ENTREMED INC, 10-K405, 1997-04-10

ENTREMED INC
10-K405, 1997-04-10
MEDICAL LABORATORIES

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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C., 20549

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996

Commission file number 0-20713

ENTREMED, INC.
--------------
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
Delaware 58-1959440
- ------------------------------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)

Suite 200, 9610 Medical Center Drive, Rockville, MD 20850
- ---------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (301) 217-9858
- ----------------------------------------------------

Securities registered pursuant to Section 12 (g) of the Act:

Title Name of Exchange
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Common Stock, Par Value $.01 Per Share Nasdaq National Market
</TABLE>

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

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

As of March 24, 1997, 12,138,869 shares of common stock were outstanding. The
aggregate market value of the shares of common stock held by non-affiliates was
approximately $126,710,801.

DOCUMENTS INCORPORATED BY REFERENCE

See Part III hereof with respect to incorporation by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 and the Exhibit Index hereto.

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ENTREMED, INC. AND SUBSIDIARIES
FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 1996

Contents and Cross Reference Sheet

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<CAPTION>
Form 10-K Form 10-K Form 10-K
Part No. Item No. Description Page No.
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<S> <C> <C> <C>
I 1 Business
The Company . . . . . . . . . . . . . . . . . . . . . . . 3
Corporate Strategy . . . . . . . . . . . . . . . . . . . . 4
Angiogenesis . . . . . . . . . . . . . . . . . . . . . . . 5
EntreMed's Antiangiogenesis Program . . . . . . . . . . . 6
EntreMed's Cell Permeation Technology . . . . . . . . . . 9
Collaborations and License Agreements . . . . . . . . . . 11
Competition . . . . . . . . . . . . . . . . . . . . . . . 14
Manufacturing and Marketing . . . . . . . . . . . . . . . 16
Patents and Proprietary Rights . . . . . . . . . . . . . . 16
Government Regulation . . . . . . . . . . . . . . . . . . 18
Employees . . . . . . . . . . . . . . . . . . . . . . . . 21
Directors and Executive Officers . . . . . . . . . . . . . 22

2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 26
4 Submission of Matters to a Vote of Security Holders . . . . . 26
II 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . 26

6 Selected Financial Data . . . . . . . . . . . . . . . . . . . 28
7 Managements Discussion and Analysis of
Financial Conditions and Results of Operations
Overview . . . . . . . . . . . . . . . . . . . . . . . . . 29
Results of Operations . . . . . . . . . . . . . . . . . . 29
Liquidity and Capital Resources . . . . . . . . . . . . . 30
Inflation . . . . . . . . . . . . . . . . . . . . . . . . 32

8 Financial Statements . . . . . . . . . . . . . . . . . . . . . 32
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 32

III 10 - 13 Incorporated by reference from the Company's Proxy Statement . 32
IV 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 40

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Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
</TABLE>
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PART I

Statements in this Form 10-K that are not descriptions of historical
facts are forward-looking statements, based on management's estimates,
assumptions and projections, that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to
a number of factors, including those set forth under "Risk Factors", including
risks relating to the early stage of products under development; uncertainties
relating to clinical trials; dependence on third parties; future capital needs;
and risks relating to the commercialization, if any, of the Company's proposed
products (such as marketing, safety, regulatory, patent, product liability,
supply, competition and other risks).

ITEM 1. BUSINESS

THE COMPANY

EntreMed, Inc. ("EntreMed" or the "Company") was organized in
September 1991 and is engaged primarily in the research and development of
biopharmaceutical products that address the role of blood and blood vessels in
the prevention and treatment of a broad range of diseases.

The Company's core technologies include (i) an antiangiogenesis
program focused on the development of proprietary products intended to inhibit
the abnormal growth of new blood vessels associated with cancer and certain
causes of blindness and (ii) a blood cell permeation device designed to enhance
the ability of red blood cells to deliver oxygen to organs and tissues and
which may also be used to deliver drugs, genes or other therapeutic agents that
otherwise would not readily diffuse through blood cell membranes.

Angiogenesis is the biological process by which new blood vessels are
formed and primarily occurs during the first three months of embryonic
development. Except for wound healing and certain reproductive processes in
women, angiogenesis is otherwise generally associated with several diseases,
including cancer and certain causes of blindness. The Company believes that
antiangiogenic products, which inhibit the abnormal growth of blood vessels,
may have significant advantages over traditional therapies for these diseases.
The Company is currently developing several angiogenesis inhibitors, including
thalidomide and its chemical analogs, 2-Methoxyestridiol and its chemical
analogs, and two proteins produced by the body, Angiostatin(TM) and
Endostatin(TM). The Company is also applying its expertise in the role of
blood function to the development of a blood cell permeation device designed to
enhance the oxygen releasing capabilities of red blood cells. Organs and
tissues in the body require oxygen to function properly and oxygen deficiency
may lead to tissue damage or death.

In December 1995, the Company and Bristol-Myers Squibb Company
("Bristol-Myers Squibb") entered into a collaboration (the "BMS Collaboration")
to develop and commercialize certain antiangiogenesis therapeutics. This
collaboration provides for Bristol-Myers Squibb to fund certain Company
research, provide milestone payments to the Company and pay the Company
royalties on net sales of any products developed under the collaboration. In
addition, in December 1995 and June 1996 Bristol-Myers Squibb made an equity
investment in the Company in the aggregate amount of $11,500,000. In return,
the Company granted Bristol-Myers Squibb exclusive worldwide

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rights to antiangiogenic applications of thalidomide, thalidomide analogs and
the Angiostatin(TM) protein and a five year right of first refusal with
respect to the development of any technology licensed or to be licensed by the
Company from Children's Hospital in the field of antiangiogenic therapeutics.
See "Collaborations and License Agreements".

The Company's product candidates have been developed primarily through
sponsored research collaborations and licensing agreements. The principal
antiangiogenesis therapeutics currently under development by the Company were
licensed from Children's Hospital at Harvard Medical School ("Children's
Hospital") where the Company sponsors research under the direction of Dr. M.
Judah Folkman. The flow electroporation technology used in the cell permeation
device was licensed from the Center for Blood Research Laboratories at Harvard
Medical School ("CBRL"). The Company's sponsored research programs are
augmented by its internal capabilities in the fields of the vasculature system,
blood vessel growth and blood function.

To date, the Company and its collaborators have:

_ Initiated and expanded a Phase II clinical trial to evaluate
the antiangiogenic effects of thalidomide in inhibiting the
progression of brain cancer.

_ Initiated Phase II clinical trials to evaluate the
antiangiogenic effects of thalidomide in inhibiting the
progression of breast cancer, prostate cancer and Kaposi's
sarcoma.

_ Initiated Phase II clinical trials to evaluate the
antiangiogenic effects of thalidomide in inhibiting the
progression of age-related macular degeneration, a major cause
of blindness.

_ Isolated, identified, sequenced, cloned and recombinantly
expressed Angiostatin(TM) protein. In preclinical studies,
Angiostatin(TM) protein appeared to inhibit vascularization
and growth of primary and metastatic tumors.

_ Constructed a prototype device designed to introduce inositol
hexaphosphate ("IHP") molecules into red blood cells, which
may enhance the delivery of oxygen to organs and tissues in
the body.

- Licensed from Children's Hospital four antiangiogenic
molecules - Angiostatin(TM) protein, Thalidomide and analogs,
Endostatin(TM) protein and 2-Methoxyestradiol.

CORPORATE STRATEGY

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organizations and private enterprises, (iii) to augment product development
with its in-house research and development capabilities and (iv) to leverage
its resources through corporate partnerships in order to minimize the cost to
the Company of late-stage clinical trials and to accelerate effective product
commercialization. All of the Company's product candidates are in the
development stage and require further research, development, testing and
regulatory clearances.

ANGIOGENESIS

Overview

Within the human body, a network of arteries, capillaries and veins,
known as the vasculature, functions to transport blood throughout the body. The
basic network of the vasculature is developed through angiogenesis, a
fundamental process by which new blood vessels are formed. The primary
angiogenic period in humans takes place during the first three months of
embryonic development. During this period, cytokines and growth factors, which
are normally suppressed, are activated to stimulate the growth of new blood
vessels. Once the general network of the blood vessels is complete, these
angiogenic stimulators are inhibited and blood vessels grow longer and larger
in diameter until adulthood through a different process termed vasculogenesis.
Although angiogenesis occurs in embryonic development, wound healing and in
certain reproductive processes in women, angiogenesis is otherwise generally
associated with several diseases, including cancer and diabetic retinopathy and
macular degeneration, both of which are major causes of blindness.

Angiogenesis and Cancer

The term cancer includes many different types of uncontrolled cellular
growth. Clusters of cancer cells, referred to as tumors, may destroy
surrounding organs, impair physiological function and often lead to death. In
order to survive, cancer cells require oxygen and nutrients which they receive
from the body's blood supply. In order to access this blood supply, cancer
cells initiate a biochemical mechanism that stimulates angiogenesis, which
provides the blood supply that nourishes the tumor. As cancer cells grow and
metastasize (spread from primary sites to secondary sites) they require
continuous angiogenesis. Antiangiogenic substances are intended to inhibit the
growth of blood vessels and may be effective in treating certain cancers, with
fewer adverse side effects than traditional therapies. Cancer is the second
leading cause of death in the United States and it is estimated that
approximately 1,382,000 new cases of cancer are expected to be diagnosed in
1997.

Existing cancer treatments include surgery, radiation therapy and
chemotherapy. Surgery requires invasive procedures to remove cancerous cells.
Often, cancer tumors located in sites that are difficult to access or tumors
that have metastasized to vital organs cannot be treated surgically. Radiation
therapy produces ionized molecules within the body that attack cancer cells but
which may also damage healthy cells. Chemotherapy involves the administration
of toxic substances designed to kill cancer cells and usually produces severe
side effects. In addition, resistance to chemotherapy occurs over time. The
Company believes that its antiangiogenesis

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technologies may have significant advantages over traditional cancer therapies,
including reduced toxicity, and may be administered in conjunction with such
other therapies.

Angiogenesis and Blindness

Angiogenesis within the eye, a condition often associated with
diabetes and age-related macular degeneration, is a major cause of blindness.
Macular degeneration, which is age-related, and diabetic retinopathy, a
secondary effect of diabetes, both involve the formation of new blood vessels
in front of or behind the retina. The blood vessels that grow in front of the
retina occlude vision and the blood vessels that grow behind the retina often
hemorrhage or cause the detachment of the retina, in each case resulting in
blindness. It is estimated that approximately 8,000,000 people experience
diabetic retinopathy, and that 25,000 new cases of blindness develop each year.
It is estimated that approximately 13,000,000 people suffer from macular
degeneration, and that 1,700,000 develop vision impairment, of which 100,000
new cases of blindness develop each year. Current treatments for diabetic
retinopathy and, to a more limited extent, macular degeneration involve
laser-based photocoagulation treatments, which often cause unintended damage to
the retina and surrounding cells.

Angiogenesis and Other Disease Indications

A variety of other disease indications may be associated with
angiogenesis, including rheumatoid arthritis, cardiovascular disease
(atherosclerosis), psoriasis and Crohn's disease. The Company believes that its
antiangiogenesis technologies may be applicable to these other diseases. To
date, the Company has not pursued research for applications of antiangiogenesis
to diseases outside of cancer or macular degeneration. There can be no
assurance that the Company will pursue research outside these indications, that
product candidates will result from any research undertaken or that any
products for these diseases will ever be commercialized.

ENTREMED'S ANTIANGIOGENESIS PROGRAM

The Company believes that certain drugs or proteins that exhibit
antiangiogenic effects may be used as effective, safe therapeutics for diseases
involving angiogenesis. The Company currently focuses on angiogenesis
inhibition as a treatment for cancer, macular degeneration and diabetic
retinopathy. Product candidates under development include: (i) thalidomide and
several of its chemical analogs which focus the therapeutic activity of these
drugs specifically on angiogenesis, (ii) Angiostatin(TM) protein and
Endostatin(TM) protein, each a newly discovered angiogenesis inhibitor
naturally produced by the body and (iii) 2-Methoxyestridiol, an oral
angiogenesis inhibitor, and its chemical analogs. The Company's evaluation of
thalidomide and its chemical analogs as antiangiogenic therapeutics may also
enable the Company to generate clinical and marketing data on the general
utility of angiogenesis inhibitors. The Company believes that this data
might be useful in the development of Angiostatin(TM) protein, Endostatin(TM)
protein, and 2-Methoxyestridiol which, although they are in an earlier stage of
development, the Company believes may have greater efficacy as antiangiogenic
therapeutics. The Company believes that, if successfully developed, these
products could be used alone or in combination with each other to treat certain
angiogenic diseases.

