fred Kassner                              88,880               .351%                 66,660
                                                                                    
 *Edward Justin Kelly                       44,440               .176%                 33,330
                                                                                    
 *Donald R. Kendall, Jr. &                  26,652               .105%                 19,989
 Diane                                                                              
    S. Kendall                                                                      
    JTWROS                                                                          
 *Susan Tauber Lemor                        88,880               .351%                 66,660
                                                                                    
 *Phil Lifschitz                            88,880               .351%                 66,660
                                                                                    
 *The Lincoln Fund Tax                      88,880               .351%                 66,660
    Advantaged, L.P.                                                                
                                                                                    
 *Harris R. L. Lydon                        44,440               .176%                 33,330
 *Paulette Tauber Mintz                     88,880               .351%                 66,660
                                                                                    
 *Nikki Establishment for                  177,772               .702%                133,329
 Fashion                                                                            
    & Marketing Research                                                            
                                                                                    
 *Palmetto Partners, Ltd.                  151,106               .597%                113,329
                                                                                    
 *Richard H. Pollak                         44,440               .176%                 33,330
 *RHL Associates, L.P.                      88,880               .351%                66,660
                                                                                    
 *J.F. Shea Co., Inc., as                  177,772               .702%                133,329
 Nominee  
    1996-5                                                                          
                                                                                    
 *Andrew W. Schonzeit                       44,440               .176%                 33,330
                                                                                    
 *Steven A. Sherman                         26,652               .105%                19,989
 *Michael Siciliano                         44,440               .176%                 33,330
                                                                                    
 *Martin Sirotkin                           88,880               .351%                 66,660
                                                                                    
 *Alan & Esti Stahler JTWROS               142,212               .562%                106,659
                                                                                    
 *Gary J. Strauss                           44,440               .176%                 33,330
 *Hindy H. Taub                             44,440               .176%                 33,330
                                                                                    
 *Irwin Tauber                              88,880               .351%                 66,660





</TABLE>








                                       42

<PAGE>
<TABLE>
<S>                                        <C>                 <C>                    <C>
 *Venturetek, L.P.                          266,652             1.053%                 199,989
                                                                                    
 *Aaron Wolfson                             177,772              .702%                 133,329
                                                                                    
 *Abraham Wolfson                           177,772              .702%                 133,329

 *Morris Wolfson Family                     133,320              .527%                  99,990
 Limited Partnership                                                                     
                                                                                    
 *Wolfson Equities                          533,320             2.107%                 399,990
                                                                                    
 *Kenton E. Wood                             44,440              .176%                  33,330
                                                                                    
 *Jonathan M. Young & Lyudmila               44,440              .176%                  33,330
    Young JTWROS                                                                    

 *The Hope Investment Co.,                  177,772              .702%                 133,329
 Inc.                                                                               
                                                                                    
 *Keys Foundation                           177,772              .702%                 133,329
                                                                                    
 *Tis Prager                                 88,880              .351%                  66,660
                                                                                    
 *The Bridge Fund N.V.                      133,320              .527%                  99,990

 *David C. Hale                              88,880              .351%                  66,660
                                                                                    
 *Kalman Renov and Ruki D.                  142,212              .562%                 106,659
         Renov JTWROS                                                               
                                                                                    
 *Swan Alley (Nominees)                      88,880              .351%                  66,660
 Limited                                                                            
                                                                                    
 *Windsor Produce Inc.                       44,440              .176%                  33,330

 *Jonathan Rothschild                        44,440              .176%                  33,330
                                                                                    
 *GHA Management Corporation                 88,880              .351%                  66,660
                                                                                    
 *RL Capital Partners                        44,440              .176%                  33,330
                                                                                    
 *Marion Talansky                           177,772              .702%                 133,329

 *Lillian Tauber                             88,880              .351%                  66,660
                                                                                    
 *Martin Tauber                              88,880              .351%                  66,660
                                                                                    
 Ronald S. Baruch                            53,332              .211%                  53,332
                                                                                    
 David J. Bershad                           133,332              .527%                 133,332

 Atrix Ventana Investment and               487,640             1.926%                487,640
 Company, Limited Partnership                                                       
                                                                                    
 Seymour Buehler                             33,332              .132%                  33,332
                                                                                    
 Richard B. Chanin                           33,332              .132%                  33,332

 Chesed Congregations of                    266,666             1.053%                 266,666
    America                                                                         


</TABLE>










                                       43

<PAGE>
<TABLE>
<S>                                        <C>                <C>                     <C>
 Donald G. Drapkin                          333,332            1.317%                  333,332
                                                                                      
 Nathan Eisen & Rose Eisen                   66,666             .263%                   66,666
                                                                                      
 Colony Partners                            133,332             .527%                  133,332

 Jerome Fisch                                33,332             .132%                   33,332
                                                                                      
 Morris Friedman                             33,332             .132%                   33,332
                                                                                      
 Gilbert Goldstein, Paul                    333,332            1.317%                  333,332
 Shapiro Trust                                                                        
                                                                                      
 Jackson Hole Acquisitions                  133,332             .527%                  133,332
    Investmetn L.P.                                                                   

 Robert Klein, M.D. & Myriam                133,332             .527%                  133,332
    Gluck, M.D.                                                                       
                                                                                      
 Benjamin Lehrer                             33,332             .132%                   33,332
                                                                                      
 Frank J. Lincoln, Jr.                       66,666             .263%                   66,666
                                                                                      
 Gene T. Mancinelli                         133,332             .527%                  133,332

 Marathon Agents Profit                      33,332             .132%                   33,332
 Sharing                                                                              
                                                                                      
 Michael Marcus                             266,666            1.053%                  266,666
                                                                                      
 John P. McNiff                             133,332             .527%                  133,332
                                                                                      
 Josef Mermelstein                           66,666             .263%                   66,666

 Richard Molinsky                            33,332             .132%                   33,332
                                                                                      
 MSI Investments Ltd.                        66,666             .263%                   66,666
                                                                                      
 Ruth Peyser                                 33,332             .132%                   33,332
                                                                                      
 Bruce Pomper IRA                           400,000            1.580%                 400,000

 David W. Ruttenberg                         33,332             .132%                   33,332
                                                                                      
 Robin Schlaff                               33,332             .132%                   33,332
                                                                                      
 Andrew W. Schonzeit                         66,666             .263%                   66,666
                                                                                      
 E. Donald Shapiro                           33,332             .132%                   33,332

 Aaron Speisman                              33,332             .132%                   33,332
                                                                                      
 Herbert Stein and Elaine                    33,332             .132%                   33,332
 Stein JTWROS                                                                         
                                                                                      
 Hindy H. Taub                               66,666             .263%                   66,666

 Ventana Growth Capital Fund                112,360             .444%                  112,360
    V.L.P.



</TABLE>











                                       44

<PAGE>
<TABLE>
<S>                                        <C>                <C>                     <C>
 Vivaldi Ltd.                               333,332            1.317%                  333,332
                                                                                   
 Melvyn I. Weiss                            133,332             .527%                  133,332
                                                                                   
 Alan Wise & Teri Wise JTWROS                33,332             .132%                   33,332

 Richard B. Stone                           133,332             .527%                  133,332
                                                                                   
 Heracles Fund                              133,332             .527%                  133,332
                                                                                   
 Bruce Slovin                               133,332             .527%                  133,332
                                                                                   
 Larich Associates                          100,000             .395%                  100,000

 Patrick M. Kane                             66,666             .263%                   66,666
                                                                                   
 Benjamin Bollag                            133,332             .527%                  133,332
                                                                                   
 Brynde Berkowitz                            66,666             .263%                  66,666
                                                                                   
 Thomas L. Cassidy IRA                       66,666             .263%                   66,666

 Raul Obregon & Cecilia                      66,666             .263%                   66,666
    Obregon, JTWROS                                                                
                                                                                   
 Roberto Gonzalez                            66,666             .263%                   66,666
                                                                                   
 Old Oly, J.V.                               66,666             .263%                   66,666
                                                                                   
 Myron M. Teitelbaum, M.D.                   66,666             .263%                   66,666

 Wayne Suker                                 66,666             .263%                   66,666
                                                                                   
 Jay Kestenbaum                              66,666             .263%                   66,666
                                                                                   
 The 1992 Houston Partnership,               66,666             .263%                   66,666
 L.P.                                                                              
                                                                                   
 J. Philip Rosen                             66,666             .263%                   66,666


 Michael Cantor                              66,666             .263%                   66,666
                                                                                   
 Roy Schaeffer & Marlena                     66,666             .263%                   66,666
    Schaeffer                                                                      
                                                                                   
 Arnold R. Meyer, Trustee of                 66,666             .263%                   66,666
  Arnold r. Meyer Estate Trust   
                                                                                   
 Amnon & Caren Barness, JT.                  66,666             .263%                   66,666
    Wros                                                                           

 MDBC Capital Corp.                          66,666             .263%                   66,666
                                                                                   
 Joel Wolff                                  66,666             .263%                   66,666
                                                                                   
 Steven Ostrovsky                            66,666             .263%                   66,666

 Dr. Martin Goldman                          66,666             .263%                   66,666

</TABLE>













                                       45

<PAGE>
<TABLE>
<S>                                        <C>                 <C>                    <C>
 Albert Milstein                            66,666              .263%                  66,666
                                                                                    
 Roslyn Bloom                               33,332              .132%                  33,332
                                                                                    
 Dr. Edward L. Steinberg                    33,332              .132%                  33,332

 J.R.K. Financial Corp.                     33,332              .132%                  33,332
                                                                                    
 Bernard Cohen                              33,332              .132%                  33,332
                                                                                    
 Jonathan E. Rothschild                     33,332              .132%                  33,332
                                                                                    
 Roberto Segovia                            33,332              .132%                  33,332

 Chiam Kohanchi                             33,332              .132%                  33,332
                                                                                    
 Michael & Nicole Kubin                     33,332              .132%                  33,332
                                                                                    
 Alexander & Sharon Roitstein               33,332              .132%                  33,332
                                                                                    
 Peter S. Folino                            33,332              .132%                  33,332

 Herbert Hoffner                            33,332              .132%                  33,332
                                                                                    
 Sandra Maria Sanchez                       33,332              .132%                  33,332
    Guadarrama                                                                      
                                                                                    
 Laura C. Gold                              33,332              .132%                  33,332
                                                                                    
 Burton P. Hoffner                          33,332              .132%                  33,332

 Jim Spencer                                16,666              .066%                  16,666
                                                                                    
 Elke R. DeRamirez                          13,332              .053%                  13,332
                                                                                    
 Armen Partners, L.P.                      333,332             1.317%                 333,332
                                                                                    
 Bruce Pomper                              266,666             1.053%                 266,666

 Alexander Pomper                          266,666             1.053%                 266,666
                                                                                    
 Sidney Todres                             133,332              .527%                 133,332
                                                                                    
 Mova Investments Limited                  133,332              .527%                 133,332
                                                                                    
 Ted Koutsoubos                            133,332              .527%                 133,332

 F&T Planning Centers, Inc.                 66,666              .263%                  66,666
                                                                                    
 Frank Alliots                              33,332              .132%                  33,332
                                                                                    
 Geun-Eun Kim                               33,332              .132%                  33,332

 Joseph A. Umbach                           66,666              .263%                  66,666
                                                                                    
 Cinco de Mayo, Ltd.                        66,666              .263%                  66,666
                                                                                    
 Adams, Leonard J.                          66,666              .263%                  66,666
                                                                                    

</TABLE>













                                       46

<PAGE>
<TABLE><CAPTION>
<S>                                        <C>                 <C>                    <C>
 Albanese, Sal and Lorraine                  46,666             .184%                   46,666
                                                                                     
 Ashline Ltd.                               666,666            2.633%                  666,666
                                                                                     
 Belldegrun, Arie Dr.                       133,332             .527%                  133,332

 Batkin, Alan R.                             66,666             .263%                   66,666
                                                                                     
 Bollag, Michael                            133,332             .527%                  133,332
                                                                                     
 The Gifford fund                           333,332            1.317%                  333,332
                                                                                     
 G.P.S. Fund Limited                         66,666             .263%                   66,666

 Carlos Plancarte G.N., Leonor               33,332             .132%                   33,332
    P. de Marvan, JTWROS                                                             
                                                                                     
 Chopp, Martin                              100,000             .395%                  100,000
                                                                                     
 Concordia Partners L.P.                    333,332            1.317%                  333,332
                                                                                     
 Coney Financial Services                   133,332             .527%                  133,332

 Demeulemeester Weitnauer                    66,666             .263%                   66,666
                                                                                     
 Diversified Fund, Ltd.                     266,666            1.053%                  266,666
                                                                                     
 Scoggin Capital Mgnt L.P.                  200,000             .790%                  200,000
                                                                                     
 Wang, Emily                                 33,332             .132%                   33,332

 The Holding Company                         66,666             .263%                   66,666
                                                                                     
 Leland Corporation                          33,332             .132%                   33,332
                                                                                     
 Grossman, Peter                             33,332             .132%                   33,332
                                                                                     
 Gruber, Stuart                              66,666             .263%                   66,666

 Halevah, Elyse & Erez                       33,332             .132%                   33,332
                                                                                     
 Hecht, Thomas O.                            33,332             .132%                   33,332
                                                                                     
 Hirschfield, Jack                           16,666             .066%                   16,666
                                                                                     
 Jamison, John R.                            20,000             .079%                   20,000

 Kash, Peter and Donna, JTWROS               66,666             .263%                   66,666
                                                                                     
 AMRAM KASS                                 100,000             .395%                  100,000
 P.C. Defined Benefit Pension                                                        
    Plan                                                                             
                                                                                     
 Special Equity                             133,332             .527%                  133,332

 Koffman, Steven                             33,332             .132%                   33,332
                                                                                     
 Kracoff, David and Reva                     33,332             .132%                   33,332

</TABLE>














                                       47

<PAGE>
<TABLE>
<S>                                        <C>                 <C>                    <C>
 Needham Capital Group, PLC                 33,332               .132%                 33,332
                                                                                    
 Lash, Nathaniel & Millicent                33,332               .132%                 33,332
 C. Lash Rev. Trust   
                                                                                    
 Lash, Roger S.                             33,332               .132%                 33,332

 Lemer, Albert                              33,332               .132%                 33,332
                                                                                    
 Loeb, John L., Jr.                         33,332               .132%                 33,332
                                                                                    
 Markman, Melvin                            66,666               .263%                 66,666
                                                                                    
 McNiff, John P.                            66,666               .263%                 66,666

 Nebenzahl, Mechie                          26,666               1.05%                 26,666
                                                                                    
 Neis, Robert                               33,332               .132%                 33,332
                                                                                    
 Newman, Kevin P.                           33,332               .132%                 33,332
                                                                                    
 Oberrotman, Alain                          33,332               .132%                 33,332

 Oliveira, Steven M. and                   133,332               .527%                133,332
  Bernadette JTWROS                                                                 
                                                                                    
 Ostrovsky, Paul D. and                     33,332               .132%                 33,332
 Rebecca L.                                                                         
                                                                                    
 Pignatiello, Connie C.                     13,332               .053%                 13,332
                                                                                    