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Product Candidates

Oral Antiangiogenesis Drug. The Company is evaluating the
antiangiogenic properties of the drug thalidomide and its chemical analogs.
Thalidomide, which was widely prescribed as a sedative in Europe in the late
1950s and early 1960s, is believed to have caused severe birth defects in
children. The Company believes that thalidomide may have affected fetal
development and caused birth defects by blocking new blood vessel growth, a
characteristic that may make thalidomide useful in the prevention and treatment
of angiogenic disorders. In preclinical animal studies conducted at Children's
Hospital, thalidomide has been shown to block angiogenesis. Because of the
negative precedent associated with thalidomide, as well as patent and
competitive issues, the Company has commenced screening and conducting research
on chemical analogs of thalidomide having substantially similar mechanisms of
action as thalidomide but which may focus the therapeutic activity of this drug
specifically on angiogenesis. The Company proposes to develop thalidomide or a
thalidomide analog as a long-term patient administered oral therapeutic to
inhibit the progression of certain angiogenic diseases, including cancer and
certain causes of blindness.

The Company, Bristol-Myers Squibb and the National Cancer Institute
initiated Phase II clinical trials in 1996 to evaluate the antiangiogenic
effects of thalidomide in inhibiting the progression of breast cancer, prostate
cancer and Kaposi's sarcoma. The Company also initiated and expanded a Phase II
clinical trial regarding brain cancer during 1996. Bristol-Myers Squibb
recently notified the Company that, based upon patent, competitive and market
considerations, it intends to discontinue its own internal development of
thalidomide. Such decision is not expected to affect either Bristol-Myers
Squibb's internal development efforts with respect to earlier stage chemical
analogs of thalidomide or other research and development efforts contemplated
by the BMS Collaboration. See "-- Collaborations and License Agreements." In
addition, in animal studies performed at Children's Hospital, thalidomide was
shown to inhibit the abnormal formation of blood vessels in the eye, a major
cause of blindness. The Company is currently conducting Phase II clinical
trials at the Scheie Eye Institute at the University of Pennsylvania School of
Medicine and with the Retina Associates of Cleveland to evaluate the
antiangiogenic effects of thalidomide in blindness due to age-related macular
degeneration.

Although not approved for sale in the United States, thalidomide has
been used as an investigational agent to treat a limited number of patients for
leprosy and other diseases and is being developed by other companies for
various disease indications, but not including these diseases in which
angiogenesis is a factor.

Angiostatin(TM) Protein and Endostatin(TM) Protein. The Company is
currently developing two endogenous proteins, Angiostatin(TM) protein and
Endostatin(TM) protein, as potential long term cancer therapeutics to prevent
metastatic disease and as therapies for primary tumors. These two proteins are
different in structure and origin but have similar activity.

Metastatic tumor growth is attributed to the implantation and growth
of tumor cells at secondary sites. These tumor cells are released by a primary
tumor, or are released into circulation during surgical removal of the primary
tumor. Although surgeons generally remove significant amounts of healthy tissue
surrounding the tumor, in many cases "seed cells" have already escaped the
primary tumor and are

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circulated through the body until they become embedded elsewhere. It has been
observed that in certain cases, these seed cells, or metastases, do not
vascularize and grow while the primary tumor is in place. However, after the
primary tumor is removed, secondary metastatic tumors often grow rapidly.

In Company-sponsored research at Children's Hospital, a substance
associated with primary tumors was identified which appears to prevent
vascularization and growth of metastatic tumors. Based upon such research, the
Company believes that the primary tumor secretes an enzyme that cleaves
plasminogen, a known protein associated with blood clotting, into a smaller,
previously undiscovered protein. The Children's Hospital team isolated and
identified the protein, which the Company named Angiostatin(TM) protein, and
the Company has cloned and expressed the gene that codes for Angiostatin(TM)
protein. The Children's Hospital team also isolated and identified a second
endogenous protein, named Endostatin(TM). The gene for Endostatin(TM) protein
has been cloned and expressed by the Company. In preclinical studies,
including the murine Lewis Lung Carcinoma metastatic model, it has been
demonstrated that both Angiostatin(TM) and Endostatin(TM) proteins inhibit the
growth of metastatic tumors. In addition, the Angiostatin(TM) protein was
shown to reduce the size of primary murine carcinomas and sarcomas as well as
human prostate, breast and colon cancers grown in immunodeficient mice. The
Company and Bristol-Myers Squibb are addressing additional required preclinical
studies, while manufacturing the Angiostatin(TM) protein in limited
quantities.

The Company is currently independently pursuing the early preclinical
development of Endostatin(TM) protein and 2-Methoxyestradiol and its analogs
("2-ME"). However, because Endostatin(TM) and 2-ME were licensed by the
Company from Children's Hospital, Bristol-Myers Squibb has a right of first
refusal with respect to their development.

The Company currently anticipates that either the Angiostatin(TM)
protein or Endostatin(TM) protein, as endogenous angiogenesis inhibitors, could
be administered as an adjunct therapy after diagnosis and sustained thereafter.
The Company believes that there may be utility in using these proteins in
combination and that these proteins may also be effective in inhibiting other
angiogenic diseases such as diabetic retinopathy and macular degeneration,
although the Company has not conducted any research to date in these areas. The
Company has obtained an exclusive license from Children's Hospital to this
technology, including rights to patent applications filed on the
Angiostatin(TM) and Endostatin(TM) proteins and related technology.

Other Antiangiogenesis Research

The Company maintains an internal discovery and development program
and also continues to sponsor and support research at Children's Hospital on
angiogenesis technologies with the aim of developing antiangiogenesis products
in addition to Angiostatin(TM) protein and Endostatin(TM) protein, thalidomide
and its analogs, and 2-Methoxyestradiol and its analogs. The Company's research
in these areas is currently early stage, although the Company and Children's

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Hospital have identified other proteins and compounds with angiogenic or
antiangiogenic properties that may be candidates for further development. To
the extent that additional antiangiogenesis therapeutics are developed at
Children's Hospital and licensed by the Company, Bristol-Myers Squibb has a
right of first refusal to sublicense from the Company such technologies.

ENTREMED'S CELL PERMEATION TECHNOLOGY

Overview

The Company is applying its expertise in the role of blood function to
the development of a cell permeation technology that may facilitate the
delivery into blood cells of drugs, genes or other therapeutic agents that
otherwise would not readily diffuse through the cell membrane. To date, the
Company has focused its cell permeation research on a method of enhancing the
oxygen delivery capabilities of blood.

Human blood is comprised of four components: red blood cells, white
blood cells, plasma and platelets. The principal functions of human blood are
to transport oxygen and nutrients to tissues, carry waste products away from
tissues and defend the body against infection. Hemoglobin, a protein-iron
molecule contained within red blood cells, is responsible for carrying oxygen
from the lungs to tissues throughout the body. Tissues and organs in the body
require oxygen to function properly, and oxygen deficiency may lead to tissue
damage or death. In human blood, each hemoglobin molecule carries four
molecules of oxygen, but releases only one. It has been proposed that IHP, a
naturally occurring plant chemical, may enhance the oxygen releasing
capabilities of hemoglobin by allowing the release of three oxygen molecules.
The theory that IHP could enhance the oxygen releasing capacity of hemoglobin
has been proposed for several years. Scientists have observed that a molecule
similar to IHP found in the hemoglobin of birds is more efficient at releasing
oxygen than a corresponding molecule (2,3 diphosphoglycerate, or 2,3 DPG) found
in human hemoglobin. However, IHP does not readily diffuse through the cell
membrane of human red blood cells and previous techniques used to introduce IHP
into such red blood cells have experienced significant problems and have
resulted in substantial cell damage.

The Company's research has led to the development of a prototype
device designed to introduce IHP into red blood cells without significant cell
damage. The Company intends to develop this application as a therapeutic in
such chronic and acute diseases as angina, congestive heart failure, heart
attacks, stroke and other diseases involving inadequate circulation or
respiratory functions. Existing methods of treatment for these diseases,
including surgical remedies, drug therapies and non-surgical devices, treat
such diseases by seeking to increase blood flow, rather than increasing the
blood's oxygen releasing capacity. In addition, unlike blood that is stored in
blood banks, which loses its capacity to deliver oxygen for approximately 12 to
24 hours following a transfusion, blood treated with IHP may be able to release
oxygen to tissues more rapidly following transfusion. The Company intends to
investigate the application of IHP-treated blood for storage in blood banks.
Because IHP-treated blood may release more oxygen to tissues than untreated
human blood, it may also be possible that a smaller amount of IHP-treated blood
can be transfused to obtain equivalent tissue oxygenation.

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With the exception of IHP-treated blood, the Company has not yet
explored any other applications of its cell permeation technology. Potential
therapeutic candidates will be selected based on an analysis of various disease
indications and related market potential, the likely time and expense required
for development and adaptation of the core technology for the specific
application and the interest of potential strategic partners. Potential product
candidates may be reformulations of existing compounds approved by the FDA
where enhancement of delivery through blood cell membranes is believed to have
increased clinical value compared to existing methods.

Device for Oxygen Enhanced Blood Delivery

The Company has constructed a prototype device designed to introduce
IHP molecules into red blood cells, which may enhance the delivery of oxygen to
tissues and organs. The device permits red blood cells drawn from patients to
be separated from plasma and treated with IHP in a disposable flow
electroporation chamber. The flow electroporation chamber combines the
separated red blood cells with IHP and, through an electrical charge, renders
the red blood cell membrane permeable, permitting IHP to pass through the cell
membrane and combine with hemoglobin. IHP-treated blood is then ready for
infusion into the patient or for storage for later infusion.

The Company is sponsoring contract research and development on
IHP-treated blood. An initial prototype flow electroporation device has been
constructed and the accompanying reagents have been developed, although design
activities are ongoing and there can be no assurance that a clinically
acceptable device will be completed. Following completion of a clinically
acceptable prototype, the Company intends to conduct preclinical toxicology
studies required to demonstrate the safety and efficacy of IHP-treated red
blood cells in enhancing the delivery of oxygen to tissues in relevant disease
states.

The Company's flow electroporation technology is based on Company
sponsored research conducted at the CBRL. In November 1992, the Company
obtained an exclusive worldwide license to this technology from the CBRL in
exchange for cash payments and royalties based on sales, and a United States
patent application for the device and method for introducing IHP into red blood
cells was filed in March 1993. Device and disposable component engineering and
development has been and continues to be conducted by a contract manufacturer,
which is also expected to provide pilot manufacturing capabilities.

The Company is in discussions with several major pharmaceutical
companies and is seeking to enter into collaborative arrangements with
corporate partners to develop and commercialize the Company's cell permeation
technology, which may cover specific product candidates or disease indications.
However, there can be no assurance that any such agreements will be entered
into with any of these companies or any potential partner or that the terms of
any agreement will be favorable to the Company.

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COLLABORATIONS AND LICENSE AGREEMENTS

General. The Company intends to continue to develop in-licensed
products and sponsored research programs and to enter into collaborations and
licensing agreements with corporate partners for product development,
manufacturing and marketing. The Company believes that it will be necessary to
enter into collaborative arrangements with other companies in the future to
develop, commercialize, manufacture and market its cell permeation technology,
as well as any additional products or technologies it may acquire or develop.

BMS Collaboration. In December 1995, the Company entered into the BMS
Collaboration for the development of certain antiangiogenesis products. The BMS
Collaboration provides for a five year research program, the grant to
Bristol-Myers Squibb of an exclusive license to the Company's thalidomide,
thalidomide analogs and Angiostatin(TM) protein technologies and an equity
investment in the Company by Bristol-Myers Squibb.

During the five year research term, the Company has agreed to conduct
research and Bristol-Myers Squibb has agreed to support and fund such research.
Bristol-Myers Squibb has agreed to provide funding of $18,350,000, payable in
ten semi-annual payments of $1,835,000, of which $5,505,000 has been paid to
date. In addition, Bristol-Myers Squibb has paid $730,000 to reimburse the
Company for ongoing thalidomide clinical studies. Bristol-Myers Squibb also
paid to the Company $1,000,000 in license fees, a portion of which was paid to
Children's Hospital, and $2,500,000 in consideration of know-how and research
and development performed by the Company.

The Company granted Bristol-Myers Squibb an exclusive worldwide
royalty-bearing license to make, use and sell products that are based upon the
Company's Angiostatin(TM) protein, thalidomide and thalidomide analog
technologies. Bristol-Myers Squibb has a right to sublicense and has undertaken
to secure a sublicense to develop thalidomide-related products for
ophthamological indications. Bristol-Myers Squibb also received a five year
right of first refusal with respect to the development of any technology
licensed or to be licensed by the Company from Children's Hospital in the field
of antiangiogenic therapeutics. Such right of first refusal applies to the
Company's Endostatin(TM) protein technology and 2-Methoxyestradiol
technologies, although neither the Company nor Bristol-Myers Squibb has taken
any action with respect to any sublicense of such technologies.

The BMS Collaboration also provides for royalties to the Company based
on the net sales price of products sold by Bristol-Myers Squibb. With respect
to any product that is derived from Angiostatin(TM) protein, the royalty shall
be 15% of net sales, subject to a reduction to no less than 10% based on
manufacturing costs. With respect to any product derived from thalidomide, the
royalty shall be 8% and, with respect to thalidomide analogs, the royalty shall
range from 8% to 12.5% based on sales volume. In the case of thalidomide, the
royalties shall be subject to reduction based on competitive factors.

In addition, the Company may be entitled to receive additional
payments for each product category based upon the achievement of defined and
primarily late-stage clinical development and regulatory filing milestones. In
the event all of these milestones are achieved, as to which there

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can be no assurance, these additional payments could total $32,000,000. Up to
$9,000,000 of the milestone payments for products related to thalidomide and
thalidomide analogs and up to $4,000,000 of the milestones for products related
to Angiostatin(TM) protein will be creditable against any royalties that may
become payable by Bristol-Myers Squibb to the Company, although the cumulative
amount of credits in any year may not exceed 50% of the aggregate royalties
otherwise payable. The Company retained certain co-promotion rights if
Bristol-Myers Squibb elects to seek a co-promotion partner with respect to any
products covered by the collaboration. The BMS Collaboration may be terminated
by Bristol-Myers Squibb for any reason upon six months notice without any
further liability for future payments.

Bristol-Myers Squibb recently notified the Company that it intends to
discontinue internal development of thalidomide. Bristol-Myers Squibb has
indicated its interest in exploring with the Company various other alternatives
with respect to thalidomide, which alternatives may include a sublicense by
Bristol-Myers Squibb to a third party of its rights to thalidomide or a
reversion of such rights to the Company. Bristol-Myers Squibb has advised the
Company that its determination was based upon patent and certain competitive
and market issues, including the development of thalidomide products by other
companies. See "--Competition" and "--Patents Squibb and Proprietary Rights".
However, based upon discussions with Bristol-Myers Squibb, the decision
regarding thalidomide is not expected to affect Bristol-Myers Squibb's internal
development efforts with respect to earlier stage chemical analogs of
thalidomide or other research and development efforts contemplated by the BMS
Collaboration. Therefore, the Company does not believe that Bristol-Myers
Squibb's decision will have a material adverse effect on the Company's
development of an oral antiangiogenesis therapeutic.

Pursuant to the BMS Collaboration, Bristol-Myers Squibb purchased
541,666 shares of the Company's Common Stock for $12.00 per share in December
1995 and purchased an additional $5,000,000 of Common Stock concurrent with the
Company's June 1996 IPO in a private placement at the initial public offering
price per share of $15.00 per share. The Company also issued to Bristol-Myers
Squibb a warrant, exercisable for one-year from June 19, 1996, to purchase up
to $10,000,000 of Common Stock at an exercise price per share equal $22.50 per
share. The Company has granted to Bristol-Myers Squibb certain registration
rights with respect to all of these shares.

Academic Collaborations. In addition to its in-house research
program, the Company collaborates with several academic institutions to support
research in areas of the Company's product development interests. Usually,
research supported at outside academic institutions is performed in conjunction
with additional in-house research. Often, the faculty members responsible for
supervision of the research performed at the academic institution will
participate further as consultants to the Company's in-house effort.

Typically under these arrangements, the Company agrees to fund the
research it has chosen to support with a specified budget over a specified time
period, usually one to three years. In return, the Company usually obtains an
exclusive license, with the right to grant sublicenses, and the right to
further develop and market products that arise out of the technology being
supported. Under several of these licenses, the Company is required to meet
specified milestones

12
<PAGE> 13
or diligence requirements in order to retain its license of such technologies.
There can be no assurance that the Company will satisfy these milestones and
diligence requirements and be able to retain such licenses. In addition to
providing research support, the Company usually is required to pay royalties to
the academic institution on sales, if any, of any licensed products resulting
from such research. The Company in most instances files and prosecutes patent
applications on behalf of the institutions.

The Company's primary academic collaboration is with Children's
Hospital. In September 1993, the Company entered into a sponsored research
agreement with Children's Hospital to support research conducted under the
direction of Dr. M. Judah Folkman on the role of angiogenesis in pathological
conditions. Under the agreement, as amended in August 1995, the Company agreed
to pay to Children's Hospital $11,000,000, of which $7,000,000 was paid through
February 1997, $1,000,000 is due on April 1, 1997 and the remainder is due in
equal semi-annual payments of $1,000,000 until April 1, 1999. The Company also
granted to Children's Hospital options to acquire 83,334 shares of Common Stock
at an exercise price of $6.00 per share and additional options to acquire
50,000 shares at an exercise price of $6.375 per share. The Company obtained an
exclusive option to negotiate an exclusive, worldwide, royalty-bearing license
to any technology resulting from the research at Children's Hospital in areas
covered by the agreement. The Company received a right to sublicense the
licensed technologies, although the Company agreed to pay to Children's
Hospital a portion of all sublicensing payments, which do not include payments
to support research and development by the Company or equity investments in the
Company. The Company has also received certain rights of first refusal to
certain additional research projects and any new project opportunities arising
from Dr. Folkman's core laboratory activities.

The Company exercised its option in May 1994 to obtain exclusive
worldwide licenses to certain oral antiangiogenesis technology (thalidomide and
its analogs), cancer diagnostic and prognostic technology, and endogenous
antiangiogenesis technology, Angiostatin(TM) protein. In December 1996, the
Company exercised its option to obtain the exclusive worldwide licenses to
Endostatin(TM) and 2-Methoxyestradiol, an orally available angiogenesis
inhibitor. These license agreements provide for certain milestone payments by
the Company to Children's Hospital as well as royalties based on sales, if any,
of any products developed from the licensed technologies. The milestone
payments aggregate $4,650,000, of which $290,000 has been paid through December
31, 1996, and are based upon license fees and the achievement of regulatory
approvals.

Other Collaborative and Strategic Relationships Arrangements. In July
1996, the Company acquired, through its subsidiary Cytokine Sciences, Inc.
("Cytokine"), substantially all of the assets of Innovative Therapeutics, Inc.
("ITI") in exchange for 15% of the common stock of Cytokine valued at
approximately $44,000. Prior to the acquisition, the Company sponsored
research at ITI on methods to treat disease by stimulating cellular immunity.
The methods currently under development are designed to target specific
diseases by the administration of synthetic peptides or recombinant proteins
that mimic proteins which occur naturally during that particular disease. These
therapeutic agents are designed to initiate cellular immune responses
exclusively, without affecting humoral immunity. Prior to the acquisition , the
Company had paid ITI approximately $832,500 pursuant to its research
collaboration.

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<PAGE> 14
Under the terms of the transaction with ITI, the Company agreed to
provide funding to Cytokine in an aggregate amount of $1,600,000 during the
first two years commencing July 2, 1996, with an additional $1,500,000 to be
provided at the sole option of the Company during the third year. All
intercompany balances and transactions have been eliminated in the consolidated
financial statements.

The Company intends to continue to support and fund research at other
companies or academic or other institutions in selected areas in exchange for
rights to technologies and products derived from such sponsored research or
equity positions in such companies. The Company expects to focus on sponsored
research in areas in which it has existing expertise or where a strong market
opportunity is perceived. The Company may establish subsidiaries to develop and
commercialize promising technologies or products generated from this research,
which may create opportunities for separately financing and managing new
development programs.

COMPETITION

Competition in the pharmaceutical, biotechnology and biopharmaceutical
industries is intense and based significantly on scientific and technological
factors, the availability of patent and other protection for technology and
products, the ability and length of time required to obtain governmental
approval for testing, manufacturing and marketing and the ability to
commercialize products in a timely fashion. Moreover, the biopharmaceutical
industry is characterized by rapidly evolving technology that could result in
the technological obsolescence of any products developed by the Company. The
Company competes with many specialized biopharmaceutical firms, as well as a
growing number of large pharmaceutical companies that are applying
biotechnology to their operations. Many biopharmaceutical companies have
focused their development efforts in the human therapeutics area, and many
major pharmaceutical companies have developed or acquired internal
biotechnology capabilities or made commercial arrangements with other
biopharmaceutical companies. These companies, as well as academic institutions,
governmental agencies and private research organizations, also compete with the
Company in recruiting and retaining highly qualified scientific personnel and
consultants.

The Company's competition will be determined in part by the potential
indications for which the Company's compounds may be developed and ultimately
approved by regulatory authorities. The Company is relying on Bristol-Myers
Squibb to commercialize the licensed antiangiogenesis products and,
accordingly, the success of these products in the target indications of cancer
and blindness will depend in significant part on Bristol-Myers Squibb's efforts
and ability to compete in these markets. The success of the BMS Collaboration
will depend in part upon Bristol-Myers Squibb's own competitive, marketing and
strategic considerations, including the relative advantages of alternative
products being developed and marketed by Bristol-Myers Squibb and its
competitors. For example, Bristol-Myers Squibb currently markets cancer
therapeutics, which would be competitive with any antiangiogenic products
developed under the BMS Collaboration to treat cancer. Bristol-Myers has a
right to sublicense, and has undertaken to secure a sublicense to develop
thalidomide-related products for ophthalmological indications, unless
Bristol-Myers Squibb

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<PAGE> 15
reasonably believes that the dosage or method of administration will not be
significantly different from oncological indications. Any failure or delay by
Bristol-Myers Squibb to enter into such a sublicense may substantially limit or
preclude the commercial development of these applications.

The Company is aware of companies and research institutions
investigating the role of angiogenesis generally and specifically as it may be
useful in developing therapeutics to treat various diseases associated with
abnormal blood vessel growth. In studies available to date, these angiogentic
inhibitors have shown varying effectiveness in inhibiting angiogenesis and
differing degrees of bioavailability and toxicity. Significant further
preclinical and clinical development of these products is needed prior to an
assessment of the more significant competitive product candidates in the
antiangiogenesis disease indications targeted by the Company.

The Company is aware of other companies developing thalidomide and
certain of its chemical analogs for various disease indications, including
Celgene Corporation, for the treatment of AIDS-related cachexia (or wasting)
and mouth ulcers, and Andrulis Pharmaceuticals, for diabetes. Although the
Company believes that its patent rights, if granted, would preclude another
company from marketing thalidomide for antiangiogenic indications, there can be
no assurance that any patent will issue or afford meaningful protection.

A substantial number of companies utilize or are developing cell
permeation or drug delivery technologies and competition for the development of
drug delivery products is intense, although the Company's focus is on blood
cell permeation. The Company is aware of at least one other company, Allos
Therapeutics, Inc., that is engaged in early-stage research regarding a method
to acutely increase the oxygen-releasing capacity of hemoglobin for treating
cancer. The Company also anticipates that IHP-treated blood (which is not
technically a blood replacement), will compete for use in blood transfusions
with readily available products, including whole human blood or packed red
blood cells, and products under development, such as blood substitutes.

Many of the Company's existing or potential competitors have
substantially greater financial, technical and human resources than the Company
and may be better equipped to develop, manufacture and market products. In
addition, many of these competitors have extensive experience in preclinical
testing and human clinical trials and in obtaining regulatory approvals. The
existence of competitive products, including products or treatments of which
the Company is not aware, or products or treatments that may be developed in
the future, may adversely affect the marketability of products which may be
developed by the Company.

15
<PAGE> 16
MANUFACTURING AND MARKETING

The Company's strategy is to enter into collaborative arrangements
with pharmaceutical and other companies for the development, manufacturing and
marketing of products requiring broad marketing capabilities and for overseas
marketing. These collaborators are generally expected to be responsible for
funding or reimbursing all or a portion of the development costs, including the
costs of clinical testing necessary to obtain regulatory clearances and for
commercial scale manufacturing, in exchange for exclusive or semi-exclusive
rights to market specific products in particular geographic territories. To
date, the Company has entered into one collaboration agreement, with
Bristol-Myers Squibb, relating to certain of its antiangiogenesis technologies.
However, the Company may, in the future, consider manufacturing or marketing
certain products directly and to co-promote certain products if it believes it
is appropriate under the circumstances. The Company has no experience in
manufacturing or marketing products on a commercial scale and does not have the
resources to manufacture or market by itself on a commercial scale any of its
product candidates. In the event the Company decides to establish a
manufacturing facility, the Company will require substantial additional funds,
and will be required to hire and train significant additional personnel and
comply with the extensive "good manufacturing practice" regulations applicable
to such a facility.