 Plymouth Partners, L.P.                   333,332              1.317%                333,332

 The Zabludowicz Trust                     133,332               .527%                133,332
                                                                                    
 EDJ Limited                               133,332               .527%                133,332
                                                                                    
 Porter Partners, L.P.                     266,666              1.053%                266,666
                                                                                    
 Propp & Company Inc.                       33,332               .132%                 33,332

 Kenton E. Wood                             33,332               .132%                 33,332
                                                                                    
 Rick Steiner Productions,                  33,332               .132%                 33,332
 Inc.                                                                               
                                                                                    
 Robert E. Spivak Retirement                33,332               .132%                 33,332
    Plan                                                                            
                                                                                    
 Robinson, Linda Gosden                     66,666               .263%                 66,666

 M.D. Sabbah                               400,000              1.580%                400,000
                                                                                    
 Schwendiman Global Sector                 100,000               .395%               100,000
    Fund L.P.                                                                       
                                                                                    
 Silverman, Eugene                          16,666               .066%                 16,666

 Spindel, Neil and Laurie                   66,666               .263%                 66,666

</TABLE>












                                       48

<PAGE>
   
<TABLE>
<S>                                        <C>                 <C>                    <C>
 Stuart, Bruce                              133,332             .527%                  133,332
                                                                                    
 The A.M. Group, L.L.C.                      66,666             .263%                   66,666
                                                                                    
 Ventana Grwth Capital Fund                  18,732             .074%                   18,732
    V, LP                                                                           
 Venture Enterprises, Inc.                   33,332             .132%                   33,332
                                                                                    
 Whetten, Robert J.                         133,332             .527%                  133,332
                                                                                    
 Williams, Esther                           133,332             .527%                  133,332
                                                                                    
 Winans, Tim                                 33,332             .132%                   33,332

 Zapco Holdings, Inc. Deferred              133,332             .527%                  133,332
    Compensation Plan Trust                                                         
                                                                                    
 Zeff, Kal                                  266,666            1.053%                  266,666
                                                                                    
 Hooker, Kingsley                            30,000             .119%                   30,000
                                                                                    
 My Seven Children, Inc.                     33,332             .132%                   33,332

 Atrix-Ventana Investment &                  47,946             .189%                   47,946
 Co., LP                                                                            
                                                                                    
 126736 Canada, Inc.                      1,400,000            5.530%                1,400,000
                                                                                    
 Berg, Mark                                 166,666             .658%                  166,666
                                                                                    
 Churchpark Finance, Ltd.                   133,332             .527%                  133,332

 Cerrone, Gabriel M.                         33,332             .132%                   33,332
                                                                                    
 Hanover Associates, LLC                    100,000             .395%                  100,000
                                                                                    
 Michael Garnick                            133,332             .527%                  133,332
                                                                                    
 Jerry B. Hook Ph.D.                        133,332             .527%                  133,332

 Dr. William McCulloch                       66,666             .263%                   66,666
                                                                                    
 Ronald H. Spair                             66,666             .263%                   66,666
                                                                                    
 Annie Thomas                                18,745             .074%                   18,745

 Christopher Plunkett                         6,458             .026%                    6,458

 Thomas J. Yessman                           40,557             .160%                   40,557

 Kimberly Braswell                            7,753             .031%                    7,753

 Richard Feldman                             12,935             .051%                   12,935

 Brian Hagerman                              25,851             .102%                   25,851

 John Matthews                               25,851             .102%                   25,851

 Quentin Moses                               25,851             .102%                   25,851

 Michael Mindlin                             48,482             .191%                   48,482

 Americorp Financial Services, Inc.         123,616             .488%                  123,616

 Americorp Securities, Inc.                  25,851             .102%                   25,851
                                                                                    
 L.T. Lawrence                               57,150             .226%                   57,150

 Yale University                             23,209             .092%                   23,209
                                                                                    
Paramount Capital, Inc.                   2,262,000            8.935%                2,262,000

Total                                  **25,323,753            1.000%             **23,990,519
- ----------------------              

</TABLE>
    
                                    
(1)  Represents the shares of Common Stock (i) issuable upon the conversion of
     the Class B Preferred Stock and (ii) issuable upon the exercise of the
     Class C Warrants.              
                                    
                                    













                                       49

<PAGE>
(2)  With respect to each Selling Securityholder identified with an asterisk in
     the table, the number of shares listed excludes shares of Common Stock
     which are subject to a lock-up agreement until November 29, 1996. After
     such date, all remaining shares are eligible for immediate resale.

(3)  Represents shares of Common Stock issuable upon the exercise of the UPO's.

(4)  Represents shares of Common Stock held by Yale University.

**   The number of shares of Common Stock does not include fractional shares
     for which the Company will issue cash upon the conversion of the Series B
     Preferred Stock.


Each Selling Securityholder will be entitled to receive all of the proceeds from
the future sale of his, her or its respective shares of Common Stock. Except for
the costs of including such shares of Common Stock within the registration
statement of which this Prospectus forms a part, which costs are borne by the
Company, the Selling Securityholders will bear all expenses of any offering by
them of their Underlying Common, including the costs of their counsel and any
sales commissions incurred.

Except as noted below, none of the Selling Securityholders named in the
preceding table have had any position, office or other material relationship
with the Company or any of its predecessors or affiliates.  Paramount Capital,
Inc. was the placement agent for the Series A Convertible Preferred Stock and
the series B'  Convertible Preferred Stock offerings.  Jerry B. Hook, Ph.D. is
the President and Chief Executive Officer of the Company.  Dr. William McCulloch
is Senior Vice President, Research and Development of the Company.  Ronald H.
Spair is Vice President, Chief Financial Officer and Secretary of the Company.
Americorp Securities, Inc. and T.L. Lawrence were the underwriters of the
Compnay's initial public offering.  Yale is the licensor of certain of the
Company's technology.

The Selling Securityholders may sell the shares of Common Stock at any time on
or after the date hereof, subject to certain lock-up provisions applicable to
the Selling Securityholders identified with an asterisk.  See "Shares Eligible
for Future Sale--Lock-up Agreements."











                                       50

<PAGE>
                              CERTAIN TRANSACTIONS


On August 23, 1996, the Company completed a private placement of 129.65 Units
(each, a "Unit"), each consisting of (a) 10,000 shares of series B' Preferred
Stock and (b) Class C Warrants to purchase 66,667 shares of common Stock. The
Company paid commissions of $1,166,850 and non-accountable expense allowances of
$518,600 to Paramount Capital, Inc. (the Placement Agent") in connection with
such private placement. In addition, the Company will (i) pay the Placement
Agent a commission of 6% upon the exercise of any Class C Warrant and (ii)
reimburse the Placement Agent for out-of-pocket costs, not to exceed $5,000
incurred in the connection with the solicitation of Class C Warrant exercise or
the redemption of Class C Warrants. See "Use of Proceeds." Lindsay A. Rosenwald,
M.D., a principal stockholder and director of the Company, is the sole
stockholder, Chairman of the Board of Directors and Chief Executive Officer of
the Placement Agent. In addition, the Company issued to the Placement Agent the
Placement Warrants.

On August 23, 1996, the Company made a $100,000 loan to Jerry B. Hook, Ph.D.,
the Company's President and Chief Executive Officer. Proceeds of such loan were
used by Dr. Hook to purchase a Unit. Such loan is evidenced by a promissory note
(copies of such promissory note are herewith attached as Exhibit 10.79). The
maturity date of the loan is July 30, 1999. The loan bears interest at the rate
of 8% per annum. Principal of the loan is payable as follows: thirty-three
thousand three hundred and thirty-three dollars ($33,333.00) of principal on
July 30, 1997, thirty-three thousand three hundred and thirty-three dollars
($33,333.00) of principal on July 30, 1998 and thirty-three thousand three
hundred and thirty-four dollars ($33,334.00) of principal on July 30, 1999. On
each scheduled repayment date, the amount then due (including accrued interest)
will be forgiven by the Company provided that on such date Dr. Hook continues to
be employed by the Company. The outstanding balance of the loan (plus all
accrued interest) will be forgiven in full in the event that one of the
following occurs: (i) the death or disability of Dr. Hook (within the meaning of
Dr. Hook's employment agreement with the Company), (ii) the operations of the
Company are terminated, (iii) the Company is liquidated or (iv) the Company
undergoes a change of control.

On August 23, 1996, the Company made a $50,000 loan to Dr. William McCulloch,
Senior Vice President, Research and Development of the Company. Proceeds of the
loan were used by Dr. McCulloch to purchase one half of one Unit. Such loan is
evidenced by a promissory note (copies of the promissory note are herewith
attached as Exhibit 10.80). The maturity date of the loan is July 30, 1999. The
loan bears interest at the rate of 8% per annum. Principal of the loan shall be
payable as follows: sixteen thousand six hundred and sixty-six dollars
($16,666.00) of principal on July 30, 1997, sixteen thousand six hundred and
sixty-six dollars ($16,666.00) of principal on July 30, 1998 and sixteen
thousand six hundred and sixty-eight dollars ($16,668.00) of principal on July
30, 1999. On each scheduled repayment date, the amount then due (including
accrued interest) will be forgiven by the Company provided that on such date Dr.
McCulloch continues to be employed by the Company. The outstanding balance of
the loan (plus all accrued interest) will be forgiven in full in the event that
one of the following occurs: (i) the death or disability of Dr. McCulloch
(within the meaning of Dr. McCulloch's employment agreement with the Company),
(ii) the operations of the Company are terminated, (iii) the Company is
liquidated or (iv) the Company undergoes a change of control.

On August 23, 1996, the Company made a $50,000 loan to Ronald H. Spair, Vice
President and Chief Financial Officer Company. Proceeds of the loan were used by
Mr. Spair to purchase one half of one Unit. Such loan is evidenced by a
promissory note (copies of the promissory note are herewith attached as Exhibit
10.81). The maturity date of the loan is July 30, 1999. The loan bears interest
at the rate of 8% per annum. Principal of the loan shall be payable as follows:
sixteen thousand six hundred and sixty-six dollars ($16,666.00) of principal on
July 30, 1997, sixteen thousand six hundred and sixty-six dollars ($16,666.00)
of principal on July 30, 1998 and sixteen thousand six hundred and sixty-eight
dollars ($16,668.00) of principal on July 30, 1999. On each scheduled repayment
date, the amount then due (including accrued interest) will be forgiven by the
Company provided that on such date Mr. Spair continues to be employed by the
Company. The outstanding balance of the loan (plus all accrued interest) will be
forgiven in full in the event that one of the following occurs: (i) the death or
disability of Mr. Spair (ii) the operations of the Company are terminated, (iii)
the Company is liquidated or (iv) the Company undergoes a change of control.










                                       51

<PAGE>
On March 15, 1996, the Company acquired the assets and business of Lexin for up
to 2,600,000 shares of the Common Stock. The acquisition was subject to certain
post-closing conditions which have been satisfied. The Company issued 2,000,000
shares of the Company's Common Stock on the date of acquisition to Lexin
stockholders. The payment of up to an additional 600,000 shares of the Company's
Common Stock was contingent upon the attainment of certain post-closing
milestones which were not met. Therefore, the total number of shares of the
Company's Common Stock issues in connection with the acquisition of the assets
and business of Lexin was 2,000,000

On February 29, 1996, the Company completed a private placement of $3,000,000 of
Series A Convertible Preferred Stock. The Company paid commissions of $300,000
and non-accountable expense allowances of $90,000 to the Placement Agent
(Lindsay A. Rosenwald, M.D., a principal stockholder and director of the
Company, is the sole stockholder, Chairman of the Board of Directors and Chief
Executive Officer of the Placement Agent). In addition, the Company issued to
the Placement Agent a warrant to purchase 30,000 shares of Series A Preferred
Stock, $.001 par value per share, for an aggregate purchase price of $375,000.
See "Principal Stockholders" and "Shares Eligible for Future Sale."

In February, 1996, the Company engaged Paramount Capital, Inc. ("Paramount") as
a non-exclusive financial advisor to the Company. The initial term of the
agreement (the "Agreement") is for twenty-four months (the "Term"), renewable
for consecutive six months periods upon the execution of a written Agreement by
both parties. The Company may terminate the Agreement in the event that
Paramount breaches its confidentiality obligations under the Agreement. In its
role as financial advisor, Paramount will maintain its familiarity with the
business, operations, properties, financial conditions, prospects and management
of the Company and assist the Company in: (a) identifying prospective strategic
partners, acquirors and/or investors; (b) evaluating offers received from
prospective partners, acquirors and/or investors; and (c) conducting discussions
and negotiations leading toward the consummation of a strategic partnership,
merger or an investment. Pursuant to the Agreement, Company will pay Paramount a
non refundable retainer fee of $3,000 per month for twenty-four months. During
the term of the Agreement, or during the twelve-month period following the
expiration or earlier termination of the Agreement, upon the closing of each
Investment (as defined below), the Company shall pay to Paramount a fee in an
amount equal to 9% of the aggregate value of such Investment and shall issue to
Paramount warrants to purchase an amount of securities equal to 10% of the
securities sold as part of such Investment at an exercise price of 110% of the
price of such securities, exercisable until five years from the date of issuance
of such warrants. For the purpose of this Agreement, an Investment shall be any
purchase of securities of the Company from the Company (other than "firm
commitment" or "best efforts" underwriting, contemplated by the Letter of Intent
dated January 10, 1996 between the Company and Paramount) which is made during
the Term or during the twelve-month period following the expiration of the Term
by an investor first introduced to the Company by or through Paramount during or
prior to the Term.

On June 30, 1995, the Company and an underwriter for the Company's initial
public offering entered into a financial advisory agreement with a one-year
term. Under the terms of the agreement, the Company recognized a financial
advisory fee expense of $150,000 in 1995 and $150,000 over the first six months
of 1996.


                              PLAN OF DISTRIBUTION

Sales of shares of Common Stock by Selling Securityholders may be effected from
time to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the shares of Common
Stock directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the shares of Common Stock for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).

The Selling Securityholders and any broker-dealers that act in connection with
the sale of the shares of Common Stock as principals may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commission received by them and any profit on the resale of such securities as
principals might be deemed to be underwriting discounts and commissions under
the Act. The Selling Securityholders may agree to indemnify any agent, dealer or
broker-dealer that





                                       52

<PAGE>
participates in transactions involving sales of such securities certain
liabilities, including liabilities arising under the Securities Act. The Company
will not receive any proceeds from the sales of the shares of Common Stock by
the Selling Securityholders. The Company will pay the Placement Agent a
commission of 6% upon the exercise of any Class C Warrant. In addition, any
out-of-pocket costs, not to exceed $5,000 incurred by the Placement Agent in the
connection with the solicitation of Class C Warrant exercise or the redemption
of Class C Warrants, shall be borne by the Company. See "Use of Proceeds." Sales
of shares of Common Stock by the Selling Securityholders, or even the potential
of such sales, would likely have an adverse effect on the market price of the
Class C Warrants and Common Stock.

At the time a particular offer of shares of Common Stock is made, except as
herein contemplated, by or on behalf of the Selling Securityholder, to the
extent required, a Prospectus will be distributed which will set forth the
number of shares of Common Stock being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, if any, the
purchase price paid by any underwriter for shares purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.