PATENTS AND PROPRIETARY RIGHTS

The Company's success will depend in part on its ability to obtain
patent protection for its products, both in the United States and abroad. The
patent position of biotechnology and pharmaceutical companies in general is
highly uncertain and involves complex legal and factual questions. The Company
has filed eight U.S. patent applications covering Angiostatin(TM) protein, DNA
coding for the Angiostatin(TM) protein, the use of Angiostatin(TM) protein as
a therapeutic agent and the use of Angiostatin(TM) protein as a diagnostic
agent. The patent application covering Angiostatin(TM) protein has been allowed
and should be issued shortly. The Company also has filed three U.S. patent
applications covering the use of the thalidomide molecule and thalidomide
analogs as an antiangiogenic agent for the treatment of a wide variety of
diseases that are caused by uncontrolled angiogenesis. These patent
applications also include composition of matter coverage for certain
thalidomide analogs. One of those patent applications has been issued to date.
The Company has also filed four U.S. patent applications covering the device
and method for introducing substances into cells by flow electroporation. These
patent applications cover the electroporation chamber in the device, the
overall electroporation device and the treatment of a wide variety of diseases
using cells that have been treated in the electroporation device. One of these
patent applications has been issued. The Company has filed two patent
applications, one of which has been issued, on estrogenic compounds as
anti-mitotic agents. The Company has also filed a U.S. patent application
covering Endostatin(TM) protein, DNA coding for the Endostatin(TM) protein, the
use of Endostatin(TM) protein as a therapeutic agent and the use of
Endostatin(TM) protein as a diagnostic agent. The patent application also
covers the combination of Endostatin(TM) protein and Angiostatin(TM) protein as
a therapeutic composition. Patent applications corresponding to the U.S. patent
applications have been filed in Europe, Japan, Canada and other selected
countries. The Company has registered the mark "ENTREMED" in the U.S. Patent
and Trademark Office and has filed intent-to-use trademark applications in the
U.S. Patent and Trademark Office for the marks "Angiostatin", "Endostatin" and
"We're Not Making Better Blood, We're Making Blood Better".

There can be no assurance that any patents will be granted or that
patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection to the Company. Furthermore, there can be no assurance that others
will not independently develop similar products or, if patents are issued to
the Company or its collaborators, will not design around such patents.

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<PAGE> 17
Furthermore, the enactment of the legislation implementing the General
Agreement on Trade and Tariffs has resulted in certain changes to United States
patent laws that became effective on June 8, 1995. Most notably, the term of
patent protection for patent applications filed on or after June 8, 1995 is no
longer a period of seventeen years from the date of grant. The new term of a
United States patent will commence on the date of issuance and terminate twenty
years from the earliest effective filing date of the application. Because the
time from filing to issuance of biotechnology patent application is often more
than three years, a twenty-year term from the effective date of filing may
result in a substantially shortened term of patent protection, which may
adversely impact the Company's patent position. If this change results in a
shorter period of patent coverage, the Company's business could be adversely
affected to the extent that the duration and level of the royalties it is
entitled to receive from a collaborative partner is based on the existence of a
valid patent.

The Company's potential products may conflict with patents which have
been or may be granted to competitors, universities or others. As the
biotechnology industry expands and more patents are issued, the risk increases
that the Company's potential products may give rise to claims that they
infringe the patents of others. Such other persons could bring legal actions
against the Company claiming damages and seeking to enjoin clinical testing,
manufacturing and marketing of the affected products. If any such actions are
successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to manufacture or
market the affected products. There can be no assurance that the Company would
prevail in any such action or that any license required under any such patent
would be made available on acceptable terms, if at all. If the Company becomes
involved in litigation, it could consume a substantial portion of the Company's
time and resources.

Composition of matter patent protection is not available for
thalidomide. The Company is aware of at least two other issued patents covering
certain non-antiangiogenic uses of thalidomide. Although the Company believes
that the claims in such patents will not interfere with the Company's proposed
use of thalidomide, there can be no assurance that the holders of such patents
will not be able to exclude the Company from using thalidomide for other
non-antiangiogenic uses of thalidomide.

The Company requires its employees, consultants and advisors to
execute a confidentiality agreement upon the commencement of an employment or
consulting relationship with the Company. The agreements generally provide that
trade secrets and all inventions conceived by the individual and all
confidential information developed or made known to the individual during the
term of the relationship shall be the exclusive property of the Company and
shall be kept confidential and not disclosed to third parties except in
specified circumstances. There can be no

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<PAGE> 18
assurance, however, that these agreements will provide meaningful protection
for the Company's proprietary information in the event of unauthorized use or
disclosure of such information.

GOVERNMENT REGULATION

The Company's development, manufacture and potential sale of
therapeutics is subject to extensive regulation by United States and foreign
governmental authorities.

Regulation of Pharmaceutical Products. Products being developed by
the Company may be regulated by the FDA as drugs or biologics or, in some
cases, as medical devices. New drugs are subject to regulation under the
Federal Food, Drug, and Cosmetic Act, and biological products, in addition to
being subject to certain provisions of that Act, are regulated under the Public
Health Service Act. The Company believes that drug products developed by it or
its collaborators will be regulated either as biological products or as new
drugs. Both statutes and the regulations promulgated thereunder govern, among
other things, the testing, manufacturing, safety, efficacy, labeling, storage,
record keeping, advertising and other promotional practices involving biologics
or new drugs, as the case may be. FDA approval or other clearances must be
obtained before clinical testing, and before manufacturing and marketing, of
biologics and drugs.

Obtaining FDA approval has historically been a costly and time
consuming process. Generally, in order to gain FDA premarket approval, a
developer first must conduct preclinical studies in the laboratory and in
animal model systems to gain preliminary information on an agent's efficacy and
to identify any safety problems. The results of these studies are submitted as
a part of an investigational new drug ("IND") application, which the FDA must
review before human clinical trials of an investigational drug can start. The
IND application includes a detailed description of the clinical investigations
to be undertaken.

In order to commercialize any products, the Company or its
collaborator must sponsor and file an IND and be responsible for initiating and
overseeing the clinical studies to demonstrate the safety, efficacy and potency
that are necessary to obtain FDA approval of any such products. For Company or
collaborator-sponsored INDs, the Company or its collaborator will be required
to select qualified investigators (usually physicians within medical
institutions) to supervise the administration of the products, and ensure that
the investigations are conducted and monitored in accordance with FDA
regulations, including the general investigational plan and protocols contained
in the IND. Clinical trials are normally done in three phases, although the
phases may overlap. Phase I trials are concerned primarily with the safety and
preliminary effectiveness of the drug, involve fewer than 100 subjects, and may
take from six months to over one year. Phase II trials normally involve a few
hundred patients and are designed primarily to demonstrate effectiveness in
treating or diagnosing the disease or condition for which the drug is intended,
although short-term side effects and risks in people whose health is impaired
may also be examined. Phase III trials are expanded clinical trials with larger
numbers of patients which are intended to evaluate the overall benefit-risk
relationship of the drug and to gather additional information for proper dosage
and labeling of the drug. Clinical trials generally take two to five years to
complete, but may take longer. The FDA receives reports on the progress of each
phase

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<PAGE> 19
of clinical testing, and it may require the modification, suspension, or
termination of clinical trials if it concludes that an unwarranted risk is
presented to patients.

If clinical trials of a new product are completed successfully, the
sponsor of the product may seek FDA marketing approval. If the product is
regulated as a biologic, the FDA will require the submission and approval of
both a Product License Application ("PLA") and an Establishment License
Application before commercial marketing of the biologic. If the product is
classified as a new drug, the Company must file a New Drug Application ("NDA")
with the FDA and receive approval before commercial marketing of the drug. The
NDA or PLA must include detailed information about the drug and its manufacture
and the results of product development, preclinical studies and clinical
trials. The testing and approval processes require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. NDAs and PLAs submitted to the FDA can take, on average, two
to five years to receive approval. If questions arise during the FDA review
process, approval can take more than five years. Notwithstanding the
submission of relevant data, the FDA may ultimately decide that the NDA or PLA
does not satisfy its regulatory criteria for approval and deny approval or
require additional clinical studies. In addition, the FDA may condition
marketing approval on the conduct of specific post-marketing studies to further
evaluate safety and effectiveness. Even if FDA regulatory clearances are
obtained, a marketed product is subject to continual review, and later
discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market as well as possible
civil or criminal sanctions.

Thalidomide is regulated by the FDA's Center for Drug Evaluation and
Research. Although not approved for sale in the U.S., thalidomide has been used
as an investigational agent to treat thousands of patients for leprosy and
other diseases. EntreMed has filed an IND application and started Phase II
trials in macular degeneration, a leading cause of blindness, and expects that
the analysis of these results, together with availability of necessary funding,
could determine whether Phase III trials may be attempted. The National Cancer
Institute in collaboration with EntreMed and Bristol-Myers Squibb has begun
Phase II trials in breast cancer, prostate cancer, brain cancer and Kaposi's
sarcoma. A fourth trial in brain cancer was initiated and expanded to include
more patients. It is expected that future cancer trials may be dependent on
the results of these studies. Thalidomide must meet the standard regulatory
requirements of any new drug, and successful Phase III clinical trials will be
necessary to form the basis of an NDA.

Analogs of thalidomide may be regulated as new chemical entities by
the FDA's Center for Drug Evaluation and Research. Although these compounds
are in the discovery phase of research, it is expected that as new chemical
entities are discovered complete preclinical toxicology studies will be
required prior to studies in humans. The remainder of the developmental and
regulatory requirements will be similar to that of any new drug.

Angiostatin(TM) and Endostatin(TM) proteins, each a naturally
occurring substance, are considered biologics and will be regulated by the
FDA's Center for Biologics Evaluation and Research. As genetically engineered
and endogenous proteins, Angiostatin(TM) protein and Endostatin(TM) protein
will face unique and specific regulation hurdles, such as those related to the

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<PAGE> 20
manufacture of the products and the behavior of the products in the body. The
regulatory requirements for recombinant proteins have been developed for other
endogenous molecules (e.g., Epogen(TM), Neupogen(TM) and interferons) and
Angiostatin(TM) protein and Endostatin(TM) protein are expected to follow these
established guidelines. Successful preclinical studies and Phase I, II and III
trials will be necessary to form the basis for a PLA.

The cell permeation technology, and specifically IHP-treated red blood
cells, will - be regulated by the FDA's Center for Biologics Evaluation and
Research. A recent FDA response to a letter from EntreMed requesting a
product jurisdiction determination, designated the Center for Biologics
Evaluation and Research as the agency component with primary jurisdiction for
the premarket review and regulation of the product. The product will be
reviewed as a medical device under the premarket application (PMA) provisions
of the Federal Food, Drug and Cosmetic Act (described below). Historically,
the FDA's Office of Blood Research and Review has had the most expertise and
experience in regulating blood, apheresis equipment and disposables associated
with the processing of human blood. Further development for IHP-treated blood
is expected to follow a similar path to that of any therapeutic biologic, with
successful completion of Phase I, Phase II and Phase III trials required to
precede the filing of a PMA. Because the cell permeation technology requires
the use of red blood cells produced from humans, the Company will be required
to comply with, or to contract with suppliers that comply with, stringent
regulation of blood component collection. That regulation is designed to
protect both donors and recipients of blood products and involves significant
recordkeeping and other burdens.

Regulation of Devices. Any device products which may be developed by
the Company are likely to be regulated by the FDA as medical devices rather
than drugs. In addition, as noted, the device used to insert IHP in blood cells
also may be regulated as a medical device. The nature of the FDA requirements
applicable to such products depends on their classification by the FDA. A
device developed by the Company would be automatically classified as a Class
III device, requiring pre-market approval, unless the Company could demonstrate
to the FDA, in the required pre-market notification procedure, that the device
was substantially equivalent to an existing device that has been classified in
Class I or Class II or to a pre-1976 device that has not yet been classified.
If the Company were unable to demonstrate such substantial equivalence, it
would be required to undertake the costly and time-consuming process,
comparable to that for new drugs, of conducting preclinical studies, obtaining
an investigational device exemption to conduct clinical tests, filing a
premarket approval application, and obtaining FDA approval.

If the Company could demonstrate substantial equivalence to a Class I
product, the "general controls" of the Federal Food, Drug, and Cosmetic Act
chiefly adulteration, misbranding, and good manufacturing practice requirements
would nevertheless apply. If substantial equivalence to a Class II device could
be shown, the general controls plus "special controls" such as performance
standards, guidelines for safety and effectiveness, and post-market
surveillance would apply. While demonstrating substantial equivalence to a
Class I or Class II product is not as costly or time-consuming as the
pre-market approval process for Class III devices, it can in some cases also
involve conducting clinical tests to demonstrate that any differences between
the new device and devices already on the market do not affect safety or

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<PAGE> 21
effectiveness. If substantial equivalence to a pre-1976 device that has not yet
been classified has been shown, it is possible that the FDA would subsequently
classify the device as a Class III device and call for the filing of premarket
approval applications at that time. If the FDA took that step, then filing an
application acceptable to the FDA would be a prerequisite to remaining on the
market.

It is likely that the review process will nevertheless occur in the
Center for Biologics Evaluation and Research. It is possible, however, that
such Center would consult with relevant officials in the FDA's Center for
Devices and Radiological Health. Such a consultation might further delay
approval of the device and thus of this technology.

Other. In addition to the foregoing, the Company's business is and
will be subject to regulation under various state and federal environmental
laws, including the Occupational Safety and Health Act, the Resource
Conservation and Recovery Act and the Toxic Substance Control Act. These and
other laws govern the Company's use, handling and disposal of various
biological, chemical and radioactive substances used in and wastes generated by
its operations. The Company believes that it is in material compliance with
applicable environmental laws and that its continued compliance therewith will
not have a material adverse effect on its business. The Company cannot predict,
however, whether new regulatory restrictions on the marketing of biotechnology
products will be imposed by state or federal regulators and agencies.

EMPLOYEES

As of March 24, 1997, the Company had 32 full-time employees, of which
22 were in research and development and 10 were in management and
administration. The Company intends to hire additional personnel. The Company
also utilizes part-time or temporary consultants on an as-needed basis. None of
the Company's employees is represented by a labor union and the Company
believes its relations with its employees are satisfactory.

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<PAGE> 22
DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names, ages and positions of the
executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION

<S> <C> <C>
John W. Holaday, Ph.D. (1) 51 Chairman of the Board, President, Chief Executive Officer
and Director

Edward R. Gubish, Ph.D. 48 Senior Vice President, Research and Development

Leo Einck, Ph.D. 46 Vice President Research Operations

R. Nelson Campbell 32 Chief Financial Officer

John C. Thomas, Jr. 43 Secretary/Treasurer

Carl Alving, M.D. 57 Director

Donald S. Brooks (2)(3) 61 Director

Bart Chernow, M.D. 49 Director

Samuel R. Dunlap, Jr. (1)(2) 47 Executive Advisor and Director

Mark C.M. Randall (3) 34 Director

Leon E. Rosenberg, M.D. 64 Director

Wendell M. Starke (1)(2) 54 Director
</TABLE>

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

(1) Member of Executive Committee; (2) Member of Compensation Committee;
(3) Member of Audit Committee

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

John W. Holaday, Ph.D. is a co-founder of the Company and has served
as its President and Chief Executive Officer and a director since August 1992
and its Chairman of the Board since November 1995. Prior thereto, from May 1989
to August 1992, he was a co-founder of Medicis Pharmaceutical Corp. where he
served as Scientific Director, Senior Vice President for Research and
Development and director. From 1968 to 1989, he served at the Walter Reed Army
Institute of Research, where he founded the Neuropharmacology Branch in 1980.
He serves as an officer and fellow in several biomedical societies and has
authored and edited numerous scientific articles

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<PAGE> 23
in journals and books. His current academic positions include Associate
Professor of Anesthesiology and Critical Care Medicine and Senior Lecturer in
Medicine at The Johns Hopkins University of Medicine, Baltimore, Maryland;
Adjunct Professor of Pharmacology and Psychiatry at the Uniformed Services
University School of Medicine, Bethesda, Maryland; and Clinical Assistant
Professor of Surgery at the University of Connecticut Health Center,
Farmington, Connecticut.

Edward R. Gubish, Ph.D. has served as Senior Vice President of
Research and Development since January 1997, prior to that he served as Vice
President - Regulatory and Clinical Development of the Company since November
1995 and has been employed by the Company since October 1993. From 1990 to
September 1993, Dr. Gubish served as senior director of Regulatory Affairs for
Baker Norton Pharmaceuticals (IVAX) and Fujisawa Pharmaceuticals. From 1986 to
1990, Dr. Gubish served as Chief of regulatory affairs for the AIDS Division at
the National Institutes of Health and as a scientific and administrative
contact for sponsors of new biological products and IND submissions for the,
Center for Drugs and Biologics at the FDA.

Leo Einck, Ph.D. has served as Vice President of Research Operations
since January 1997, Vice President of Extramural Programs of the Company from
November 1995 to January 1997 and from September 1993 to November 1995 as
Director of Sponsored Research. From 1985 to September 1993, Dr. Einck was the
Director of Operations for HEM Pharmaceuticals, a company engaged in the
development of biopharmaceutical agents. From 1980 to 1985, Dr. Einck was a
researcher in molecular biology at the National Institutes of Health.

R. Nelson Campbell has served as Chief Financial Officer since January
1997. From November 1991 to June 1996, Mr. Campbell was employed by
OsteoArthritis Sciences, Inc., a private drug discovery company where he was a
co-founder and served as Vice President of Business Development and Treasurer.
From 1986 to 1991, he was with the international investment banking firms of
Merrill Lynch Capital Markets, Nomura Securities International and lastly Daiwa
America Securities, Inc., where he was engaged in corporate finance and merger
transactions.

John C. Thomas, Jr. has served as Secretary/Treasurer since January
1997 and served part-time as Chief Financial Officer of the Company since its
inception in September 1991 until January 1997. Mr. Thomas has also served as
the Chief Financial Officer of several other companies, including MEDigital,
Inc., a private medical technology company since August 1996, Credit Depot
Corporation, a public company engaged in loan financing (from August 1990 to
March 1993 and from January 1995 until April 1996), Tapistron International,
Inc., a public company engaged in the development of technology for the textile
industry (from August 1991 until July 1995), and Sealite Sciences, a private
biotechnology company (from June 1991 to March 1993). Mr. Thomas is a certified
public accountant.

Carl Alving, M.D. is a co-founder of the Company and has been a
director of the Company since August 1992. He has been Chief of the Department
of Membrane Biochemistry at

23
<PAGE> 24
the Walter Reed Army Institute of Research since 1978. Dr. Alving has been the
inventor of a number of patented technologies in the fields of drug delivery
and immunology.

Donald S. Brooks has been a director of the Company since April 1996.
Since July 1993, Mr. Brooks has been a practicing attorney with the law firm
Carella Byrne Bain Gilfillan Cecchi Stewart & Olstein, Roseland, New Jersey,
which represents the Company on certain matters. Prior thereto, Mr. Brooks was
employed by Merck & Co., Inc. for 27 years, most recently, from 1986 to 1993,
as Senior Counsel. From 1980 to 1985, Mr. Brooks served as a U.S. employer
delegate to the Chemical Industries Committee, International Labor Organization
in Geneva, Switzerland.

Bart Chernow, M.D. is a co-founder of the Company and has been a
director since the Company's inception. Dr. Chernow has served as
Physician-in-Chief at Sinai Hospital of Baltimore since 1990 and as a Professor
of Medicine, Anesthesiology and Critical Care at The Johns Hopkins University
School of Medicine part-time from 1990 through 1997. Dr. Chernow was the
Editor-in-Chief of the Journal Critical Care Medicine. From 1987 to 1990 Dr.
Chernow was the Director of the Henry K. Beecher Memorial Research Laboratories
and Attending Physician of Critical Care (anesthesia) at the Massachusetts
General Hospital, Harvard Medical School, where he also served as an Associate
Professor.

Samuel R. Dunlap, Jr. has served as an Executive Advisor and a
director to the Company since August 1992. Mr. Dunlap also has (i) served as
Chairman of Dunlap & Partners, Ltd., a financial consulting firm in Atlanta,
Georgia, since October 1988, (ii) served as a director of Credit Depot
Corporation, of which he was a founder, since December 1986, (iii) served as
Vice President of MEDigital, Inc. since August 1996, (iv) from 1992 through
1996 served as a director to First Pacific Networks, Inc., a publicly-held
telecommunications company, (v) served as a director and a consultant of Golf
Training Systems, Inc., a public company, from August 1994 until December 1995
and (vi) served as a director from July 1991 until February 1994 and an
Executive Advisor from July 1991 until November 1994 of Tapistron
International, Inc. From April 1986 until December 1988, Mr. Dunlap served as
Executive Vice President and director of CytRx Corporation, a publicly-held
pharmaceutical company of which he was a founder. Mr. Dunlap also served as
Executive Vice President of Elan Pharmaceutical Research Corp., a publicly-held
company, from August 1982 to December 1983 and President and a director of such
entity from January 1984 to January 1985.

Mark C.M. Randall has been a director of the Company since April 1996.
Since 1985, Mr. Randall has been associated with Sarasin International
Securities Limited, London, England, a wholly-owned subsidiary of Bank Sarasin
& Cie, a private bank based in Switzerland, where he has been Director since
1994.

Leon E. Rosenberg, M.D. has been a director of the Company since
January 1996. Dr. Rosenberg was named Senior Vice President, Scientific
Affairs, Bristol-Myers Squibb Company in January 1997. For the previous five
and one half years he served the company as President of the Bristol-Myers
Squibb Pharmaceutical Research Institute. From 1984 to September 1991, Dr.
Rosenberg served as the dean of the Yale University School of Medicine. Dr.
Rosenberg is a

24
<PAGE> 25
member of the National Academy of Sciences and serves on the Board of Directors
of Research!America of Alexandria, Virginia; SEQ Ltd. of Princeton, New Jersey;
Somatic Therapy Corporation of Alameda, California; Cadus Pharmaceutical
Corporation of Tarrytown, New York; and the Whitehead Institute for Biomedical
Research. He is on the Board of Participants of the Intercompany Collaboration
for AIDS Drug Development and Chairman of its Scientific Panel.

Wendell M. Starke has been a director of the Company since April 1994.
Mr. Starke is a Chartered Financial Analyst and a Chartered Investment
Counselor. Mr. Starke was President of INVESCO Capital Management, Inc. from
1979 to 1991. In 1992, he became Chairman of INVESCO, Inc., the parent company
of INVESCO Capital Management and other INVESCO money management subsidiaries
in the United States. Mr. Starke also serves as a member of the Board and as
Global Chief Investment Officer of INVESCO, PLC, the London-based parent
company of the worldwide INVESCO organization.

The Board of Directors currently consists of eight members. Successors
to those directors whose terms have expired are required to be elected by
stockholder vote; vacancies in unexpired terms and any additional positions
created by board action are filled by action of the existing Board of
Directors. Officers are elected to serve, subject to the discretion of the
Board of Directors, until their successors are appointed.

The Executive Committee currently consists of three members. The
Executive Committee acts as a liaison between management and the Board of
Directors and is responsible for all matters that arise between regular
meetings of the Board of Directors, to the extent permitted by Delaware law.

The Audit Committee currently consists of two directors. The Audit
Committee reviews, with the Company's independent accountants, the scope and
timing of their audit services and any other services they are asked to
perform, their report on the Company's financial statements following
completion of their audit and the Company's policies and procedures with
respect to internal accounting and financial controls. In addition, the Audit
Committee makes annual recommendations to the Board of Directors for the
appointment of independent public accountants for the ensuing year.

The Compensation Committee consists of three directors. This Committee
reviews and recommends to the Board of Directors the compensation and benefits
of all officers of the Company, reviews general policy matters relating to
compensation and benefits of employees of the Company and administers the
Company's stock option plans.

ITEM 2. PROPERTIES

The Company currently occupies an aggregate of approximately 13,500
square feet of office space (approximately 8,250 square feet of which is
laboratory space) in Rockville, Maryland pursuant to two leases. One lease,
representing 1900 square feet, is on a month to month basis and the other lease
expires in April 2003. The leases provide for total annual rent of

25
<PAGE> 26
approximately $241,400 during 1997, subject to specified annual increases. See
Note 1 of Notes to Financial Statements. The Company anticipates that its
current facilities will be sufficient through 1997, at which time it is likely
to require additional or larger space. The Company is presently undertaking to
determine whether to lease additional space or build a new facility.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to certain litigation initiated in August 1995
in the United States District Court for the Eastern District of Tennessee by
Bolling, McCool & Twist, a consulting firm. The suit relates to a claim for
services rendered in the approximate amount of $50,000 and seeks a finder's fee
in an unspecified amount in connection with the BMS Collaboration. In April
1996, the Company filed a motion to compel discovery. Due to the fact that
Bristol-Myers Squibb has been added to the litigation, discovery has not yet
been completed. The Company is unable to predict with certainty the eventual
outcome of the lawsuit. The Company intends to contest the action vigorously
and believes that this proceeding will not have a material adverse effect on
the Company or on its financial statements, although there can be no assurance
that this will be the case.

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

None.

PART II

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

EntreMed's Common Stock trades on the Nasdaq National Market under the
symbol "ENMD". The table below sets forth the high and low sales prices of the
Company's Common Stock as reported by the Nasdaq National Market for the
periods indicated. These prices are based on quotations between dealers, do
not reflect retail mark-up, mark-down or commissions, and do not necessarily
represent actual transactions.

<TABLE>
<S> <C> <C>
1996 High Low
---- ----- ---
Second Quarter (June 19, 1996 - June 30, 1996) 16 1/4 14 7/8
Third Quarter (July 1, 1996 - September 30, 1996) 18 5/8 8 7/8
Fourth Quarter (October 1, 1996 - December 31, 1996) 17 1/4 12

1997
----
First Quarter (January 1, 1997 - March 24, 1997) 18 1/2 12 1/4
</TABLE>

At March 24, 1997, there were approximately 402 shareholders of
record, and as of that date, the Company estimates there were approximately 900
beneficial owners holding stock in nominee or "street" name.

26
<PAGE> 27
The Company has not paid any cash dividends and does not anticipate
paying any cash dividends in the foreseeable future.

In June 1996, the Registrant issued to Bristol-Myers Squibb Company
333,333 shares of Common Stock at a purchase price of $15.00 per share.