Under the Exchange Act, and the regulations thereunder, any person engaged in a
distribution of the securities of the Company offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling-off" period (two or 
nine days) prior to the commencement of such distribution. In addition, and 
without limiting the foregoing, the Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitations, Rules 10b-6 and 10b-7, in connection
with transactions in such securities, which provisions may limit the timing of
purchases and sales of such securities by the Selling Securityholders.

With respect to the Selling Securityholders who are original holders of the
Class C Warrants, the issuance of shares of Common Stock to such holders upon
the exercise of their Class C Warrants shall be pursuant to an available
exemption from the registration requirements of the Act. Accordingly, until the
effectiveness of the registration statement of which this Prospectus forms a
part, any shares of Commons Stock issued to such original holders of Class C
Warrants upon the exercise of such Class C Warrants shall bear a restrictive
legend with regard to limitations on transferability pursuant to the Securities
Act. From and after the effectiveness of the registration statement of which
this Prospectus forms a part, any shares of Common Stock issued to such original
holders of Class C Warrants upon the exercise of such Class C Warrants shall
continue to be issued pursuant to an available exemption from the registration
requirements of the Securities Act, but shall be eligible for resale by such
holders pursuant to an effective registration statements and, as a result, will
not be required to bear such a restrictive legend.


                                  LEGAL MATTERS

The validity of the Common Stock and the Class C warrants offered hereby will be
passed upon for the Company by Roberts, Sheridan & Kotel, a Professional
Corporation, New York, New York.


                                     EXPERTS

The financial statements of the Company at December 31, 1995, and 1994, and for
each of the three years in the period ended December 31, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern mentioned in Note 1 to the Financial Statement appearing elsewhere
herein), and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.

The financial statements of Lexin as of June 30, 1994 and 1995, for the years
ended June 30, 1993, 1994 and 1995, and for the period from inception February
23, 1989 to June 30, 1995, included in this Prospectus and Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports. Reference is made to said









                                       53

<PAGE>
report which includes an explanatory paragraph regarding the uncertainty of
Lexin's ability to continue as a going concern.

                           CHANGE IN PUBLIC ACCOUNTS

The Board of Directors of the Company retained Arthur Andersen LLP as its
independent public accountants and discontinued Ernst & Young LLP. Ernst & Young
LLP was retained by the Company since its inception. Ernst & Young LLP reports
did not contain adverse opinions or disclaimer opinions and were not qualified
as to audit scope, or accounting principles. Ernst & Young LLP's report for the
year ended December 31, 1995 was qualified regarding the uncertainty of the
Company's ability to continue as a going concern. There were no disagreements
with Ernst & Young LLP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures at the time of
the change which if not resolved to Ernst & Young LLP's satisfaction, would have
caused them to make reference to subject matter of the disagreement in
connection with their report. Prior to retaining Arthur Andersen LLP the Company
did not consult with Arthur Andersen LLP regarding accounting principles.













                                        54

<PAGE>
                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     The following table sets forth the costs and expenses, other than Placement
Agent commissions, payable by the Company in connection with the sale of Common
Stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fees.

     SEC Registration fee . . . . . . . . . . . . . . . . .   $ 14,458
     NASD fee . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
     Printing and engraving . . . . . . . . . . . . . . . . .   25,000
     Legal fees and expenses of the Company . . . . . . . . .   30,000
     Accounting fees and expenses . . . . . . . . . . . . . .   20,000
     Blue sky fees and expenses . . . . . . . . . . . . . . .   30,000
     Transfer agent fees  . . . . . . . . . . . . . . . . . .    5,000
     Miscellaneous  . . . . . . . . . . . . . . . . . .         25,000
                                                              --------
               Total  . . . . . . . . . . . . . . . . . . .   $165,458
                                                              ========


ITEM 15.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6 of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Certificate
of Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as directors to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.






                                      II-1.


<PAGE>
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (A)  EXHIBITS

EXHIBIT NO.        DESCRIPTION
- -----------        -----------

%%% 2.1   --   Copy of the Asset Purchase Agreement, with exhibits thereto,
               dated February 22, 1996, between the Registrant and Lexin
               Pharmaceutical Corporation
%%% 3.4   --   Amended and Restated Certificate of Incorporation filed
               August 1, 1996.
%%%%%3.4A  --   Certificate of Designation of the series B' Convertible
               Preferred Stock filed on August 23, 1996.
  **4.2   --   Form of Common Stock Certificate
  **4.3   --   Form of Class A Warrant Certificate
  **4.4   --   Form of Class B Warrant Certificate
 ***4.5   --   Unit Purchase Option granted to Americorp Securities Inc. dated
               June 28, 1994
 ***4.6   --   Warrant Agreement entered into among Midlantic National Bank,
               Americorp Securities, Inc., and the Registrant dated June 21,
               1994
    4.7   --   Warrant Agreement for the Class C Warrants, dated August 23,
               between the Company, the Warrant Agent and Paramount Capital,
               Inc.
    4.8   --   Form of Class C Warrant Certificate (see Exhibit 4.7)
    5.1   --   Legal Opinion of Roberts, Sheridan & Kotel, a Professional
               Corporation
 *+10.1   --   Exclusive License Agreement, dated October 1, 1991, between
               the Registrant and Yale University ("Yale") and Subscription
               Agreement, dated October 21, 1991, between the Registrant and
               Yale
 *+10.1A  --   Revised pages of Exhibit 10.1
 *+10.2   --   License Agreement, dated October 7, 1991, between the Registrant
               and The Research Foundation of State University of New York
 *+10.2A  --   Revised pages of Exhibit 10.2
 *+10.3   --   Research and License Agreement, dated as of October 15, 1991,
               between the Registrant and Institute of Materia Medica of the
               Chinese Academy of Medical Sciences ("BIMM"), as amended by an
               Amendment of Research and License Agreement, dated as of March 1,
               1992, between the Registrant and BIMM
 *+10.3A  --   Revised pages of Exhibit 10.3
 *+10.4   --   Licensing and First Refusal Agreement, dated as of March 12,
               1992, between the Registrant and the Dana-Farber Cancer
               Institute, Inc. ("Dana-Farber"), a Letter Agreement, dated March
               12, 1992, between the Registrant and Dana-Farber, and a Letter
               Agreement, dated September 12, 1992, between the Registrant and
               Dana-Farber
 *+10.4A  --   Revised pages of Exhibit 10.4
 *+10.5   --   License Agreement, dated as of August 31, 1992, between the
               Registrant and Imperial Chemical Industries PLC
 *+10.5A  --   Revised pages of Exhibit 10.5
  *10.6   --   Letter Agreement, dated October 30, 1992, among the
               Registrant, Imperial Chemical Industries PLC, and ICI Bioscience
               Limited
 *+10.7   --   Collaboration and Option Agreement, dated September 18, 1992, by
               and among the Registrant, Cancer Research Campaign and Cancer
               Research Campaign Technology Limited
 *+10.7A  --   Revised pages of Exhibit 10.7
 *+10.8   --   Sublicense Agreement, dated July 13, 1992, between the
               Registrant and Research Triangle Pharmaceuticals Ltd. ("RTP"), as
               amended by a Letter Agreement, dated October 27, 1992, between
               the Registrant and RTP and by a Second Amendment to Sublicense
               Agreement, dated March 19, 1993, between the Registrant and RTP
 *+10.8A  --   Revised pages of Exhibit 10.8
 *+10.9   --   Service Agreement, dated November 27, 1991, between the
               Registrant and Cato Research, Ltd. ("Cato"), as amended by a
               Letter Agreement, dated March 16, 1993, between the Registrant
               and Cato
  *10.9A  --   Revised pages of Exhibit 10.9
  *10.10  --   Letter Agreement, dated October 28, 1991, between the Registrant
               and Cato
  *10.11  --   Subscription Agreement, dated November 27, 1991, between the
               Registrant and Cato Holding Co
  *10.12  --   Subscription Agreement, dated December 10, 1993, between the
               Registrant and Cato Holding Co.













                                      II-2.

<PAGE>
  *10.13  --   Employment Agreement, dated as of January 28, 1991, between the
               Registrant and William M. Sullivan, as amended by a Letter
               Agreement, dated as of March 2, 1993, between the parties
  *10.14  --   Nonqualified Stock Option Agreement, dated as of December 3,
               1991, between the Registrant and William M. Sullivan
  *10.15  --   Confidentiality Agreement, dated as of January 28, 1991, between
               the Registrant and William M. Sullivan
  *10.16  --   Employment Agreement, dated July 2, 1992, between the
               Registrant and William McCulloch, as amended by a Letter
               Agreement, dated as of March 2, 1993, between the parties, and
               Guarantee by The Castle Group Ltd.
  *10.17- --   Incentive Stock Option Agreement, dated as of October 1,
               1992, between the Registrant and William McCulloch
  *10.18- --   Nonqualified Stock Option Agreement, dated as of October
               1, 1992, between the Registrant and William McCulloch
  *10.19- --   Nonqualified Stock Option Agreement, dated as of October
               1, 1992, between the Registrant and William McCulloch
  *10.20- --   Confidentiality Agreement, dated as of July 2, 1992, between
               the Registrant and William McCulloch
  *10.21- --   Noncompetition Agreement, dated as of October 1, 1992,
               between the Registrant and William McCulloch
  *10.22- --   Employment Agreement, dated September 10, 1992, between the
               Registrant and Richard N. Scott, as amended by a Letter
               Agreement, dated as of March 2, 1993, between the parties,
               and Guarantee by The Castle Group Ltd.
  *10.23- --   Incentive Stock Option Agreement, dated as of September 10,
               1992, between the Registrant and Richard N. Scott
  *10.24- --   Nonqualified Stock Option Agreement, dated as of September
               10, 1992, between the Registrant and Richard N. Scott
  *10.25- --   Confidentiality Agreement, dated as of September 10, 1992,
               between the Registrant and Richard N. Scott
  *10.26- --   Confidentiality Agreement, dated as of September 10, 1992,
               between the Registrant and John S. McBride
  *10.27  --   Letter Agreement, dated March 23, 1993, between the Registrant
               and Paramount Capital, Inc., as amended by Letter Agreements
               dated June 24, 1993, June 28, 1993, September 24, 1993 and
               November 5, 1993
  *10.28- --   Indemnification Agreement, dated as of June 3, 1992, between
               the Registrant and The Castle Group Ltd. relative to William
               McCulloch
  *10.29- --   Indemnification Agreement, dated as of September 15, 1992,
               between the Registrant and The Castle Group Ltd. relative to
               Richard N. Scott
  *10.30  --   1991 Stock Plan, as amended
  *10.31  --   Stock Repurchase Agreement, dated as of November 21, 1991,
               between the Registrant and Peter Barton Hutt
  *10.32  --   Stock Repurchase Agreement, dated as of October 25, 1991, between
               the Registrant and Charles O. O'Brien
  *10.33  --   Stock Repurchase Agreement, dated as of October 15, 1991, between
               the Registrant and Sir John Vane
  *10.34  --   Stock Repurchase Agreement, dated as of December 24, 1991,
               between the Registrant and The Sir John Vane Trust
  *10.35  --   Stock Repurchase Agreement, dated as of October 5, 1993, between
               the Registrant and Richard N. Scott and related Assignment of
               even date between the parties
  *10.36  --   Form of convertible notes issued on or prior to October 28, 1993
               and schedule of purchasers of notes
  *10.37  --   Form of Note Purchase and Subscription Agreement for issuance
               of convertible notes issued prior to October 28, 1993 and
               schedule of purchasers of notes
  *10.38  --   Form of convertible notes issued in November 1993 and schedule of
               purchasers of notes











                                      II-3.

<PAGE>
  *10.39  --   Note Purchase and Subscription Agreement dated as of November
               12, 1993 between the Registrant and Financial Strategic
               Portfolios, Inc. -- Health Sciences Portfolio ("FSP") for
               issuance of convertible notes (See Exhibit 10.38 hereunder for
               Exhibit A to this Exhibit 10.39)
  *10.40  --   Form of Note Purchase and Subscription Agreement for issuance of
               convertible notes issued in November 1993 other than to FSP
  *10.41  --   Form of Note Purchase and Exchange Agreement for exchange of
               convertible notes, form of convertible notes and schedule of
               parties thereto
  *10.41A --   Revised schedule of parties to Exhibit 10.41
  *10.42  --   Stock Purchase and Exchange Agreement, dated as of December 10,
               1993, between the Registrant and FBL Ventures of South Dakota
  *10.43  --   Registration Rights Agreement, dated November 12, 1993, among the
               Registrant and certain rights holders, as amended as of December
               14, 1993
  *10.44  --   Subscription Agreement dated September 14, 1992 and Letter
               Agreements dated October 12, 1992 and December 13, 1993, between
               the Registrant and Yale University
  *10.44A --   Letter Agreement dated January 4, 1994
  *10.45  --   Noncompetition Agreement, dated as of September 10, 1992, between
               the Registrant and Richard N. Scott
***10.46  --   M/A Agreement between the Registrant and Americorp Securities,
               Inc. dated June 28, 1994
 **10.47- --   Form of Warrant Purchase Agreement among the Registrant;
               Healthcare Capital Investments, Inc. and Societe Generale
               Securities Corporation; and the Holders listed on Schedule I
               thereto
 **10.48- --   Form of Warrant Purchase Agreement among the Registrant,
               Paramount Capital, Inc. and the Holders listed on Schedule I
               thereto
***10.49  --   Underwriting Agreement between the Registrant and Americorp
               Securities, Inc. dated June 21, 1994
***10.50  --   Unit Purchase Option granted to LT Lawrence & Company, Inc. dated
               June 28, 1994
  #10.51  --   Nonqualified Stock Option Agreement, dated as of December 16,
               1994, between the Registrant and William M. Sullivan
  #10.52  --   Nonqualified Stock Option Agreement, dated as of July 10, 1994,
               between the Registrant and Sir John Vane, FSR
  #10.53  --   Nonqualified Stock Option Agreement, dated as of July 10, 1994,
               between the Registrant and Charles O. O'Brien
  #10.54  --   Nonqualified Stock Option Agreement, dated as of July 10, 1994,
               between the Registrant and Peter Barton Hutt
  #10.55  --   Incentive Stock Option Agreement, dated as of December 16, 1994,
               between the Registrant and William McCulloch
  #10.56  --   Amendment (as of March 14, 1994) to the Employment Agreement,
               dated July 2, 1992, between the Registrant and William McCulloch,
               as amended by a Letter Agreement, dated as of March 2, 1993,
               between the parties, and Guaranteed by The Castle Group Ltd.
  #10.57  --   Amendment (dated November 26, 1994) to the Service Agreement,
               dated November 27, 1991, between the Registrant and Cato Holding
               Co.
  #10.58  --   Amendment (dated December 16, 1994) to the Employment
               Agreement, dated January 28, 1991, between the Registrant and
               William M. Sullivan, as amended by a Letter Agreement, dated as
               of March 2, 1993, between the parties
 ##10.59  --   Nonqualified Stock Option Agreement, dated as of June 7, 1995,
               between the Registrant and Sir John Vane, FSR
 ##10.60  --   Nonqualified Stock Option Agreement, dated as of June 7, 1995,
               between the Registrant and Charles O. O'Brien
 ##10.61  --   Nonqualified Stock Option Agreement, dated as of June 7, 1995,
               between the Registrant and Peter Barton Hutt
 ##10.62  --   Amendment (dated June 1, 1995) to the Research and License
               Agreement, dated as of October 15, 1991, between the Registrant
               and Institute of Materia Medica of the Chinese Academy of Medical
               Sciences ("BIMM"), as amended by an Amendment of Research and
               License Agreement, dated as of March 1, 1992, between the
               Registrant and BIMM















                                      II-4.