In January through March 1996, the Registrant issued an aggregate of
83,991 shares of Common Stock to Samuel R. Dunlap, Jr., a director of the
Registrant, upon the exercise of stock options exercisable at $1.50 per share.

In December 1996, the Registrant issued to a former employee an
aggregate of 15,686 shares of Common Stock upon the exercise of stock options
for an aggregate consideration of $99,998 or $6.375 per share.

Except as otherwise noted above, (i) the above transactions were
private transactions not involving a public offering and were exempt from the
registration provisions of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof, (ii) the sale of securities was without the use of an
underwriter and (iii) the certificates evidencing the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Securities Act of 1933, as amended.

27
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data as of December 31, 1996, and for
each of the five years in the period ended December 31, 1996, are from the
financial statements of EntreMed, Inc., which have been audited by Ernst &
Young LLP, independent auditors. The data should be read in conjunction with
the financial statements, related notes and other financial information
included herein.

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
STATEMENTS OF OPERATIONS DATA: 1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Collaborative research
and development $ 4,425,000 $ 347,501 $ - $ - $ -

License fees 200,000 16,667 - - -
Grant Revenues - 347,001 90,185 - -

Total revenues 4,625,000 711,169 90,185 - -

Expenses:
Research and development 7,553,793 5,939,512 3,673,929 4,772,652 645,752
General and administrative 3,435,501 2,458,976 1,549,705 1,552,143 812,198
Interest expense 27,267 65,754 - - -
Interest income (1,621,729) (44,854) (18,993) (85,939) (56,383)

Net Loss $(4,769,832) $(7,708,219) $(5,114,456) $(6,238,856) $(1,401,567)

Net Loss per share $ (0.49) $ (1.06) $ (0.76) $ (1.04) $ (0.32)

Weighted average number of
shares outstanding 9,745,503 7,271,943 6,713,929 5,982,052 4,331,153

Pro forma net loss per share(1) $ (0.45) $(0.83)

Pro forma weighted average
number of shares
outstanding (1) 10,635,613 9,271,943

BALANCE SHEET DATA:
Cash and cash equivalents
and short-term investments 52,720,829 6,885,099 218,619 2,188,665 1,399,072
Working capital 49,049,124 5,689,810 (332,427) 2,112,738 1,356,666
Total assets 54,146,339 10,146,383 843,742 3,258,995 1,586,691
Deferred revenue, less
current portion 2,236,666 2,741,666 - - -
Accumulated deficit (25,256,803) (20,486,971) (12,778,752) (7,280,210) (1,425,440)
Total stockholders' equity 47,694,191 3,601,260 292,696 2,798,982 1,524,235

- ---------
</TABLE>
(1) Pro forma net loss per share and weighted average shares outstanding for
the years ended December 31, 1995 and 1996 give effect to the automatic
conversion of 3,000,000 outstanding shares of Preferred Stock into 2,000,000
shares of Common Stock on June 19, 1996, the effective date of the Company's
initial public offering. See Notes 1 and 8 of Notes to Financial Statements.

28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report.

OVERVIEW

Since its inception in September 1991, the Company has devoted
substantially all of its efforts and resources to sponsoring and conducting
research and development on its own behalf and through collaborations with
corporate partners and academic research and clinical institutions, and
establishing its facilities and hiring personnel.

With the exception of license fees and research and development
funding from Bristol-Myers Squibb and certain research grants, the Company has
not generated any revenue from operations. For the period from inception to
December 31, 1996, the Company incurred a cumulative net loss of approximately
$25,257,000. The Company has incurred additional losses since such date and
expects to incur additional operating losses for the foreseeable future. In
December 1995, the Company entered into the BMS Collaboration and, through
December 31, 1996, had received approximately $9,735,000 in license and
research and development fees and expense reimbursements and an $11,500,000
equity investment pursuant to this alliance. The Company expects that its
revenue sources for at least the next several years will be limited to research
grants and future collaboration payments from Bristol-Myers Squibb and from
other collaborators under arrangements that may be entered into in the future.
The timing and amounts of such revenues, if any, will likely fluctuate sharply
and depend upon the achievement of specified milestones, and results of
operations for any period may be unrelated to the results of operations for any
other period. See "Business - Collaborations and License Agreements".

RESULTS OF OPERATIONS

Years Ended December 31, 1996, 1995 and 1994

Revenues under collaborative research and development agreements were
approximately $4,425,000, $348,000 and $0 and license fees were approximately
$200,000, $17,000 and $0 in the years ended December 31, 1996, 1995 and 1994,
respectively. The collaborative research and development fees relate to the
amortization over five years of a one-time payment of $2,500,000 ($500,000 and
$42,000 recognized in 1996 and 1995, respectively); the amortization of the
semi-annual payment of $1,835,000 as called for under the BMS Collaboration
($3,670,000 and $306,000 recognized in 1996 and 1995, respectively); and
$255,000 recognized in 1996 as reimbursement for clinical studies. The license
fees represent the amortization over five years of a one-time $1,000,000
license fee under the BMS Collaboration, a portion of which was paid to
Children's Hospital. Approximately one month's amortization of these amounts is
included in 1995 as the BMS Collaboration was entered into in December 1995
compared to twelve full months for 1996. The Company had no collaboration
revenues in 1994. In addition,

29
<PAGE> 30
revenues during 1994 and 1995 included grant revenues from the World Health
Organization and SBIR grants of $90,000 and $347,000, respectively, while there
were no grant revenues in 1996.

Research and development expenses increased by 61.7% from
approximately $3,674,000 in 1994 to $5,940,000 in 1995, reflecting the increase
in expenses relating to the Company's commencing the development programs
related to its antiangiogenesis technology, and increased by 27.2% to
approximately $7,554,000 in 1996, due primarily to increased efforts in the
Company's internal and sponsored research and product development programs
related to its antiangiogenesis and blood cell permeation technologies.
Research and development expenditures included sponsored research payments of
approximately $1,369,000, $2,570,000, and $3,461,000 and internal research and
development expenses of approximately $2,305,000, $3,370,000, and $4,093,000 in
1994, 1995 and 1996, respectively.

General and administrative expenses increased by 39.7% in 1996 to
$3,436,000 from $2,459,000 in 1995 and increased by 59% in 1995 to $2,459,000
from $1,550,000 in 1994. The 1996 increase resulted primarily from increases
in administrative costs associated with being a public company, additional
personnel, and costs associated with defending the Company in the litigation
described in Item 3 hereof. The 1995 increase resulted primarily from
increases in the number of Company personnel resulting from the Company's
expansion. Interest income increased from $19,000 to $45,000 in 1994 and 1995
respectively, and to $1,622,000 in 1996. The 1996 increase is due to the
Company investing in interest-bearing securities the net proceeds from the IPO
and the BMS Collaboration. The Company had interest expense of approximately
$66,000 and $27,000 in 1995 and 1996, respectively, as a result of capital
lease obligations.

LIQUIDITY AND CAPITAL RESOURCES

From inception through December 31, 1996, the Company financed its
operations from (i) the net proceeds of private placements of equity securities
which raised approximately $17,000,000, (ii) payments from Bristol-Myers
Squibb, including $10,065,000 received in December 1995 (of which $6,500,000
was an equity investment) and $11,535,000 received in 1996 (of which $5,000,000
was an equity investment), (iii) various grants from the World Health
Organization and Small Business Innovation Research ("SBIR") grants totalling
approximately $437,000, (iv) its June 1996 IPO which raised net proceeds of
approximately $43,541,000 and (v) proceeds of approximately $654,000 under
capital leases.

Bristol-Myers Squibb is obligated to make additional semi-annual
payments to the Company of $1,835,000 in each of June and December through June
2000 as well as additional payments in the event certain mostly late-stage
regulatory milestones are achieved. Bristol-Myers Squibb may terminate the
collaboration agreement and return the licensed technology to the Company at
any time upon six months' notice, in which event it would have no further
funding obligation to the Company.

At December 31, 1996, the Company had working capital of approximately
$49,000,000. The Company's cash resources have been used to finance research
and development, including sponsored research, capital expenditures, including
leasehold improvements to the Company's

30
<PAGE> 31
laboratory facility, and general and administrative expenses. Over the next
several years, the Company expects to incur substantial additional research and
development costs, including costs related to early-stage research in areas not
reimbursed by Bristol-Myers Squibb, preclinical and clinical trials, increased
administrative expenses to support its research and development operations and
increased capital expenditures for pilot manufacturing capacity, various
equipment needs and facility improvements.

At December 31, 1996, the Company was a party to sponsored research
agreements requiring it to fund an aggregate of approximately $6,380,000
through 1999 (including $5,000,000 to Children's Hospital) and license
agreements requiring milestone payments of up to $4,360,000 and additional
payments upon attainment of regulatory milestones. In addition, the Company
agreed to provide funding to Cytokine Sciences, Inc., its 85% owned subsidiary,
in an aggregate amount of $1,600,000 during the first two years commencing July
2, 1996, with an additional $1,500,000 to be provided at the sole option of the
Company during the third year. The Company is also a party to an office lease
expiring in 2003 with total future minimum lease payments of $1,405,000. See
Note 11 of Notes to Financial Statements.

At December 31, 1996, the Company had available net operating loss
carryforwards of $22,150,000 to offset any future taxable income for federal
tax purposes. The utilization of the loss carryforwards to reduce future income
taxes will depend on the Company's ability to generate sufficient taxable
income prior to the expiration of the net operating loss carryforwards. The
carryforwards begin to expire in the year 2006. However, the Tax Reform Act of
1986 limits the maximum annual use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the stock ownership
of a corporation. For financial reporting purposes, a valuation allowance has
been recognized to reduce the net deferred tax assets to zero due to
uncertainties with respect to the Company's ability to generate taxable income
in the future sufficient to realize the benefit of deferred income tax assets.
See Note 7 of Notes to Financial Statements.

The Company believes that its existing resources and committed funding
from Bristol-Myers Squibb will be sufficient to meet the Company's planned
expenditures during 1997, although there can be no assurance the Company will
not require additional funds. The Company's working capital requirements will
depend upon numerous factors, including the progress of the Company's research
and development programs (which may vary as product candidates are added or
abandoned), preclinical testing and clinical trials, achievement of regulatory
milestones, the Company's corporate partners fulfilling their obligations to
the Company, the timing and cost of seeking regulatory approvals, the level of
resources that the Company devotes to the development of manufacturing,
marketing and sales capabilities, if any, technological advances, the status of
competitors, the ability of the Company to maintain existing and establish new
collaborative arrangements with other companies to provide funding to the
Company to support these activities and other factors. In any event, the
Company will require substantial funds in addition to the present existing
working capital to develop its product candidates and otherwise to meet its
business objectives.

31
<PAGE> 32
INFLATION

Management does not believe that inflation has a material impact on
the Company's results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted in a separate section of this
report. See Index to Consolidated Financial Statements on Page F-1.

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

None.

PART III

The information called for by Item 10: Directors and Executive
Officers of the Registrant; Item 11: Executive Compensation; Item 12: Security
Ownership of Certain Beneficial Owners and Management; and Item 13: Certain
Relationships and Related Transactions will be included in and is incorporated
by reference from the registrant's definitive proxy statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 within 120
days after the close of its fiscal year.

32
<PAGE> 33
RISK FACTORS

History of Losses; Accumulated Deficit and Anticipated Future Losses.
To date, the Company has been engaged primarily in research and development
activities and, with the exception of license fees and research and development
funding under the BMS Collaboration and research grants, has not derived any
revenues from operations. At December 31, 1996, the Company had an accumulated
deficit of approximately $25,257,000 and significant losses have continued and
are expected to continue for the foreseeable future. The Company will be
required to conduct substantial research and development and clinical testing
activities for all of its proposed products, which activities are expected to
result in operating losses for the foreseeable future, particularly due to the
extended time period before the Company expects to commercialize any products,
if ever. In addition, to the extent the Company relies upon others for
development and commercialization activities, the Company's ability to achieve
profitability will be dependent upon the success of such third parties. There
can be no assurance that the Company will be able to generate revenues from
operations or achieve profitability on a sustained basis, if at all.

Early Stage and Uncertainty of Product Development. The Company's
proposed products and research programs are in the early developmental stage
and require significant time-consuming and costly research and development,
testing and regulatory clearances. Accordingly, the Company does not expect
any of its product candidates to be commercially available for several years,
if ever. The successful development of any product is subject to the risks of
failure inherent in the development of products or therapeutic procedures based
on innovative technologies. These risks include the possibilities that any or
all of these proposed products or procedures are found to be ineffective or
toxic, or otherwise fail to receive necessary regulatory clearances; that the
proposed products or procedures are uneconomical to manufacture or market or do
not achieve broad market acceptance; that third parties hold proprietary rights
that preclude the Company from marketing them; or that third parties market a
superior or equivalent product. The failure of the Company's research and
development activities to result in any commercially viable products would
materially adversely affect the Company's future prospects.

Uncertainties Related to Clinical Trials. The Company has limited
experience in conducting clinical trials and intends to rely primarily on
Bristol-Myers Squibb or other pharmaceutical companies with which it may
collaborate in the future for clinical development and regulatory approval of
its product candidates. Before obtaining regulatory approvals for the
commercial sale of its products, the Company or its collaborative partners will
be required to demonstrate through preclinical studies and clinical trials that
the proposed products are safe and effective for use in each target indication.
The results from preclinical studies and early clinical trials may not be
predictive of results that will be obtained in large-scale testing, and there
can be no assurance that the clinical trials conducted by the Company or its
partners will demonstrate sufficient safety and efficacy to obtain the
required regulatory approvals or will result in marketable products. One of the
Company's potential products, thalidomide, is believed to have caused severe
birth defects in children during the late 1950s and early 1960s. Although the
Company believes that the characteristics of thalidomide that may have affected
fetal development and caused birth defects

33
<PAGE> 34
by blocking new blood vessel growth may make thalidomide useful in the
prevention and treatment of angiogenic disorders, there can be no assurance
that clinical trials with the drug will demonstrate its safety and efficacy or
that the drug will not be associated with other characteristics that prevent or
limit its commercial use.

In addition, clinical trials are often conducted with patients having
the most advanced stages of disease. During the course of treatment, these
patients can die or suffer other adverse medical effects for reasons that may
not be related to the pharmaceutical agent being tested, but which can
nevertheless affect clinical trial results. Various companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after attaining promising results in earlier trials. Clinical
trials for the product candidates being developed by the Company and its
collaborators may be delayed by many factors. Any delays in, or termination of,
the clinical trials of any of the Company's product candidates, or the failure
of any clinical trials to meet applicable regulatory standards, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Dependence on Bristol-Myers Squibb and Other Collaborative Partners
and Licensees. The Company does not intend to conduct late-stage clinical
trials, or manufacture or market any of its product candidates in the
foreseeable future. The Company has granted Bristol-Myers Squibb the right to
conduct development, manufacturing, commercialization and marketing activities
relating to certain of the Company's antiangiogenesis technologies.
Accordingly, the Company is substantially dependent on Bristol-Myers Squibb for
the development, funding and commercial success of any of these product
candidates. In addition, payments from Bristol-Myers Squibb may constitute a
substantial portion of the Company's revenues for the next several years. The
BMS Collaboration may be terminated for any reason by Bristol-Myers on six
months' notice, in which event Bristol-Myers Squibb would have no further
funding obligation to the Company. In the event Bristol-Myers Squibb were to
terminate its agreement with the Company or otherwise fail to conduct its
collaborative activities successfully and in a timely manner, the preclinical
and clinical development or commercialization of the licensed antiangiogenesis
product candidates would be delayed or terminated. Any such delay or
termination could have a material adverse effect on the Company's business,
financial condition and results of operations. The success of the BMS
Collaboration will depend in part upon Bristol-Myers Squibb's own competitive,
marketing and strategic considerations, including the relative advantages of
alternative products being developed and marketed by Bristol-Myers Squibb and
its competitors. In addition, if Bristol-Myers Squibb is unsuccessful in
commercializing any product candidates, the Company's business, financial
condition and results of operations would be materially adversely affected.
Bristol-Myers Squibb has agreed, as soon as reasonably practicable, to
sublicense to a third party ophthalmological applications of thalidomide and
its analogs, unless Bristol-Myers Squibb reasonably believes that the dosage or
method of administration will not be significantly different from oncological
indications. Any failure or delay by Bristol-Myers Squibb to enter into such a
sublicense may substantially limit or preclude the commercial development of
these applications.

The Company intends to enter into additional corporate alliances to
develop and commercialize products based upon its cell permeation technology
and any other technologies that may be acquired or developed by the Company.
The Company expects to grant to its

34
<PAGE> 35
collaborative partners rights to commercialize any products developed under
these collaborative agreements, and the Company may rely on its collaborative
partners to conduct research and development efforts and clinical trials on,
obtain regulatory approvals for, and manufacture and market any products
licensed to these partners. The amount and timing of resources devoted to these
activities generally will be controlled by each such individual partner.
Because the Company generally expects to retain only a royalty interest in
sales or a percentage of profits of products licensed to third parties, its
revenues may be less than if it retained all commercialization rights and
marketed products directly. In addition, there can be no assurance that the
corporate partners will not pursue alternative technologies or develop
competitive products as a means for developing treatments for the diseases
targeted by the Company's programs.

There can be no assurance that the Company will be successful in
establishing any additional collaborative arrangements, that products will be
successfully commercialized under any collaborative arrangement or that the
Company will derive any revenues from such arrangements. In addition, the
Company's strategy involves entering into multiple, concurrent strategic
alliances to pursue commercialization of its core technologies. There can be no
assurance that the Company will be able to manage simultaneous programs
successfully. With respect to existing and potential future strategic alliances
and collaborative arrangements, the Company will be dependent upon the
expertise and dedication of sufficient resources by these outside parties to
develop, manufacture or market products. Should a strategic alliance or
collaborative partner fail to develop or commercialize a product to which it
has rights, the Company's business, financial condition and results of
operations could be materially and adversely affected.

Future Capital Needs and Commitments; Uncertainty of Additional
Funding. The Company has incurred negative cash flows since inception and has
expended, and expects to continue to expend, substantial funds to continue its
research and development programs. The Company anticipates that its existing
resources and committed funding from Bristol-Myers Squibb, will be sufficient
to meet the Company's planned expenditures during 1997, although there can be
no assurance that the Company will not require additional funds. There can be
no assurance that the results of research and development activities, progress
of preclinical studies or clinical trials, changes in or terminations of
relationships with strategic partners, changes in the focus, direction or costs
of the Company's research and development programs, competitive and
technological advances, the regulatory approval process or other factors will
not result in the expenditure of the Company's resources before such time. The
Company will require substantial funds in addition to existing working capital
to develop its product candidates and otherwise to meet its business objective.

The Company is a party to sponsored research agreements requiring it
to fund $6,380,000 through 1999 (including $5,000,000 to Children's Hospital).
Pursuant to the terms of certain license agreements, the Company is also
obligated to exercise diligence in bringing potential products to market and to
make certain milestone payments that, in some instances, are substantial. The
Company's failure to make any required sponsored research or milestone payment
could result in the termination of the relevant sponsored research or license
agreement, which could have a material adverse effect on the Company.

35
<PAGE> 36
The Company may seek additional funding through collaborative
arrangements and public or private financings, including equity financings.
There can be no assurance that such collaborative arrangements or that
additional financing will be available on acceptable terms or at all. If
additional funds are raised by issuing equity securities, dilution to
stockholders may result. If adequate funds are not available, the Company may
be required to delay, reduce the scope of or eliminate one or more of its
research and development programs or forfeit its rights to future technologies;
to obtain funds through arrangements with collaborative partners or others that
may require the Company to relinquish rights to certain of its technologies,
product candidates or products that the Company would otherwise seek to develop
or commercialize itself; or to license the rights to such products on terms
that are not favorable to the Company.

Uncertainty of Government Regulatory Requirements; Lengthy Approval
Process. The Company's research, development, preclinical and clinical trials,
manufacturing and marketing of most of its product candidates are subject to an
extensive regulatory approval process by the United States Food and Drug
Administration (the "FDA") and other regulatory agencies in the United States
and abroad. The process of obtaining FDA and other required regulatory
approvals for drug and biologic products, including required preclinical and
clinical testing, is lengthy, expensive and uncertain. There can be no
assurance that, even after such time and expenditures, the Company will be able
to obtain necessary regulatory approvals for clinical testing or for the
manufacturing or marketing of any products. The Company or its collaborators
may encounter significant delays or excessive costs in their efforts to secure
necessary approvals or licenses. Even if regulatory clearance is obtained, a
marketed product is subject to continual review, and later discovery of
previously unknown defects or failure to comply with the applicable regulatory
requirements may result in restrictions on a product's marketing or withdrawal
of the product from the market as well as possible civil or criminal sanctions.

Competition; Risk of Technological Obsolescence. The pharmaceutical,
biotechnology and bio-pharmaceutical industries are intensely competitive and
competition from other companies and other research and academic institutions
is expected to increase. Many of these companies have substantially greater
financial and other resources and research and development capabilities than
the Company and have substantially greater experience in undertaking
preclinical and clinical testing of products, obtaining regulatory approvals
and manufacturing and marketing pharmaceutical products. The Company is aware
of other companies engaged in the development of thalidomide for various
disease indications, including Celgene Corporation and Andrulis
Pharmaceuticals, and a number of other companies and academic institutions are
pursuing angiogenesis research and are testing other angiogenesis inhibitors.
The Company's blood oxygen enhancement product candidate will also compete for
certain applications with numerous other available therapeutics and with blood
and blood substitute products in development by others. In addition to
competing with universities and other research institutions in the development
of products, technologies and processes, the Company may compete with other
companies in acquiring rights to products or technologies from universities.

Moreover, the pharmaceutical, biotechnology and biopharmaceutical
industries are rapidly evolving fields in which developments are expected to
continue at a rapid pace. There can be no assurance that the Company will
develop products that are more effective or achieve greater

36
<PAGE> 37
market acceptance than competitive products, or that the Company's competitors
will not succeed in developing products and technologies that are more
effective than those being developed by the Company or that would render the
Company's products and technologies less competitive or obsolete.

Dependence on Patents and Other Proprietary Rights; Uncertainty of
Patent Position and Proprietary Rights. The Company's success will depend in
part on its ability to obtain patent protection for its products, both in the
United States and abroad. The patent position of biotechnology and
pharmaceutical companies in general is highly uncertain and involves complex
legal and factual questions. There can be no assurance that any additional
patents will be granted or that patents issued to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection to the Company. Furthermore, there can be
no assurance that others will not independently develop similar products or, on
patents issued to the Company or its collaborators, will not design around such
patents.

Furthermore, the enactment of the legislation implementing the General
Agreement on Trade and Tariffs has resulted in certain changes to United States
patent laws that became effective on June 8, 1995. Most notably, the term of
patent protection for patent applications filed on or after June 8, 1995 is no
longer a period of seventeen years from the date of grant. The new term of a
United States patent will commence on the date of issuance and terminate twenty
years from the earliest effective filing date of the application. Because the
time from filing to issuance of biotechnology patent application is often more
than three years, a twenty-year term from the effective date of filing may
result in a substantially shortened term of patent protection, which may
adversely impact the Company's patent position. If this change results in a
shorter period of patent coverage, the Company's business could be adversely
affected to the extent that the duration and level of the royalties it is
entitled to receive from a collaborative partner is based on the existence of a
valid patent.

The Company's potential products may conflict with patents which have
been or may be granted to competitors, universities or others. As the
biotechnology industry expands and more patents are issued, the risk increases
that the Company's potential products may give rise to claims that they
infringe the patents of others. Such other persons could bring legal actions
against the Company claiming damages and seeking to enjoin clinical testing,
manufacturing and marketing of the affected products. Any such litigation could
result in substantial cost to the Company and diversion of effort by the
Company's management and technical personnel. If any such actions are
successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to manufacture or
market the affected products. There can be no assurance that the Company would
prevail in any such action or that any license required under any such patent
would be made available on acceptable terms, if at all. Failure to obtain
needed patents, licenses or proprietary information held by others may have a
material adverse effect on the Company's business. In addition, if the Company
becomes involved in such litigation, it could consume a substantial portion of
the Company's time and resources.

Composition of matter patent protection is not available for
thalidomide. The Company is aware of at least two other issued patents covering
certain non-antiangiogenic uses of

37
<PAGE> 38
thalidomide. Although the Company believes that the claims in such patents will
not interfere with the Company's proposed use of thalidomide, there can be no
assurance that the holders of such patents will not be able to exclude the
Company from using thalidomide for other non-antiangiogenic uses of
thalidomide.

The Company also relies on trade secret protection for its
confidential and proprietary information. However, trade secrets are difficult
to protect and there can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets or disclose such
technology, or that the Company can meaningfully protect its rights to
unpatented trade secrets. The Company requires its employees, consultants and
advisors to execute a confidentiality agreement upon the commencement of an
employment or consulting relationship with the Company. The agreements
generally provide that all trade secrets and inventions conceived by the
individual and all confidential information developed or made known to the
individual during the term of the relationship shall be the exclusive property
of the Company and shall be kept confidential and not disclosed to third
parties except in specified circumstances. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information.

To the extent that consultants, key employees or other third parties
apply technological information independently developed by them or by others to
the Company's proposed projects, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.
Certain of the Company's consultants are employed by or have consulting
agreements with third parties and any inventions discovered by such individuals
generally will not become property of the Company.