<PAGE>
  ^10.63  --   Financial Advisory Agreement between the Registrant and Americorp
               Securities, Inc., dated as of June 29, 1995
  %10.64  --   Amendment (dated as of September 14, 1994) to the
               Collaboration and Option Agreement, dated September 18, 1992, by
               and among the Registrant, Cancer Research Campaign and Cancer
               Research Campaign Technology Limited
 %%10.65  --   Form of Nonqualified Stock Option Agreement, dated as of December
               10, 1995, between the Company and William M. Sullivan
 %%10.66  --   Incentive Stock Option Agreement, dated as of December 10,
               1995, between the Company and William McCulloch
 %%10.67  --   Distribution Agreement, dated as of December 1, 1995, among
               Sparta Pharmaceuticals, Inc., Orphan Europe SARL and Swedish
               Orphan, AB
 %%10.68  --   Warrant Agreement between Sparta Pharmaceuticals, Inc. and
               Paramount Capital, Inc., dated February 29, 1996
  ^10.69  --   Financial advisory agreement between the Registrant and Paramount
               Capital, Inc. dated as of February 29, 1996
^^!10.70  --   Evaluation and option agreement between Lexin Pharmaceutical
               Corporation and Astra Merck, Inc. dated as of October 25, 1995
               (Assigned to Registrant pursuant to the Lexin purchase)
^^!10.71  --   Collaborative Research and Licensing Agreement between Lexin
               Pharmaceutical Corporation and Wichita State University dated as
               of April 1, 1994 (Assigned to Registrant pursuant to the Lexin
               purchase)
^^!10.72  --   License Agreement between PI Research Corporation (predecessor
               in name to Lexin Pharmaceutical Corporation) and the Trustees of
               The University of Pennsylvania dated as of January 2, 1992
               (Assigned to Registrant pursuant to the Lexin purchase)
  ^10.73  --   Amendment (dated March 15, 1996) to the Employment Agreement
               dated January 28, 1991, between the Registrant and William M.
               Sullivan, as amended by letter agreements, dated as of March 2,
               1993 and December 16, 1994, between the parties
  ^10.74  --   Placement Agency Agreement between the Registrant and
               Paramount Capital, Inc., dated as of January 22, 1996
  @10.75  --   Placement Agency Agreement between the Registrant and Paramount
               Capital, Inc., dated as of June 3, 1996
  @10.76  --   Amendment (dated January 10, 1996) to the Stock Option
               Agreements between the Registrant and William McCulloch dated as
               of October 1, 1992, December 1, 1996, December 16, 1994 and
               December 11, 1995
  @10.77  --   Amendment (dated March 29, 1996) to the Collaborative Research
               and Licensing Agreement between Lexin Pharmaceutical Corporation
               and Wichita State University dated as of April 1, 1994 (Assigned
               to Registrant pursuant to the Lexin purchase)
   10.79  --   Promissory Note dated August 23, 1996, in the amount of $100,000
               from Jerry B. Hook Ph.D. to the Company.
   10.80  --   Promissory Note dated August 23, 1996, in the amount of $50,000
               from Dr. William McCulloch to the Company.
   10.81  --   Promissory Note dated August 23, 1996, in the amount of $50,000
               from Ronald H. Spair to the Company.
%%%%16.1   --   Letter re changes in certifying accountants 
   23.1   --   Consent of Roberts, Sheridan & Kotel a professional Corporation
               (reference is made to Exhibit 5.1)
   23.2   --   Consent of Ernst & Young, LLP 
   23.3   --   Consent of Arthur Anderson, LLP


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












                                      II-5.

<PAGE>

*         Previously filed with the Company's Registration Statement on Form
          S-l, Registration Number 33-72882, filed on December 14, 1993, or
          amendments thereto, and are incorporated by reference herein.
**        Previously filed with the Company's Registration Statement on Form
          S-l, Registration Number 33-78086, filed on April 25, 1994, or in
          Amendment No. 1 thereto, filed on June 1, 1994.
***       Previously filed with the Company's Quarterly Report on Form 10-Q
          for the quarterly period ended June 30, 1994, filed on August 15,
          1994 and are incorporated by reference herein.
#         Previously filed with the Company's 1994 Annual Report on Form 10-
          K, filed on March 31, 1995, and are incorporated by reference
          herein.
##        Previously filed with the Company's Quarterly Report on form 10-Q
          for the quarterly period ended June 30, 1995, filed on August 14,
          1995.
###       Previously filed with the Company's Amendment No. 1 to the
          Quarterly Report on Form 10-Q for the quarterly period ended
          September 30, 1995, filed on January 24, 1996.
%         Previously filed with the Company's Quarterly Report on Form 10-Q
          for the quarterly period ended September 30, 1995, filed on
          November 14, 1995.
%%        Previously filed with the Company's 1995 Annual Report on Form 10-
          K, filed on April 1, 1996, and are incorporated by reference
          herein.
%%%       Previously filed with the Company's report on Form 8-K filed on
          April 1, 1996, and is incorporated by reference herein.
%%%%      Previously filed with the Company's report on Form 8-K filed on 
          September 26, 1996 and is incorporated by reference herein.
%%%%%     Previously filed with the Company's report on Form 8-K filed on
          September 26, 1996, and is incorporated by reference herein.
+         Confidential Treatment has been granted by the Securities and
          Exchange Commission.
!         Confidential Treatment has been requested from the Securities and 
          Exchange Commission.
^         Previously filed with the Company's Quarterly Report on Form 10-Q 
          for the quarterly period ended March 31, 1996, filed on 
          May 15, 1996.
^^        Previously filed with the Company's Quarterly Report on 
          Form 10-Q/A for the quarterly period ended March 31, 1996, filed 
          on July 17, 1996.
@         Previously filed with the Company's Quarterly Report on Form 10-Q 
          for the quarterly period ended June 30, 1996, filed on 
          August 9, 1996

     (b)  Financial Statement Schedules



    Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.






                                      II-6.


<PAGE>
ITEM 17.  UNDERTAKINGS


     The Company hereby undertakes that it will:

     (1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

     (i)  Include any prospectus required by section 10(a)(3) of the Securities
Act;

     (ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and 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 end 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 the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

     (iii) Include any additional or changed material information on the plan of
distribution.

     (2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

     (3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the By-Laws of the Company, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company 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 hereunder, the Company 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 of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

     The Company hereby undertakes that it will:

     (1) For determining any liability under the Securities Act, treat 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 Company pursuant to Rule 424(b)(1), or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.

     (2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of such securities at that time as the initial bona fide
offering of those securities.

     The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each liability under
the Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 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 Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.




                                      II-7.







<PAGE>
     The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulations S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.






                                      II-8.






<PAGE>
                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Horsham, in the state of Pennsylvania, on this 16th day of October, 1996.

                     SPARTA PHARMACEUTICALS, INC.

                     By:  /s/ Jerry B. Hook, Ph.D.
                         -------------------------------------
                         Jerry B. Hook, Ph.D.
                         President and Chief Executive Officer

                                POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Jerry B. Hook,
Ph.D., his attorneys-in-fact, with the power of substitution, for him in any and
all capacities, to sign any and all amendments to this Registration Statement
(including post effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

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

 Signature                       Title                        Date
 ---------                       -----                        ----
                                                              
 /s/ William M. Sullivan         Chairman of the Board,       October 16, 1996
- -----------------------------                                 
 (William M. Sullivan)           Director                     
                                                              
 /s/ Jerry B. Hook, Ph.D.        President, Chief Executive   October 16, 1996
- -----------------------------                                 
 (Jerry B. Hook, Ph.D.)          Officer (principal executive 
                                 officer), Director           
                                                              
                                                              
 /s/ William McCulloch, MB       Senior Vice President,       October 16, 1996
- -----------------------------                                 
 (William McCulloch, MB,         Research and Development     
  Ch.B, F.R.C.P. (Glasg.)                                     
                                                              
                                                              
 /s/ Ronald H. Spair             Vice President and Chief     October 16, 1996
- -----------------------------                                 
    (Ronald H. Spair)            Financial Officer            
                                 (principal financial and     
                                 accounting officer)          
                                                              
 /s/ Lindsay A. Rosenwald, M.D.  Director                     October 16. 1996
- -----------------------------                                 
 (Lindsay A. Rosenwald, M.D.)                                 
                                                              
 /s/ Peter Barton Hutt           Director                     October 16, 1996
- -----------------------------                                 
   (Peter Barton Hutt)                                        
                                                              
 /s/ Professor Sir John Vane     Director                     October 16, 1996
- -----------------------------                                 
   (Professor Sir John Vane)                                  
                                                              
                                                              
 /s/ Richard L. Sherman          Director                     October 16, 1996
- -----------------------------                                 
  (Richard L. Sherman)                                        
                                                              
 /s/ Colin B. Bier               Director                     October 16, 1996
- -----------------------------    
     (Colin B. Bier)             
                                                     


By: /s/ Jerry B. Hook, Ph.D.
    -------------------------
        Attorney in fact
       





                                        II-9.
<PAGE>

                                  Exhibit Index
         (A)  EXHIBITS
<TABLE><CAPTION>
                                                                                     PAGE
EXHIBIT NO.        DESCRIPTION                                                       NUMBER
- -----------        -----------                                                       ------
<C>            <S>
%%% 2.1   --   Copy of the Asset Purchase Agreement, with exhibits thereto,
               dated February 22, 1996, between the Registrant 
               and Lexin Pharmaceutical Corporation
%%% 3.4   --   Amended and Restated Certificate of Incorporation filed
               August 1, 1996.
%%%%%3.4A  --   Certificate of Designation of the series B' Convertible
               Preferred Stock filed on August 23, 1996.
  **4.2   --   Form of Common Stock Certificate
  **4.3   --   Form of Class A Warrant Certificate
  **4.4   --   Form of Class B Warrant Certificate
 ***4.5   --   Unit Purchase Option granted to Americorp Securities Inc. dated
               June 28, 1994
 ***4.6   --   Warrant Agreement entered into among Midlantic National Bank,
               Americorp Securities, Inc., and the Registrant dated June 21,
               1994
    4.7   --   Warrant Agreement for the Class C Warrants, dated August 23,
               between the Company, the Warrant Agent and Paramount Capital,
               Inc.
    4.8   --   Form of Class C Warrant Certificate (See Exhibit 4.7)
    5.1   --   Legal Opinion of Roberts, Sheridan & Kotel, a Professional
               Corporation
 *+10.1   --   Exclusive License Agreement, dated October 1, 1991, between
               the Registrant and Yale University ("Yale") and Subscription
               Agreement, dated October 21, 1991, between the Registrant and
               Yale
 *+10.1A  --   Revised pages of Exhibit 10.1
 *+10.2   --   License Agreement, dated October 7, 1991, between the Registrant
               and The Research Foundation of State University of New York
 *+10.2A  --   Revised pages of Exhibit 10.2
 *+10.3   --   Research and License Agreement, dated as of October 15, 1991,
               between the Registrant and Institute of Materia Medica of the
               Chinese Academy of Medical Sciences ("BIMM"), as amended by an
               Amendment of Research and License Agreement, dated as of March 1,
               1992, between the Registrant and BIMM
 *+10.3A  --   Revised pages of Exhibit 10.3
 *+10.4   --   Licensing and First Refusal Agreement, dated as of March 12,
               1992, between the Registrant and the Dana-Farber Cancer
               Institute, Inc. ("Dana-Farber"), a Letter Agreement, dated March
               12, 1992, between the Registrant and Dana-Farber, and a Letter
               Agreement, dated September 12, 1992, between the Registrant and
               Dana-Farber
 *+10.4A  --   Revised pages of Exhibit 10.4
 *+10.5   --   License Agreement, dated as of August 31, 1992, between the
               Registrant and Imperial Chemical Industries PLC
 *+10.5A  --   Revised pages of Exhibit 10.5
  *10.6   --   Letter Agreement, dated October 30, 1992, among the
               Registrant, Imperial Chemical Industries PLC, and ICI Bioscience
               Limited
 *+10.7   --   Collaboration and Option Agreement, dated September 18, 1992, by
               and among the Registrant, Cancer Research Campaign and Cancer
               Research Campaign Technology Limited
 *+10.7A  --   Revised pages of Exhibit 10.7
 *+10.8   --   Sublicense Agreement, dated July 13, 1992, between the
               Registrant and Research Triangle Pharmaceuticals Ltd. ("RTP"), as
               amended by a Letter Agreement, dated October 27, 1992, between
               the Registrant and RTP and by a Second Amendment to Sublicense
               Agreement, dated March 19, 1993, between the Registrant and RTP
 *+10.8A  --   Revised pages of Exhibit 10.8
 *+10.9   --   Service Agreement, dated November 27, 1991, between the
               Registrant and Cato Research, Ltd. ("Cato"), as amended by a
               Letter Agreement, dated March 16, 1993, between the Registrant
               and Cato
  *10.9A  --   Revised pages of Exhibit 10.9
  *10.10  --   Letter Agreement, dated October 28, 1991, between the Registrant
               and Cato
  *10.11  --   Subscription Agreement, dated November 27, 1991, between the
               Registrant and Cato Holding Co
  *10.12  --   Subscription Agreement, dated December 10, 1993, between the
               Registrant and Cato Holding Co.
</TABLE>














<PAGE>
<TABLE><CAPTION>
                                                                                     PAGE
EXHIBIT NO.        DESCRIPTION                                                       NUMBER
- -----------        -----------                                                       ------
<C>            <S>

  *10.13  --   Employment Agreement, dated as of January 28, 1991, between the
               Registrant and William M. Sullivan, as amended by a Letter
               Agreement, dated as of March 2, 1993, between the parties
  *10.14  --   Nonqualified Stock Option Agreement, dated as of December 3,
               1991, between the Registrant and William M. Sullivan
  *10.15  --   Confidentiality Agreement, dated as of January 28, 1991, between
               the Registrant and William M. Sullivan
  *10.16  --   Employment Agreement, dated July 2, 1992, between the
               Registrant and William McCulloch, as amended by a Letter
               Agreement, dated as of March 2, 1993, between the parties, and
               Guarantee by The Castle Group Ltd.
  *10.17- --   Incentive Stock Option Agreement, dated as of October 1,
               1992, between the Registrant and William McCulloch
  *10.18- --   Nonqualified Stock Option Agreement, dated as of October
               1, 1992, between the Registrant and William McCulloch
  *10.19- --   Nonqualified Stock Option Agreement, dated as of October
               1, 1992, between the Registrant and William McCulloch
  *10.20- --   Confidentiality Agreement, dated as of July 2, 1992, between
               the Registrant and William McCulloch
  *10.21- --   Noncompetition Agreement, dated as of October 1, 1992,
               between the Registrant and William McCulloch
  *10.22- --   Employment Agreement, dated September 10, 1992, between the
               Registrant and Richard N. Scott, as amended by a Letter
               Agreement, dated as of March 2, 1993, between the parties,
               and Guarantee by The Castle Group Ltd.
  *10.23- --   Incentive Stock Option Agreement, dated as of September 10,
               1992, between the Registrant and Richard N. Scott
  *10.24- --   Nonqualified Stock Option Agreement, dated as of September
               10, 1992, between the Registrant and Richard N. Scott
  *10.25- --   Confidentiality Agreement, dated as of September 10, 1992,
               between the Registrant and Richard N. Scott
  *10.26- --   Confidentiality Agreement, dated as of September 10, 1992,
               between the Registrant and John S. McBride
  *10.27  --   Letter Agreement, dated March 23, 1993, between the Registrant
               and Paramount Capital, Inc., as amended by Letter Agreements
               dated June 24, 1993, June 28, 1993, September 24, 1993 and
               November 5, 1993
  *10.28- --   Indemnification Agreement, dated as of June 3, 1992, between
               the Registrant and The Castle Group Ltd. relative to William
               McCulloch
  *10.29- --   Indemnification Agreement, dated as of September 15, 1992,
               between the Registrant and The Castle Group Ltd. relative to
               Richard N. Scott
  *10.30  --   1991 Stock Plan, as amended
  *10.31  --   Stock Repurchase Agreement, dated as of November 21, 1991,
               between the Registrant and Peter Barton Hutt
  *10.32  --   Stock Repurchase Agreement, dated as of October 25, 1991, between
               the Registrant and Charles O. O'Brien
  *10.33  --   Stock Repurchase Agreement, dated as of October 15, 1991, between
               the Registrant and Sir John Vane
  *10.34  --   Stock Repurchase Agreement, dated as of December 24, 1991,
               between the Registrant and The Sir John Vane Trust
  *10.35  --   Stock Repurchase Agreement, dated as of October 5, 1993, between
               the Registrant and Richard N. Scott and related Assignment of
               even date between the parties
  *10.36  --   Form of convertible notes issued on or prior to October 28, 1993
               and schedule of purchasers of notes
  *10.37  --   Form of Note Purchase and Subscription Agreement for issuance
               of convertible notes issued prior to October 28, 1993 and
               schedule of purchasers of notes
  *10.38  --   Form of convertible notes issued in November 1993 and schedule of
               purchasers of notes
</TABLE>














<PAGE>
<TABLE><CAPTION>
                                                                                     PAGE
EXHIBIT NO.        DESCRIPTION                                                       NUMBER
- -----------        -----------                                                       ------
<C>            <S>

  *10.39  --   Note Purchase and Subscription Agreement dated as of November
               12, 1993 between the Registrant and Financial Strategic
               Portfolios, Inc. -- Health Sciences Portfolio ("FSP") for
               issuance of convertible notes (See Exhibit 10.38 hereunder for
               Exhibit A to this Exhibit 10.39)
  *10.40  --   Form of Note Purchase and Subscription Agreement for issuance of
               convertible notes issued in November 1993 other than to FSP
  *10.41  --   Form of Note Purchase and Exchange Agreement for exchange of
               convertible notes, form of convertible notes and schedule of
               parties thereto
  *10.41A --   Revised schedule of parties to Exhibit 10.41
  *10.42  --   Stock Purchase and Exchange Agreement, dated as of December 10,
               1993, between the Registrant and FBL Ventures of South Dakota
  *10.43  --   Registration Rights Agreement, dated November 12, 1993, among the
               Registrant and certain rights holders, as amended as of December
               14, 1993
  *10.44  --   Subscription Agreement dated September 14, 1992 and Letter
               Agreements dated October 12, 1992 and December 13, 1993, between
               the Registrant and Yale University
  *10.44A --   Letter Agreement dated January 4, 1994
  *10.45  --   Noncompetition Agreement, dated as of September 10, 1992, between
               the Registrant and Richard N. Scott
***10.46  --   M/A Agreement between the Registrant and Americorp Securities,
               Inc. dated June 28, 1994
 **10.47- --   Form of Warrant Purchase Agreement among the Registrant;
               Healthcare Capital Investments, Inc. and Societe Generale
               Securities Corporation; and the Holders listed on Schedule I
               thereto
 **10.48- --   Form of Warrant Purchase Agreement among the Registrant,
               Paramount Capital, Inc. and the Holders listed on Schedule I
               thereto
***10.49  --   Underwriting Agreement between the Registrant and Americorp
               Securities, Inc. dated June 21, 1994
***10.50  --   Unit Purchase Option granted to LT Lawrence & Company, Inc. dated
               June 28, 1994
  #10.51  --   Nonqualified Stock Option Agreement, dated as of December 16,
               1994, between the Registrant and William M. Sullivan
  #10.52  --   Nonqualified Stock Option Agreement, dated as of July 10, 1994,
               between the Registrant and Sir John Vane, FSR
  #10.53  --   Nonqualified Stock Option Agreement, dated as of July 10, 1994,
               between the Registrant and Charles O. O'Brien
  #10.54  --   Nonqualified Stock Option Agreement, dated as of July 10, 1994,
               between the Registrant and Peter Barton Hutt
  #10.55  --   Incentive Stock Option Agreement, dated as of December 16, 1994,
               between the Registrant and William McCulloch
  #10.56  --   Amendment (as of March 14, 1994) to the Employment Agreement,
               dated July 2, 1992, between the Registrant and William McCulloch,
               as amended by a Letter Agreement, dated as of March 2, 1993,
               between the parties, and Guaranteed by The Castle Group Ltd.
  #10.57  --   Amendment (dated November 26, 1994) to the Service Agreement,
               dated November 27, 1991, between the Registrant and Cato Holding
               Co.
  #10.58  --   Amendment (dated December 16, 1994) to the Employment
               Agreement, dated January 28, 1991, between the Registrant and
               William M. Sullivan, as amended by a Letter Agreement, dated as
               of March 2, 1993, between the parties
 ##10.59  --   Nonqualified Stock Option Agreement, dated as of June 7, 1995,
               between the Registrant and Sir John Vane, FSR
 ##10.60  --   Nonqualified Stock Option Agreement, dated as of June 7, 1995,
               between the Registrant and Charles O. O'Brien
 ##10.61  --   Nonqualified Stock Option Agreement, dated as of June 7, 1995,
               between the Registrant and Peter Barton Hutt
 ##10.62  --   Amendment (dated June 1, 1995) to the Research and License
               Agreement, dated as of October 15, 1991, between the Registrant
               and Institute of Materia Medica of the Chinese Academy of Medical
               Sciences ("BIMM"), as amended by an Amendment of Research and
               License Agreement, dated as of March 1, 1992, between the
               Registrant and BIMM
</TABLE>















<PAGE>
<TABLE><CAPTION>
                                                                                     PAGE
EXHIBIT NO.        DESCRIPTION                                                       NUMBER
- -----------        -----------                                                       ------
<C>            <S>

  ^10.63  --   Financial Advisory Agreement between the Registrant and Americorp
               Securities, Inc., dated as of June 29, 1995
  %10.64  --   Amendment (dated as of September 14, 1994) to the
               Collaboration and Option Agreement, dated September 18, 1992, by
               and among the Registrant, Cancer Research Campaign and Cancer
               Research Campaign Technology Limited
 %%10.65  --   Form of Nonqualified Stock Option Agreement, dated as of December
               10, 1995, between the Company and William M. Sullivan
 %%10.66  --   Incentive Stock Option Agreement, dated as of December 10,
               1995, between the Company and William McCulloch
 %%10.67  --   Distribution Agreement, dated as of December 1, 1995, among
               Sparta Pharmaceuticals, Inc., Orphan Europe SARL and Swedish
               Orphan, AB
 %%10.68  --   Warrant Agreement between Sparta Pharmaceuticals, Inc. and
               Paramount Capital, Inc., dated February 29, 1996
  ^10.69  --   Financial advisory agreement between the Registrant and Paramount
               Capital, Inc. dated as of February 29, 1996
^^!10.70  --   Evaluation and option agreement between Lexin Pharmaceutical
               Corporation and Astra Merck, Inc. dated as of October 25, 1995
               (Assigned to Registrant pursuant to the Lexin purchase)
^^!10.71  --   Collaborative Research and Licensing Agreement between Lexin
               Pharmaceutical Corporation and Wichita State University dated as
               of April 1, 1994 (Assigned to Registrant pursuant to the Lexin
               purchase)
^^!10.72  --   License Agreement between PI Research Corporation (predecessor
               in name to Lexin Pharmaceutical Corporation) and the Trustees of
               The University of Pennsylvania dated as of January 2, 1992
               (Assigned to Registrant pursuant to the Lexin purchase)
  ^10.73  --   Amendment (dated March 15, 1996) to the Employment Agreement
               dated January 28, 1991, between the Registrant and William M.
               Sullivan, as amended by letter agreements, dated as of March 2,
               1993 and December 16, 1994, between the parties
  ^10.74  --   Placement Agency Agreement between the Registrant and
               Paramount Capital, Inc., dated as of January 22, 1996
  @10.75  --   Placement Agency Agreement between the Registrant and Paramount
               Capital, Inc., dated as of June 3, 1996
  @10.76  --   Amendment (dated January 10, 1996) to the Stock Option
               Agreements between the Registrant and William McCulloch dated as
               of October 1, 1992, December 1, 1996, December 16, 1994 and
               December 11, 1995
  @10.77  --   Amendment (dated March 29, 1996) to the Collaborative Research
               and Licensing Agreement between Lexin Pharmaceutical Corporation
               and Wichita State University dated as of April 1, 1994 (Assigned
               to Registrant pursuant to the Lexin purchase)
   10.79  --   Promissory Note dated August 23, 1996, in the amount of $100,000
               from Jerry B. Hook Ph.D. to the Company.
   10.80  --   Promissory Note dated August 23, 1996, in the amount of $50,000
               from Dr. William McCulloch to the Company.
   10.81  --   Promissory Note dated August 23, 1996, in the amount of $50,000
               from Ronald H. Spair to the Company.
%%%%16.1   --   Letter re changes in certifying accountants 
   23.1   --   Consent of Roberts, Sheridan & Kotel a professional Corporation
               (reference is made to Exhibit 5.1)
   23.2   --   Consent of Ernst & Young, LLP 
   23.3   --   Consent of Arthur Anderson, LLP
</TABLE>


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













<PAGE>
<TABLE><CAPTION>
                                                                                     PAGE
EXHIBIT NO.        DESCRIPTION                                                       NUMBER
- -----------        -----------                                                       ------
<C>       <S>

*         Previously filed with the Company's Registration Statement on Form
          S-l, Registration Number 33-72882, filed on December 14, 1993, or
          amendments thereto, and are incorporated by reference herein.
**        Previously filed with the Company's Registration Statement on Form
          S-l, Registration Number 33-78086, filed on April 25, 1994, or in
          Amendment No. 1 thereto, filed on June 1, 1994.
***       Previously filed with the Company's Quarterly Report on Form 10-Q
          for the quarterly period ended June 30, 1994, filed on August 15,
          1994 and are incorporated by reference herein.
#         Previously filed with the Company's 1994 Annual Report on Form 10-
          K, filed on March 31, 1995, and are incorporated by reference
          herein.
##        Previously filed with the Company's Quarterly Report on form 10-Q
          for the quarterly period ended June 30, 1995, filed on August 14,
          1995.
###       Previously filed with the Company's Amendment No. 1 to the
          Quarterly Report on Form 10-Q for the quarterly period ended
          September 30, 1995, filed on January 24, 1996.
%         Previously filed with the Company's Quarterly Report on Form 10-Q
          for the quarterly period ended September 30, 1995, filed on
          November 14, 1995.
%%        Previously filed with the Company's 1995 Annual Report on Form 10-
          K, filed on April 1, 1996, and are incorporated by reference
          herein.
%%%       Previously filed with the Company's report on Form 8-K filed on
          April 1, 1996, and is incorporated by reference herein.
%%%%      Previously filed with the Company's report on Form 8-K filed on 
          September 26, 1996 and is incorporated by reference herein.
%%%%%     Previously filed with the Company's report on Form 8-K filed on
          September 26, 1996, and is incorporated by reference herein.
+         Confidential Treatment has been granted by the Securities and
          Exchange Commission.
!         Confidential Treatment has been requested from the Securities and 
          Exchange Commission.
^         Previously filed with the Company's Quarterly Report on Form 10-Q 
          for the quarterly period ended March 31, 1996, filed on 
          May 15, 1996.
^^        Previously filed with the Company's Quarterly Report on 
          Form 10-Q/A for the quarterly period ended March 31, 1996, filed 
          on July 17, 1996.
@         Previously filed with the Company's Quarterly Report on Form 10-Q 
          for the quarterly period ended June 30, 1996, filed on 
          August 9, 1996

     (b)  Financial Statement Schedules



    Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.








</TABLE>

<PAGE>


                                                                   EXHIBIT 4.7


                               WARRANT AGREEMENT

            AGREEMENT, dated as of this 23rd day of August, 1996, by and among
Sparta Pharmaceuticals, Inc., a Delaware corporation ("Company"), Midlantic
National Bank, as Warrant Agent (the "Warrant Agent"), and Paramount Capital,
Inc., a New York corporation ("Paramount").

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

            WHEREAS, in connection with a private placement of a minimum (the
"Minimum Offering") of thirty (30) units (the "Units") and a maximum (the
"Maximum Offering") of seventy-five (75) Units, with an option in favor of
Paramount to offer up to an additional seventy-five (75) Units to cover
over-allotments, each Unit consisting of (a) 10,000 shares of Series B|
Convertible Preferred Stock of the Company, par value $.001 per share, (the
"Preferred Stock"), initially convertible into shares of common stock of the
Company, par value $.001 per share (the "Common Stock"), and (b) redeemable
Class C Warrants to purchase 66,667 shares of Common Stock (the "Class C
Warrants" or the "Warrants)", pursuant to a Placement Agency Agreement dated
June 3, 1996 between the Company and Paramount; the Company may issue up to
4,500,000 Class C Warrants;

            WHEREAS, in connection with a prior private placement of Series A
Preferred Stock, $.001 par value of the Company, ("Series A Shares"), such
Series A Shares will be converted into the Units and, accordingly, the Company
may issue up to 1,200,000 additional Class C Warrants; and

            WHEREAS, each Class C Warrant entitles the Registered Holder thereof
to purchase one (1) share of Common Stock; and

            WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;

            NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:

            SECTION 1.  Definitions.  As used herein, the following terms shall 
                        -----------
have the following meanings, unless the context shall otherwise require:


                                    - 1 -


<PAGE>



            (a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof consists of 42,000,000 shares of Common
Stock, $.001 par value.

            (b) "Closing Bid Price" shall mean the reported closing bid price on
the Nasdaq SmallCap Market or the Nasdaq National Market System (collectively
referred to as, "Nasdaq") or, if the Common Stock is not quoted on Nasdaq, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading (based on the aggregate dollar value of all securities
listed or admitted to trading) or, if not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq, the closing bid price in the
over-the-counter market as furnished by any NASD member firm selected from time
to time by the Corporation for that purpose, or, if such prices are not
available, the fair market value set by, or in a manner established by, the
Board of Directors of the Company in good faith.

            (c) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located at the date hereof at 499 Thornall
Street, Box 600, Edison, New Jersey 08818.

            (d) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the subscription form thereon duly executed by
the Registered Holder thereof or his attorney duly authorized in writing, and
(b) payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.

            (e) "Initial Warrant Exercise Date" shall mean as to each Warrant
August 23, 1996.

            (f) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $1.50, subject to adjustment from time to time pursuant to the provisions of
Section 9 hereof, and subject to the Company's right to reduce the Purchase
Price upon notice to all warrantholders.

            (g) "Redemption Price" shall mean the price at which the Company
may, at its option in accordance with the terms hereof, redeem the Warrants,
which price shall be $0.10 per Warrant.

            (h) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.


                                    - 2 -


<PAGE>



            (i) "Preferred Stock" shall mean the Series B| Convertible Preferred
Stock of the Company, par value $.001 per share, which at the date hereof
consists of 3,000,000 shares.

            (j) "Transfer Agent" shall mean Midlantic National Bank, as the
Company's transfer agent, or its authorized successor, as such.

            (k) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on August 23, 2001 or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon notice
to all warrantholders the Company shall have the right to extend the warrant
expiration date.

            SECTION 2.  Warrants and Issuance of Warrant Certificates.
                        ---------------------------------------------

            (a) A Class C Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.

            (b) The Class C Warrants included in the offering of Units will be
detachable and separately transferable immediately from the shares of Preferred
Stock constituting part of such Units.

            (c) Upon execution of this Agreement, Warrant Certificates
representing the number of Class C Warrants sold pursuant to the Private
Placement shall be executed by the Company and delivered to the Warrant Agent.
Upon written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.

            (d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 12,500,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.

            (e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised


                                    - 3 -


<PAGE>



Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7
and (v) at the option of the Company, in such form as may be approved by its
Board of Directors, to reflect any adjustment or change in the Purchase Price,
the number of shares of Common Stock purchasable upon exercise of the Warrants
or the Redemption Price therefor made pursuant to Section 9 hereof or of the
Warrant Expiration Date.

            SECTION 3.  Form and Execution of Warrant Certificates.
                        ------------------------------------------

            (a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Class C Warrants may be listed, or
to conform to usage or to the requirements of Section 2. The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates shall
be numbered serially with the letter CW on Class C Warrants of all
denominations.

            (b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a) hereof.

            SECTION 4.  Exercise.
                        --------

            (a) Each Warrant may be exercised by the Registered Holder thereof
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of


                                    - 4 -


<PAGE>



business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Warrant as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date the
Warrant Agent shall deposit the proceeds received from the exercise of a Warrant
and shall notify the Company in writing of the exercise of the Warrants.
Promptly following, and in any event within five days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise, (plus a certificate for any remaining
unexercised Warrants of the Registered Holder). In the case of payment made in
the form of a check drawn on an account of Paramount or such other investment
banks and brokerage houses as the Company shall approve in writing to the
Warrant Agent, certificates shall immediately be issued without prior notice to
the Company or any delay. Upon the exercise of any Warrant and clearance of the
funds received, the Warrant Agent shall promptly remit the payment received for
the Warrant (the "Warrant Proceeds") to the Company or as the Company may direct
in writing, subject to the provisions of Sections 4(b) and 4(c) hereof.

            (b) On the Exercise Date in respect of the exercise of any Warrant,
the Warrant Agent shall, simultaneously with the distribution of the Warrant
Proceeds to the Company, on behalf of the Company, pay from the Warrant
Proceeds, a fee of 6% (the "Paramount Fee") of the Purchase Price to Paramount
for Warrant exercises solicited by Paramount or its representatives (of which a
portion may be reallowed by Paramount to the dealer who solicited the exercise,
which may also be Paramount). In the event the Paramount Fee is not received
within seven days of the date on which the Company receives Warrant Proceeds,
then the Paramount Fee shall begin accruing interest at an annual rate of prime
plus three (3)%, payable by the Company to Paramount at the time Paramount
receives the Paramount Fee. Within five days after exercise the Warrant Agent
shall send Paramount a copy of the reverse side of each Warrant exercised.
Paramount shall reimburse the Warrant Agent, upon request, for its reasonable
expenses relating to compliance with this section 4(b). In addition, Paramount
and the Company may at any time during business hours, examine the records of
the Warrant Agent, including its ledger of original Warrant Certificates
returned to the Warrant Agent upon exercise of Warrants. The provisions of this
paragraph may not be modified, amended or deleted without the prior written
consent of Paramount.

            (c) In order to enforce the provisions of Section 4(b) above, in the
event there is any dispute or question as to the amount or payment of the
Paramount Fee, the Warrant Agent is hereby expressly authorized to withhold
payment to the Company of the Warrant Proceeds unless and until the Company
establishes an escrow account for the purpose of depositing the entire amount of
the unpaid Paramount Fee, which amount will be deducted from the net Warrant
Proceeds to be paid to the Company. The funds placed in the escrow account may
not be released to the Company without a written agreement from Paramount that
the required Paramount Fee has been received by Paramount. Paramount shall
promptly notify the Warrant


                                    - 5 -


<PAGE>



Agent by facsimile and certified mail in the event of any such dispute and when
the Paramount Fee has been paid.

            SECTION 5.  Reservation of Shares; Listing; Payment of Taxes; etc.
                        -----------------------------------------------------

            (a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery (assuming full payment of the purchase
price thereof), be duly and validly issued, fully paid, nonassessable and free
from all issuance taxes, liens and charges with respect to the issue thereof
(other than those which the Company shall promptly pay or discharge) and that
upon issuance such shares, to the extent applicable, shall be listed on each
national securities exchange or eligible for inclusion on the Nasdaq National
Market or the Nasdaq SmallCap Market, on which the other shares of outstanding
Common Stock of the Company, if any, are then listed or eligible for inclusion.

            (b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws; provided, that the Company shall not be required to qualify as
a foreign corporation or file a general or limited consent to service of process
in any such jurisdictions or make any changes in its capital structure or any
other aspects of its business or enter into any agreements with blue sky
commissions, including any agreement to escrow shares of its capital stock. With
respect to any such securities, however, Warrants may not be exercised by, or
shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.

            (c) The Company shall pay all documentary, stamp or similar taxes
and other similar governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares upon exercise of
the Class C Warrants; provided, however, that if the shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.

            (d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant


                                    - 6 -


<PAGE>



Agent a statement setting forth the name and address of the Transfer Agent of
the Company for shares of Common Stock issuable upon exercise of the Warrants.

            SECTION 6.  Exchange and Registration of Transfer.
                        -------------------------------------

            (a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.

            (b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.

            (c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.

            (d) A service charge may be imposed by the Warrant Agent on holders
for any exchange or registration of transfer of Warrant Certificates of such
holders. In addition, the Company may require payment by such holder of a sum
sufficient to cover any tax or governmental or other charge that may be imposed
in connection therewith.

            (e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent in a manner
consistent with its customary practices until termination of this Agreement or
resignation as Warrant Agent, or, with the prior written consent of Paramount,
disposed of or destroyed, at the direction of the Company.

            (f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being offered in Units with shares of
Preferred Stock


                                    - 7 -


<PAGE>



pursuant to the Placement Agency Agreement, will be immediately detachable from
the Preferred Stock and transferable separately therefrom.

            SECTION 7. Loss or Mutilation. Upon receipt by the Warrant Agent of
                       ------------------
evidence satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall ( in the absence of notice to the Company and/or Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Class C
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.

            SECTION 8.  Redemption.
                        ----------

            (a) At any time after August 23, 1997, on not less than sixty (60)
days notice given to Registered Holders of the Warrants being redeemed at any
time after August 23, 1997, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $0.10 per Warrant, provided the Market Price
of the Common Stock receivable upon exercise of such Warrants shall exceed 200%
of the Purchase Price per Class C Warrant (the "Target Price"), subject to
adjustment as set forth in Section 8(f), below. Market Price for the purpose of
this Section 8 shall mean (i) the average Closing Bid Price, for twenty (20)
consecutive trading days (or such other period as Paramount may consent to),
ending with the date of the notice of redemption, which notice shall be mailed
no later than three days thereafter, of the Common Stock as reported by the
Nasdaq Stock Market. All Class C Warrants must be redeemed if any are redeemed.
The date fixed for redemption of the Warrants is referred to herein as the
"Redemption Date."

            (b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall request
Paramount to mail a notice of redemption to each of the Registered Holders of
the Warrants to be redeemed, first class, postage prepaid, not later than the
sixtieth day before the date fixed for redemption, at their last address as
shall appear on the records maintained pursuant to Section 6(b). Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.

            (c) The notice of redemption shall specify (i) the redemption price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that Paramount will assist each
Registered Holder of a Warrant and be entitled to a commission in connection
with the exercise thereof and (v) that the right to exercise the Warrant shall
terminate at 5:00 P.M. (New York time) on the business day immediately preceding
the Redemption Date. No failure to mail such notice nor any defect


                                    - 8 -


<PAGE>



therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a Registered Holder (a) to whom notice was not
mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or
of the Secretary or an Assistant Secretary of Paramount or the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.

            (d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant, the Redemption Price.

            (e) From and after the Redemption Date, the Company shall, at the
place specified in the notice of redemption, upon presentation and surrender to
the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
redemption price of each such Warrant. From and after the Redemption Date and
upon the deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and become
void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the redemption price, shall cease.

            (f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.

            SECTION 9.  Adjustment of Exercise Price and Number of Shares of 
                        ----------------------------------------------------
Common Stock or Warrants.
- ------------------------

            (a) Except as otherwise provided herein, in the event the Company
shall, at any time or from time to time after the date hereof, sell or issue any
shares of Common Stock for a consideration per share less than the Market Price
of the Common Stock (as defined in Section 8) on the date of the sale or issue,
any shares of Common Stock as a stock dividend to the holders of Common Stock,
or subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the Purchase Price in effect immediately prior to such
Change of Shares shall be changed to a price (rounded to the nearest cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the sale or issuance of such
additional shares or such subdivision or combination and the number of shares of
Common Stock which the aggregate consideration received (determined as provided
in subsection 9(f)(F) below) for the


                                    - 9 -


<PAGE>



issuance of such additional shares would purchase at the Market Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after the sale or issuance of such additional shares or such
subdivision or combination. Such adjustment shall be made successively whenever
such an issuance is made.

                  Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Class C Warrant shall (subject to the provisions contained in
Section 9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.

            (b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class C Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Class C Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of the
Company, cause to be distributed to such Holder in substitution and replacement
for the Warrant Certificates held by him prior to the date of adjustment (and
upon surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled after
such adjustment.

            (c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock other than the number thereof), or
in case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, upon the terms and
conditions specified in the Warrants and in lieu of the shares of Common Stock
immediately theretofore purchasable upon exercise of the Warrants, to purchase
the kind and number of shares of stock or other securities or property
(including cash) receivable upon


                                    - 10 -


<PAGE>



such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The Company shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Warrant Agent, the obligation to deliver to the holder of
each Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase and the other
obligations under this Agreement. The foregoing provisions shall similarly apply
to successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.

            (d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(b) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.

            (e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants pursuant to Section
9(b), the number of Warrants to which the registered holder of each Warrant
shall then be entitled, and the adjustment in Redemption Price resulting
therefrom, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to Paramount and to each registered holder of Warrants at his last address as it
shall appear on the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of such adjustment. The affidavit of an officer of the Warrant Agent or
the Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. The Warrant Agent may rely on the information in the certificate
as true and correct and has no duty or obligation to independently verify the
amounts or calculations set forth therein.


                                    - 11 -


<PAGE>



            (f) For purposes of Sections 9(a) and 9(b) hereof, the following
provisions (A) to (F) shall also be applicable:

                  (A) The number of shares of Common Stock outstanding at any
            given time shall include all shares of capital stock convertible
            into or exchangeable for Common Stock and all shares of Common Stock
            issuable upon the exercise of any convertible debt, warrants
            outstanding on the date hereof (including the Warrants) and options
            outstanding on the date hereof, and shares of Common Stock owned or
            held by or for the account of the Company and the sale or issuance
            of such treasury shares or the distribution of any such treasury
            shares shall not be considered a Change of Shares for purposes of
            said sections.

                  (B) No adjustment of the Purchase Price shall be made unless
            such adjustment would require an increase or decrease of at least
            $.10 in such price; provided that any adjustments which by reason of
            this clause (B) are not required to be made shall be carried forward
            and shall be made at the time of and together with the next
            subsequent adjustment which, together with any adjustment(s) so
            carried forward, shall require an increase or decrease of at least
            $.10 in the Purchase Price then in effect hereunder.

                  (C) In case of (1) the sale by the Company for cash (or as a
            component of a unit being sold for cash) of any rights or warrants
            to subscribe for or purchase, or any options for the purchase of,
            Common Stock or any securities convertible into or exchangeable for
            Common Stock without the payment of any further consideration other
            than cash, if any (such securities convertible, exercisable or
            exchangeable into Common Stock being herein called "Convertible
            Securities"), or (2) the issuance by the Company, without the
            receipt by the Company of any consideration therefor, of any rights
            or warrants to subscribe for or purchase, or any options for the
            purchase of, Common Stock or Convertible Securities, in each case,
            if (and only if) the consideration payable to the Company upon the
            exercise of such rights, warrants or options shall consist of cash,
            whether or not such rights, warrants or options, or the right to
            convert or exchange such Convertible Securities, are immediately
            exercisable, and the price per share for which Common Stock is
            issuable upon the exercise of such rights, warrants or options or
            upon the conversion or exchange of such Convertible Securities
            (determined by dividing (x) the minimum aggregate consideration, as
            set forth in the instrument relating thereto without regard to any
            antidilution or similar provisions contained therein for a
            subsequent adjustment of such amount, payable to the Company upon
            the exercise of such rights, warrants or options, plus the
            consideration received by the Company for the issuance or sale of
            such rights, warrants or options, plus, in the case of such
            Convertible Securities, the minimum aggregate amount, as set forth
            in the instrument relating thereto without regard to any
            antidilution or similar provisions contained therein for a
            subsequent


                                    - 12 -


<PAGE>



            adjustment of such amount, of additional consideration, if any,
            other than such Convertible Securities, payable upon the conversion
            or exchange thereof, by (y) the total maximum number, as set forth
            in the instrument relating thereto without regard to any
            antidilution or similar provisions contained therein for a
            subsequent adjustment of such amount, of shares of Common Stock
            issuable upon the exercise of such rights, warrants or options or
            upon the conversion or exchange of such Convertible Securities
            issuable upon the exercise of such rights, warrants or options) is
            less than the Market Price of the Common Stock on the date of the
            issuance or sale of such rights, warrants or options, then such
            total maximum number of shares of Common Stock issuable upon the
            exercise of such rights, warrants or options or upon the conversion
            or exchange of such Convertible Securities (as of the date of the
            issuance or sale of such rights, warrants or options) shall be
            deemed to be outstanding shares of Common Stock for purposes of
            Sections 9(a) and 9(b) hereof and shall be deemed to have been sold
            for cash in an amount equal to such price per share and shall cause
            an adjustment to be made in accordance with Sections 9(a) and 9(b).

                  (D) In case of the sale by the Company for cash of any
            Convertible Securities, whether or not the right of conversion or
            exchange thereunder is immediately exercisable, and the price per
            share for which Common Stock is issuable upon the conversion or
            exchange of such Convertible Securities (determined by dividing (x)
            the total amount of consideration received by the Company for the
            sale of such Convertible Securities, plus the minimum aggregate
            amount, as set forth in the instrument relating thereto without
            regard to any antidilution or similar provisions contained therein
            for a subsequent adjustment of such amount, of additional
            consideration, if any, other than such Convertible Securities,
            payable upon the conversion or exchange thereof, by (y) the total
            maximum number, as set forth in the instrument relating thereto
            without regard to any antidilution or similar provisions contained
            therein for a subsequent adjustment of such amount, of shares of
            Common Stock issuable upon the conversion or exchange of such
            Convertible Securities) is less than the Market Price of the Common
            Stock on the date of the sale of such Convertible Securities, then
            such total maximum number of shares of Common Stock issuable upon
            the conversion or exchange of such Convertible Securities (as of the
            date of the sale of such Convertible Securities) shall be deemed to
            be outstanding shares of Common Stock for purposes of Sections 9(a)
            and 9(b) hereof and shall be deemed to have been sold for cash in an
            amount equal to such price per share and shall cause an adjustment
            to be made in accordance with Sections 9(a) and 9(b).

                  (E) In case the Company shall modify the rights of conversion,
            exchange or exercise of any of the securities referred to in (C)
            above or any other securities of the Company convertible,
            exchangeable or exercisable for shares of Common Stock, for any
            reason other than an event that would require adjustment


                                    - 13 -


<PAGE>



            to prevent dilution, so that the consideration per share received by
            the Company after such modification is less than the Market Price on
            the date prior to such modification, then such securities, to the
            extent not theretofore exercised, converted or exchanged, shall be
            deemed to have expired or terminated immediately prior to the date
            of such modification and the Company shall be deemed for purposes of
            calculating any adjustments pursuant to this Section 9 to have
            issued such new securities upon such new terms on the date of
            modification. Such adjustment shall become effective as of the date
            upon which such modification shall take effect. On the expiration or
            cancellation of any such right, warrant or option or the termination
            or cancellation of any such right to convert or exchange any such
            Convertible Securities, the Purchase Price then in effect hereunder
            shall forthwith be readjusted to such Purchase Price as would have
            obtained (a) had the adjustments made upon the issuance or sale of
            such rights, warrants, options or Convertible Securities been made
            upon the basis of the issuance of only the number of shares of
            Common Stock theretofore actually delivered (and the total
            consideration received therefor) upon the exercise of such rights,
            warrants or options or upon the conversion or exchange of such
            Convertible Securities and (b) had adjustments been made on the
            basis of the Purchase Price as adjusted under clause (a) for all
            transactions (which would have affected such adjusted Purchase
            Price) made after the issuance or sale of such rights, warrants,
            options or Convertible Securities.

                  (F) In case of the sale for cash of any shares of Common
            Stock, any Convertible Securities, any rights or warrants to
            subscribe for or purchase, or any options for the purchase of,
            Common Stock or Convertible Securities, the consideration received
            by the Company therefor shall be deemed to be (i) the gross sales
            price therefor without deducting therefrom any expense paid or
            incurred by the Company or any underwriting discounts or commissions
            or concessions paid or allowed by the Company in connection
            therewith and (ii) in the event such shares are issued or sold in
            connection with a license agreement to a non-affiliated third party,
            shall be deemed to also include any up-front license fees paid to
            the Company simultaneously with the sale or issuance of such shares.
            In the event that any securities shall be issued in connection with
            any other securities of the Company, together comprising one
            integral transaction in which no specific consideration is allocated
            among the securities, then each of such securities shall be deemed
            to have been issued for such consideration as the Board of Directors
            of the Company determines in good faith; provided, however that if
            Paramount disagrees with such determination, the Company shall
            retain an independent investment banking firm for the purpose of
            obtaining an appraisal.

            (g) Notwithstanding any other provision hereof, no adjustment to the
Purchase Price of the Warrants or to the number of shares of Common Stock
purchasable upon the exercise of each Warrant will be made, however,


                                    - 14 -


<PAGE>



                  (i) upon the exercise of any of the options presently
            outstanding under the Company's 1991 Stock Plan (the "Plan") for
            officers, directors, employees, consultants, scientific advisory
            board members and certain other key personnel of the Company; or

                  (ii) upon the issuance or exercise of any other securities
            including, without limitation, options and rights to purchase Common
            Stock, which may hereafter be granted or exercised under the Plan or
            under any other employee benefit plan of the Company to officers,
            directors, employees, consultants, scientific advisory board members
            and certain other key personnel; or

                  (iii) upon the sale of any shares of Common Stock, warrants to
            purchase Common Stock or Convertible Securities in a firm commitment
            underwritten public offering, including, without limitation, shares
            sold upon the exercise of any overallotment option granted to the
            underwriters in connection with such offering; or

                  (iv) upon the issuance or sale of Common Stock or Convertible
            Securities pursuant to the exercise of any rights, options or
            warrants to receive, subscribe for or purchase, or any options for
            the purchase of, Common Stock or Convertible Securities, whether or
            not such rights, warrants or options were outstanding on the date of
            the original sale of the Warrants or were thereafter issued or sold,
            provided that an adjustment was either made or not required to be
            made in accordance with Sections 9(a) and 9(b) in connection with
            the issuance or sale of such securities; or

                  (v) upon the issuance or sale of Common Stock upon conversion
            or exchange of any Convertible Securities, provided that any
            adjustments required to be made upon the issuance or sale of such
            Convertible Securities were so made, and whether or not such
            Convertible Securities were outstanding on the date of the original
            sale of the Warrants or were thereafter issued or sold; or

                  (vi) upon the issuance of any securities in connection with
            existing or future license agreements, joint venture agreements,
            corporate partnering agreements, research and development agreements
            and other agreements for the development, production, manufacturing,
            marketing or sale of technologies, compounds or other intellectual
            property with non-affiliated third parties, the terms of which have
            been agreed upon on an arms-length basis.

            (h) As used in this Section 9, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the original
issue of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to


                                    - 15 -


<PAGE>



participate in dividends and in the distribution of assets upon the voluntary
liquidation, dissolution or winding up of the Company; provided, however, that
the shares issuable upon exercise of the Warrants shall include only shares of
such class designated in the Company's Certificate of Incorporation as Common
Stock on the date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.

            (i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.

            (j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company may at its option elect to concurrently therewith grant to
each Registered Holder as of the record date for such transaction of the
Warrants then outstanding, the rights, warrants or options to which each
Registered Holder would have been entitled if, on the record date used to
determine the stockholders entitled to the rights, warrants or options being
granted by the Company, the Registered Holder were the holder of record of the
number of whole shares of Common Stock then issuable upon exercise of his
Warrants. If the Company shall so elect under this Section 9(j), then such grant
by the Company to the holders of the Warrants shall be in lieu of any adjustment
which otherwise might be called for pursuant to this Section 9.

            SECTION 10.  Fractional Warrants and Fractional Shares.
                         -----------------------------------------

            (a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:

                  (1) If the Common Stock is listed on a National Securities
            Exchange or admitted to unlisted trading privileges on such exchange
            or listed for trading on the Nasdaq National Market, the current
            market value shall be the last reported sale price of the Common
            Stock on such exchange or market on the last business day prior to
            the date of exercise of this Warrant or if no such sale is made on
            such


                                    - 16 -


<PAGE>



            day, the average of the closing bid and asked prices for such day 
            on such exchange or market; or

                  (2) If the Common Stock is not listed or admitted to unlisted
            trading privileges, the current market value shall be the mean of
            the last reported bid and asked prices reported by the Nasdaq Small
            Cap Market or, if not traded thereon, by the National Quotation
            Bureau, Inc. on the last business day prior to the date of the
            exercise of this Warrant; or

                  (3) If the Common Stock is not so listed or admitted to
            unlisted trading privileges and bid and asked prices are not so
            reported, the current market value shall be an amount determined in
            such reasonable manner as may be prescribed by the Board of
            Directors of the Company.

            SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
                        ---------------------------------------
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.

            SECTION 12. Rights of Action. All rights of action with respect to
                        ----------------
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.

            SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant,
                        ----------------------------
by his acceptance thereof, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:

            (a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
in its sole discretion, together with payment of any applicable transfer taxes;
and


                                    - 17 -


<PAGE>



            (b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.

            SECTION 14. Cancellation of Warrant Certificates. If the Company
                        ------------------------------------
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same, by redemption or otherwise, shall
thereupon be delivered to the Warrant Agent and cancelled by it and retired. The
Warrant Agent shall also cancel the Warrant Certificate or Warrant Certificates
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, splitup, combination or exchange.

            SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
                        ----------------------------
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.

            The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.

            The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.

            Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, or any Vice President and its Secretary,
or Assistant Secretary, (unless other evidence


                                    - 18 -


<PAGE>



in respect thereof is herein specifically prescribed). The Warrant Agent shall
not be liable for any action taken, suffered or omitted by it in accordance with
such notice, statement, instruction, request, direction, order or demand
believed by it to be genuine.

            The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder as governed by a separate agreement to be entered into between the
Warrant Agent and the Company; it further agrees to indemnify the Warrant Agent
and save it harmless against any and all losses, expenses and liabilities,
including judgments, costs and reasonable counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers hereunder
except losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence or wilful misconduct.

            The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.

            Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant


                                    - 19 -


<PAGE>



agent shall promptly cause notice of its succession as warrant agent to be
mailed to the Company and to the Registered Holder of each Warrant Certificate.

            The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.

            SECTION 16. Modification of Agreement. Subject to the provisions of
                        -------------------------
Section 4(b), the parties hereto and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; (ii) to reflect an
increase in the number of Class C Warrants which are to be governed by this
Agreement resulting from a subsequent public offering of Company securities
which includes Class C Warrants having the same terms and conditions as the
Class C Warrants, originally covered by or subsequently added to this Agreement
under this Section 16; or (iii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of the Warrants then outstanding; and provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are specifically prescribed by this Agreement as originally executed
or are made in compliance with applicable law.

            SECTION 17. Notices. All notices, requests, consents and other
                        -------
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at Pennsylvania Business Campus, Rock Plaza III, 111
Rock Road, Horsham, PA 19044-2310, Attention: Jerry B. Hook, Ph.D., President or
at such other address as may have been furnished to the Warrant Agent in writing
by the Company; if to the Warrant Agent, at its Corporate Office; if to
Paramount, at Paramount Capital Inc., 375 Park Avenue, Suite 1501, New York, New
York 10023, Attention: Michael S. Weiss.

            SECTION 18.  Governing Law.  This Agreement shall be governed by and
                         -------------
construed in accordance with the laws of the State of New York, without 
reference to principles of conflict of laws.


                                    - 20 -


<PAGE>



            SECTION 19. Binding Effect. This Agreement shall be binding upon and
                        --------------
inure to the benefit of the Company, Paramount, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.

            SECTION 20. Termination. This Agreement shall terminate at the close
                        -----------
of business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.

            SECTION 21.  Counterparts.  This Agreement may be executed in 
                         ------------
several counterparts, which taken together shall constitute a single document.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.


                                    SPARTA PHARMACEUTICALS, INC.


                                    By:   _______________________________
                                         Authorized Officer



                                    MIDLANTIC NATIONAL BANK


                                    By:  _____________________________________
                                         Authorized Officer


                                    PARAMOUNT CAPITAL, INC.


                                    By:  _____________________________________
                                         Authorized Officer


                                    - 21 -


<PAGE>



                                   EXHIBIT A

                 [FORM OF FACE OF CLASS C WARRANT CERTIFICATE]

No. CW _______________ Class C Warrants

                          VOID AFTER August 23, 2001

                   CLASS C WARRANT CERTIFICATE FOR PURCHASE
                                OF COMMON STOCK

                         SPARTA PHARMACEUTICALS, INC.

            This certifies that FOR VALUE RECEIVED ____________________________

_______________________________________________________________________________

or registered assigns (the "Registered Holder") is the owner of the number of
Class C Warrants ("Class C Warrants") specified above. Each Class C Warrant
represented hereby initially entitles the Registered Holder to purchase, subject
to the terms and conditions set forth in this Warrant Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.001 value ("Common Stock"), of Sparta Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), at any time between August 23,
1996, and the Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of Midlantic National
Bank, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $1.50 (the "Purchase Price") in lawful money of the United States of
America in cash or by official bank or certified check made payable to the
Company.

            This Warrant Certificate and each Class C Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
August 23, 1996, by and among the Company, the Warrant Agent and Paramount
Capital, Inc.

            In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Class C Warrant represented hereby are
subject to modification or adjustment.

      Each Class C Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional shares of Common Stock will be issued.
In the case of the exercise of less than all the Class C Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or


                                     A-1


<PAGE>



Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class C Warrants.

            The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
August 23, 2001, or such earlier date as the Class C Warrants shall be redeemed.
If such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close. Upon notice to all Registered
Holders of the Class C Warrants, the Company shall have the right to extend the
Expiration Date.

            The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Class C Warrants represented hereby unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file a registration statement and will use its reasonable best
efforts to cause the same to become effective and to keep such registration
statement current while any of the Class C Warrants are outstanding. The Class C
Warrants represented hereby shall not be exercisable by a Registered Holder in
any state where such exercise would be unlawful.

            This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class C Warrants, each of such new Warrant Certificates to
represent such number of Class C Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with any
applicable transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Class C Warrant Certificate at such office, a new Warrant
Certificate or Warrant Certificates representing an equal aggregate number of
Class C Warrants will be issued to the transferee in exchange therefor, subject
to the limitations provided in the Warrant Agreement.

            Prior to the exercise of any Class C Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.

            The Class C Warrants represented hereby may be redeemed at the
option of the Company, at a redemption price of $.10 per Class C Warrant,
provided the Market Price (as defined in the Warrant Agreement) for the Common
Stock shall exceed the Target Price (as defined in the Warrant Agreement).
Notice of redemption shall be given not later than the sixtieth day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to


                                     A-2


<PAGE>



the Class C Warrants represented hereby except to receive the $.10 per Class C
Warrant upon surrender of this Warrant Certificate.

            Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Class C Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.

            The Company has agreed to pay a fee of 6% of the Purchase Price to
Paramount Capital, Inc. upon certain conditions as specified in the Warrant
Agreement upon the exercise of the Class C Warrants represented hereby.

            This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.

            This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.

            IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.


                          SPARTA PHARMACEUTICALS, INC.


Dated:  _____________________       By:  _____________________________________


                                    By:  _____________________________________

                                                     [seal]


Countersigned:

Midlantic National Bank, as Warrant Agent

By:  ______________________________
     Authorized Officer


                                     A-3


<PAGE>



                   [FORM OF REVERSE OF WARRANT CERTIFICATE]

               TRANSFER FEE: $___________ PER CERTIFICATE ISSUED

                               SUBSCRIPTION FORM

                    To Be Executed by the Registered Holder
                         in Order to Exercise Warrants

            The undersigned Registered Holder hereby irrevocably elects to
exercise _________ Class C Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Class C Warrants,
and requests that certificates for such securities shall be issued in the name
of

           PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

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

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

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

                  -------------------------------------------
                    [please print or type name and address]


and be delivered to

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

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

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

                  -------------------------------------------
                    [please print or type name and address]

and if such number of Class C Warrants shall not be all the Class C Warrants
evidenced by this Warrant Certificate, that a new Class C Warrant Certificate
for the balance of such Class C Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below.

            The undersigned represents that the exercise of the within Class C
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in
the space below. Unless otherwise indicated by


                                     A-4


<PAGE>



listing the name of another NASD member firm, it will be assumed that the
exercise was solicited by Paramount Capital, Inc.



                                    ------------------------------------------
                                    (Name of NASD Member)



Dated:                              X  
       --------------------------      ---------------------------------------
                                       ---------------------------------------
                                       ---------------------------------------
                                                      Address



                                    ------------------------------------------
                                           Taxpayer Identification Number



                                    ------------------------------------------
                                                Signature Guaranteed

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




                                     A-5


<PAGE>


                                  ASSIGNMENT

                    To Be Executed by the Registered Holder
                          in Order to Assign Warrants

FOR VALUE RECEIVED, _______________________________________________ hereby
sells, assigns and transfers unto



           PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

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

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

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

                  -------------------------------------------
                    [please print or type name and address]

                            of the Class C Warrants represented by this Warrant
- ---------------------------
Certificate, and hereby irrevocably constitutes and appoints

- ------------------------------
- ------------------------------------------------------------------------------
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.



Dated:                              X                                         
        -------------------------     -----------------------------------------
                                      Signature Guaranteed


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


THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.


                                     A-6

<PAGE>
                                                                     Exhibit 5.1





                            ROBERTS, SHERIDAN & KOTEL
                           A PROFESSIONAL CORPORATION
                                640 FIFTH AVENUE
                              NEW YORK, N.Y. 10019

                               -------------------
                            TELEPHONE (212) 262-5700
                            FACSIMILE (212) 262-0404


                                                  October 7, 1996



Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C.  20549

          Re:  Sparta Pharmaceuticals, Inc.
               Registration Statement on Form S-3
               ----------------------------------

Ladies and Gentlemen:

          We have acted as counsel to Sparta Pharmaceuticals, Inc. a Delaware
corporation (the "Company"), in connection with the registration on Form S-3
under the Securities Act of 1933, as amended, of (i) 25,316,153 shares (the
"Shares") of the Company's common stock, par value $.001 per share (the "Common
Stock") and (ii) 11,309,722 of the Company's redeemable Common Stock Class C
Warrants (the "Class C Warrants").

          In such capacity, we have examined the certificate of incorporation,
as amended, the bylaws, and corporate proceedings of the Company, and based on
such examination and having regard for applicable legal principles, it is our
opinion that:

          (i)  in the case of the Shares that are issuable upon the conversion
of the Company's outstanding or issuable shares of Series B' Convertible
Preferred Stock, upon the conversion of such shares of Series B' Convertible
Preferred Stock in accordance with the terms thereof, such Shares will be
validly issued, fully-paid and nonassessable; and

          (ii) in the case of the Shares that are issuable upon the exercise of
the Company's outstanding or issuable Class C Warrants, upon the exercise
(including the payment of the applicable exercise price) of the Class C 
Warrants in accordance with the terms thereof, such Shares will be validly 
issued, fully-paid and nonassessable; and

          (iii) in the case of the Shares that are issuable upon the exercise of
certain common stock warrants issued to the placement agent (the "Common Stock
Warrants"), upon the



<PAGE>



common stock warrants issued to the placement agent (the "Common Stock 
Warrants"), upon the exercise (including the payment of the applicable exercise 
price) of the Common Stock Warrants in accordance with the terms thereof, such 
Shares will be validly issued, fully-paid and nonassessable; and

          (iv) in the case of the Shares that are issuable upon the exercise of
a unit purchase option ("UPO") issued to the underwriters of the Company's 
initial public offering, upon the exercise (including the payment of the
applicable exercise price) of the UPO in accordance with the terms thereof, such
Shares will be validly issued, fully-paid and nonassessable; and

          (v) in the case of the Shares that are issuable upon the exercise of
Class A and Class B Warants of the Company issuable upon the exercise of the 
UPO, upon the exercise (including the payment of the applicable exercise price) 
of the Class A Warrant and the exercise (including the payment of the applicable
exercise price) of the Class B Warrant in accordance with the terms thereof,
such Shares will be validly issued, fully-paid and nonassessable; and

          (vii) the outstanding Class C Warrants have been validly issued and
are fully-paid and nonassessable; and

          (viii) the Shares that have been issued to Yale University have been 
validly issued, and are fully-paid and nonassessable.

          We consent to the use of this opinion as an Exhibit to the 
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus included in the Registration Statement.

                                              Very truly yours,



                                              ROBERTS, SHERIDAN & KOTEL,
                                                A Professional Corporation


<PAGE>

                                                                   EXHIBIT 10.79

                                PROMISSORY NOTE

                                                               August 23, 1996

            FOR VALUE RECEIVED, the undersigned, JERRY B. HOOK, (the
"Borrower"), promises to pay to the order of SPARTA PHARMACEUTICALS, INC.(the
"Lender"), the principal sum of $100,000.00 (the "Loan").
                                                  ----

            The Loan shall bear interest on each day from (and including) the
day on which such Loan was made to (but excluding) the day on which such Loan is
paid in full at a rate equal to eight (8%) per annum. Interest hereunder shall
be computed for the actual number of days elapsed on the basis of a year
consisting of 360 days and shall be payable on the principal payment dates set
forth in the following paragraph.

            Principal of the Loan shall be payable as follows: thirty-three
thousand three hundred and thirty-three dollars ($33,333.00) of principal on
July 30, 1997, thirty-three thousand three hundred and thirty-three dollars
($33,333.00) of principal on July 30, 1998 and thirty-three thousand three
hundred and thirty-four dollars ($33,334.00) of principal on July 30, 1999.

             On each scheduled repayment date, the amount then due (including
accrued interest) will be forgiven by the Lender provided that on such date
Borrower continues to be employed by Lender.

            The outstanding balance of the Loan (plus all accrued interest) will
be forgiven in full in the event that one of the following occurs: (i) the death
or disability of Borrower (within the meaning of Section 10 of Borrower's
Employment Agreement with Lender (the "Employment Agreement"), (ii) the
operations of Lender are terminated, (iii) Lender is liquidated or (iv) Lender
undergoes a change of control.

      All payments of principal and interest hereunder are to be made in lawful
money of the United States of America in same day funds to the account
designated from time to time by the Lender.

            Borrower agrees that this Promissory Note may not be assigned
without the prior written consent of Lender.

            In addition to and not in limitation of the foregoing, Borrower
further agrees, subject to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Promissory Note in seeking to collect any amounts payable
hereunder which are not paid when due.


<PAGE>


                                                                          2

            No failure or delay on the part of Lender or any other holder of
this Promissory Note in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. No notice to or demand on the Borrower shall entitle it to
any notice or demand in similar or other circumstances. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Promissory Note shall in any event be effective unless the same shall be in
writing and signed and delivered by the holder hereof.

            Upon the occurrence of any event of bankruptcy with respect to the
Borrower, the principal balance hereof and all interest accrued hereon shall be
immediately due and payable, without demand, presentment, protest or notice of
dishonor.

            THIS PROMISSORY NOTE SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF

PENNSYLVANIA.

                                          By:
                                              -----------------------
                                                Jerry B. Hook


<PAGE>


                                                                          3

COMMONWEALTH OF PENNSYLVANIA              )
                                          )ss.:
COUNTY OF __________________              )

            On the ___ day of August, 1996, before me personally came
________________, to me known to be the individual described in and who executed
the foregoing instrument, and acknowledged that he executed the same.



                                          ----------------------------------
                                                           Notary Public

<PAGE>

                                                                   EXHIBIT 10.80

                                PROMISSORY NOTE

                                                               August 23, 1996

            FOR VALUE RECEIVED, the undersigned, DR. WILLIAM MCCULLOCH (the
"Borrower"), promises to pay to the order of SPARTA PHARMACEUTICALS, INC.(the
"Lender"), the principal sum of $50,000.00 (the "Loan").
                                                 ----
            The Loan shall bear interest on each day from (and including) the
day on which such Loan was made to (but excluding) the day on which such Loan is
paid in full at a rate equal to eight (8%) per annum. Interest hereunder shall
be computed for the actual number of days elapsed on the basis of a year
consisting of 360 days and shall be payable on the principal payment dates set
forth in the following paragraph.

            Principal of the Loan shall be payable as follows: sixteen thousand
six hundred and sixty-six dollars ($16,666.00) of principal on July 30, 1997,
sixteen thousand six hundred and sixty-six dollars ($16,666.00) of principal on
July 30, 1998 and sixteen thousand six hundred and sixty-eight dollars
($16,668.00) of principal on July 30, 1999.

             On each scheduled repayment date, the amount then due (including
accrued interest) will be forgiven by the Lender provided that on such date
Borrower continues to be employed by Lender.

            The outstanding balance of the Loan (plus all accrued interest) will
be forgiven in full in the event that one of the following occurs: (i) the death
or disability of Borrower (within the meaning of Borrower's Employment Agreement
with Lender (the "Employment Agreement"), (ii) the operations of Lender are
terminated, (iii) Lender is liquidated or (iv) Lender undergoes a change of
control.

            All payments of principal and interest hereunder are to be made in
lawful money of the United States of America in same day funds to the account
designated from time to time by the Lender.

            Borrower agrees that this Promissory Note may not be assigned
without the prior written consent of Lender.

            In addition to and not in limitation of the foregoing, Borrower
further agrees, subject to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Promissory Note in seeking to collect any amounts payable
hereunder which are not paid when due.


<PAGE>


                                                                          2

            No failure or delay on the part of Lender or any other holder of
this Promissory Note in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. No notice to or demand on the Borrower shall entitle it to
any notice or demand in similar or other circumstances. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Promissory Note shall in any event be effective unless the same shall be in
writing and signed and delivered by the holder hereof.

            Upon the occurrence of any event of bankruptcy with respect to the
Borrower, the principal balance hereof and all interest accrued hereon shall be
immediately due and payable, without demand, presentment, protest or notice of
dishonor.

            THIS PROMISSORY NOTE SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF

PENNSYLVANIA.

                                          By:
                                              --------------------------
                                                Dr. William McCulloch


<PAGE>


                                                                          3

STATE OF NORTH CAROLINA                   )
                                          )ss.:
COUNTY OF _______________________         )

            On the ___ day of August, 1996, before me personally came
________________, to me known to be the individual described in and who executed
the foregoing instrument, and acknowledged that he executed the same.




                                          ----------------------------------
                                                           Notary Public




<PAGE>

                                                                   EXHIBIT 10.81

                                PROMISSORY NOTE

                                                               August 23, 1996

            FOR VALUE RECEIVED, the undersigned, RONALD H. SPAIR (the
"Borrower"), promises to pay to the order of SPARTA PHARMACEUTICALS, INC.(the
"Lender"), the principal sum of $50,000.00 (the "Loan").

            The Loan shall bear interest on each day from (and including) the
day on which such Loan was made to (but excluding) the day on which such Loan is
paid in full at a rate equal to eight (8%) per annum. Interest hereunder shall
be computed for the actual number of days elapsed on the basis of a year
consisting of 360 days and shall be payable on the principal payment dates set
forth in the following paragraph.

            Principal of the Loan shall be payable as follows: sixteen thousand
six hundred and sixty-six dollars ($16,666.00) of principal on July 30, 1997,
sixteen thousand six hundred and sixty-six dollars ($16,666.00) of principal on
July 30, 1998 and sixteen thousand six hundred and sixty-eight dollars
($16,668.00) of principal on July 30, 1999.

             On each scheduled repayment date, the amount then due (including
accrued interest) will be forgiven by the Lender provided that on such date
Borrower continues to be employed by Lender.

            The outstanding balance of the Loan (plus all accrued interest) will
be forgiven in full in the event that one of the following occurs: (i) the death
or disability of Borrower (within the meaning of Borrower's Employment Agreement
with Lender (the "Employment Agreement"), (ii) the operations of Lender are
terminated, (iii) Lender is liquidated or (iv) Lender undergoes a change of
control.

            All payments of principal and interest hereunder are to be made in
lawful money of the United States of America in same day funds to the account
designated from time to time by the Lender.

            Borrower agrees that this Promissory Note may not be assigned
without the prior written consent of Lender.

            In addition to and not in limitation of the foregoing, Borrower
further agrees, subject to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Promissory Note in seeking to collect any amounts payable
hereunder which are not paid when due.


<PAGE>


                                                                          2

            No failure or delay on the part of Lender or any other holder of
this Promissory Note in exercising any power or right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. No notice to or demand on the Borrower shall entitle it to
any notice or demand in similar or other circumstances. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Promissory Note shall in any event be effective unless the same shall be in
writing and signed and delivered by the holder hereof.

            Upon the occurrence of any event of bankruptcy with respect to the
Borrower, the principal balance hereof and all interest accrued hereon shall be
immediately due and payable, without demand, presentment, protest or notice of
dishonor.

            THIS PROMISSORY NOTE SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF

PENNSYLVANIA.



                                          By:
                                               ------------------------
                                                Ronald H. Spair


<PAGE>


                                                                          3

COMMONWEALTH OF PENNSYLVANIA              )
                                          )ss.:
COUNTY OF                                 )

            On the ___ day of August, 1996, before me personally came
________________, to me known to be the individual described in and who executed
the foregoing instrument, and acknowledged that he executed the same.




                                          ----------------------------------
                                                           Notary Public




<PAGE>

                                                                    EXHIBIT 23.2



                      CONSENT OF INDEPENDENT AUDITORS


We consent to the reference to our Firm under the caption "Experts" and to the 
use of our report dated January 31, 1996 (except for Note 13, as to which the
date is March 15, 1996) in the Registration Statement (Form S-3) and related
Prospectus of Sparta Pharmaceuticals, Inc. dated October 3, 1996.



                                                 /s/ Ernst & Young LLP
                                                 Ernst & Young LLP

Raleigh, North Carolina
October 3, 1996


<PAGE>

                                                                    EXHIBIT 23.3



                CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation by
reference in this S-3 Registration Statement of our report dated January 17, 
1996 on the financial statements of Lexin Pharmaceutical Corporation included
in Sparta Pharmaceuticals, Inc.'s Form 8-K/A and to all references to our
Firm included in this Registration Statement.


                                             /s/ Arthur Anderson LLP
                                             Arthur Anderson LLP

Philadephia, Pa.,
October 3, 1996



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