Dependence Upon Key Personnel and Consultants. The Company is
dependent on certain of its executive officers and scientific personnel,
including John W. Holaday, Ph.D., the Company's Chairman, President and Chief
Executive Officer. The Company has obtained and is the beneficiary of key
person life insurance policies in the face amount of $1,000,000 on the life of
Dr. Holaday and, in April 1996 effective January 1, 1996, entered into a
three-year employment agreement with Dr. Holaday. Competition for qualified
employees among pharmaceutical and biotechnology companies is intense, and the
loss of certain of such persons, or an inability to attract, retain and
motivate additional highly skilled scientific, technical and management
personnel, could materially adversely affect the Company's business and
prospects. There can be no assurance that the Company will be able to retain
its existing personnel or attract and retain additional qualified employees.

The Company may also be dependent, in part, upon the continued
contributions of the lead investigators of the Company's sponsored research
programs. The Company's scientific consultants and collaborators may have
commitments to or consulting or advisory agreements with other entities that
may affect their ability to contribute to the Company or may be competitive
with the Company. Inventions or processes discovered by such persons will not
necessarily become the property of the Company, but may remain the property of
such persons or of such persons' full-time employers.

38
<PAGE> 39
Risk of Product Liability; Availability of Insurance. The use of the
Company's potential products in clinical trials and the marketing of any
pharmaceutical products may expose the Company to product liability claims. The
Company has obtained a level of liability insurance coverage that it deems
appropriate for its current stage of development. However, there can be no
assurance that the Company's present insurance coverage is adequate. Such
existing coverage will not be adequate as the Company further develops
products, and no assurance can be given that in the future adequate insurance
coverage or indemnification by collaborative partners will be available in
sufficient amounts or at a reasonable cost. A successful product liability
claim could have a material adverse effect on the business and financial
condition of the Company.

Uncertainty Related to Health Care Reimbursement and Reform Measures.
The Company's success may depend, in part, on the extent to which reimbursement
for the costs of therapeutic products and related treatments will be available
from third-party payors such as government health administration authorities,
private health insurers, managed care programs and other organizations. Over
the past decade, the cost of health care has risen significantly, and there
have been numerous proposals by legislators, regulators and third-party health
care payors to curb these costs. Some of these proposals have involved
limitations on the amount of reimbursement for certain products. There can be
no assurance that similar federal or state health care legislation will not be
adopted in the future or that any products sought to be commercialized by the
Company or its collaborators will be considered cost-effective or that adequate
third-party insurance coverage will be available for the Company to establish
and maintain price levels sufficient for realization of an appropriate return
on its investment in product development. Moreover, the existence or threat of
cost control measures could have an adverse effect on the willingness or
ability of Bristol-Myers Squibb or other potential collaborators to pursue
research and development programs related to the Company's product candidates.

Hazardous Materials. The Company's research and development involves
the controlled use of hazardous, controlled and radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could have a material adverse effect
on of the Company.

No Manufacturing or Marketing Capacity. The Company does not
generally expect to engage directly in manufacturing or marketing of products
in the near term, but may elect to do so in certain cases. The Company does not
currently have the capacity to manufacture or market products or any experience
in such activities. If the Company elects to perform these functions, the
Company will be required to either develop these capacities, or contract with
others to perform some or all of these tasks. The Company may be dependent to a
significant extent on corporate partners, licensees or other entities for
manufacturing and marketing of products. If the Company engages directly in
manufacturing or marketing, the Company will require substantial

39
<PAGE> 40
additional funds and personnel and will be required to comply with extensive
regulations applicable to such a facility. There can be no assurance that the
Company will be able to develop or contract for these capacities when required
in connection with the Company's business.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

(a) 1. FINANCIAL STATEMENTS An index to Consolidated Financial Statements
appears on page F-1.

2. Schedules

All financial statement schedules are omitted because they are not
applicable, not required under the instructions or all the information
required is set forth in the financial statements or notes thereto.

3. Exhibits

3.1* Amended and Restated Certificate of Incorporation of the
Registrant

3.2* Form of Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant

3.3* By-laws of the Registrant

10.1* Research Collaboration and License Agreement, dated
December 7, 1995, between the Registrant and Bristol-Myers
Squibb Company ("BMS")

10.2* Restricted Stock Purchase Agreement, dated December 7,
1995, between the Registrant and BMS

10.3* Warrant to Purchase Common Stock, dated December 7, 1995,
issued by the Registrant to BMS

10.4* Registration Rights Agreement, dated December 7, 1995,
between the Registrant and BMS

10.5* Research Agreement, dated September 29, 1993,
between the Registrant and Children's Hospital

10.6* Amendment to Research Agreement, dated August 23, 1995,
between the

40
<PAGE> 41

Registrant and Children's Hospital

10.7* License Agreement, dated May 26, 1994, between Children's
Medical Center Corporation ("CMCC") and the Registrant

10.8* Amendment to License Agreement, dated August 23, 1995,
between CMCC and the Registrant

10.9* License Agreement, dated May 26, 1994, between CMCC and the
Registrant

10.10* Amendment to License Agreement, dated August 23, 1995,
between CMCC and the Registrant

10.11* Sponsored Research Agreement, dated November 5, 1992,
between the Registrant and CBR Laboratories, Inc. ("CBRL")

10.12* Licensing Agreement, dated November 5, 1992, between the
Registrant and CBRL

10.13* Employment Agreement, dated as of January 1, 1996, between
the Registrant and John W. Holaday, Ph.D.

10.14* 1992 Stock Incentive Plan

10.15* Amended and Restated 1996 Stock Option Plan

10.16* Form of Stock Option Agreement

10.17* Consulting Agreement between the Registrant and Samuel R.
Dunlap, Jr.

10.18* Consulting Agreement between the Registrant and Steve
Gorlin (superseded by Exhibit 10.18a)

10.18(a)* Termination Agreement dated May 15, 1996 effective August
1, 1996, between the Registrant and Steve Gorlin

10.19* Master Equipment Lease Agreement, dated April 10, 1995,
between the Registrant and MMC/GATX Partnership No. 1

10.20* Lease between the Registrant and Red Gate III Limited
Partnership

10.21* Form of Indemnification Agreement

10.22* Research and License Agreement, dated August 1993, between
the Registrant and Innovative Therapeutics, Inc.

<PAGE> 42
10.23** Agreement between Cytokine Sciences, Inc. and Innovative
Therapeutics, Inc.

10.24+ License Agreement between Children's Hospital Medical
Center Corporation and EntreMed, Inc. signed December 5,
1996 regarding Endostatin, An Inhibitor of Angiogenesis.

10.25+ License Agreement between Children's Hospital Medical
Center Corporation and EntreMed, Inc. signed December 20,
1996 regarding Estrogenic Compounds as Anti-Mitotic
Agents.

11.1 Computation of per share data

21 Subsidiaries of the Registrant

27.1 Financial Data Schedule

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

* Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-3536) declared effective by the Securities and
Exchange Commission on June 11, 1996.

** Incorporated by reference to the Company's Form 10-Q for the quarter
ended June 30, 1996 previously filed with the Securities and Exchange
Commission.

+ Confidential treatment has been requested.

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

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the three
month period ended December 31, 1996.

42
<PAGE> 43
ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CERTAIN EXHIBITS

YEAR ENDED DECEMBER 31, 1996

<PAGE> 44
FORM 10-K - ITEM 14(a)(1) AND (2)

ENTREMED, INC. AND SUBSIDIARIES

List of Financial Statements and Financial Statement Schedules

The following consolidated financial statements of EntreMed, Inc. and
subsidiaries are included in Item 8:

<TABLE>
<S> <C>
Report of Independent Auditors...........................................................................F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995.............................................F-2
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994...............F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994.....F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994...............F-5
Notes to Consolidated Financial Statements...............................................................F-6
</TABLE>

The following consolidated financial statement schedules of EntreMed, Inc.
and subsidiaries are included in Item 14(d):

None

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

<PAGE> 45

Report of Independent Auditors

Board of Directors
EntreMed, Inc.

We have audited the accompanying consolidated balance sheets of EntreMed, Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

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

/s/ ERNST & YOUNG LLP

Atlanta, Georgia
February 11, 1997

F-1
<PAGE> 46

EntreMed, Inc.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,051,206 $ 6,885,099
Short-term investments 19,669,623 -
Account receivable (Notes 5 and 12) - 2,500,000
Interest receivable 401,673 4,016
Prepaid expenses and other 97,962 -
--------------------------------------------
Total current assets 53,220,464 9,389,115

Furniture and equipment, net 824,559 754,399

Other assets 101,316 2,869
--------------------------------------------
Total assets $ 54,146,339 $ 10,146,383
============================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 600,303 $ 367,250
Accrued liabilities 957,718 341,776
Capital leases payable 104,152 396,113
Deferred revenue (Note 5) 2,509,167 2,594,166
--------------------------------------------
Total current liabilities 4,171,340 3,699,305

Capital leases payable, less current portion - 104,152
Deferred revenue, less current portion (Note 5) 2,236,666 2,741,666

Minority interest 44,142 -

Stockholders' equity:
Convertible preferred stock, $1.00 par and $1.50 liquidation
value:
5,000,000 shares authorized, none and 3,000,000 shares issued
and outstanding at December 31, 1996 and 1995, respectively - 3,000,000
Common stock, $.01 par value:
20,000,000 shares authorized, 12,009,598 and 6,376,588 shares
issued and outstanding at December 31, 1996 and 1995,
respectively 120,096 63,766
Additional paid-in capital 72,830,898 21,024,465
Accumulated deficit (25,256,803) (20,486,971)
--------------------------------------------
Total stockholders' equity 47,694,191 3,601,260
--------------------------------------------
Total liabilities and stockholders' equity $ 54,146,339 $ 10,146,383
============================================
</TABLE>

See accompanying notes.

F-2
<PAGE> 47

EntreMed, Inc.

Consolidated Statements of Operations

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Collaborative research and development (Note 5) $ 4,425,000 $ 347,501 $ -
Licensing (Note 5) 200,000 16,667 -
Grant revenues - 347,001 90,185
--------------------------------------------------------
4,625,000 711,169 90,185

Costs and expenses:
Research and development 7,553,793 5,939,512 3,673,929
General and administrative 3,435,501 2,458,976 1,549,705
--------------------------------------------------------
10,989,294 8,398,488 5,223,634

Interest expense (27,267) (65,754) -
Investment income 1,621,729 44,854 18,993
--------------------------------------------------------

Net loss $ (4,769,832) $ (7,708,219) $(5,114,456)
========================================================

Net loss per share $ (0.49) $ (1.06) $ (0.76)
========================================================

Weighted average number of shares outstanding 9,745,503 7,271,943 6,713,929
========================================================

Pro forma net loss per share $ (0.45) $ (0.83)
=====================================

Pro forma weighted average number of shares
outstanding 10,635,613 9,271,943
=====================================
</TABLE>

See accompanying notes.

F-3
<PAGE> 48

EntreMed, Inc.

Consolidated Statements of Stockholders' Equity

COMMON STOCK PREFERRED STOCK
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 4,561,962 $ 45,619 3,000,000 $ 3,000,000
Issuance of common stock for options exercised at
$1.50 per share 33,331 333 - -
Issuance of common stock for compensation to
employees at $6.00 per share 15,660 157 - -
Issuance of common stock for consulting services
at $6.00 per share 6,666 67 - -
Sale of common stock at $6.38 per share, net of
offering costs of approximately $422,000 446,482 4,465 - -
Net loss - - - -
------------------------------------------------------------
Balance at December 31, 1994 5,064,101 50,641 3,000,000 3,000,000
Issuance of common stock for options exercised at
$1.50 per share 42,663 427 - -
Issuance of common stock for compensation to
directors at $6.38 per share 12,150 121 - -
Sale of common stock at $6.38 per share, net of
offering costs of approximately $180,000 710,862 7,109 - -
Sale of common stock in connection with research
agreement at $12.00 per share 541,666 5,417 -
Sale of common stock at $12.00 per share 5,146 51 - -
Net loss - - - -
------------------------------------------------------------
Balance at December 31, 1995 6,376,588 63,766 3,000,000 3,000,000
Issuance of common stock for options exercised at
$2.27 per share 99,677 997 - -
Initial public offering of 3,200,000 shares of
common stock and private placement of 333,333
shares at $15.00 per share, net of offering
costs of approximately $4,459,000 3,533,333 35,333 - -
Automatic conversion of preferred stock to common
stock upon initial public offering 2,000,000 20,000 (3,000,000) (3,000,000)
Warrants issued for consulting services - - - -
Net loss - - - -
------------------------------------------------------------
Balance at December 31, 1996 12,009,598 $120,096 - $ -
------------------------------------------------------------
<CAPTION>

ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
----------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1994 $ 7,417,659 $ (7,664,296) $ 2,798,982
Issuance of common stock for options exercised at
$1.50 per share 49,667 - 50,000
Issuance of common stock for compensation to
employees at $6.00 per share 93,843 - 94,000
Issuance of common stock for consulting services
at $6.00 per share 39,933 - 40,000
Sale of common stock at $6.38 per share, net of
offering costs of approximately $422,000 2,419,705 - 2,424,170
Net loss - (5,114,456) (5,114,456)
----------------------------------------------
Balance at December 31, 1994 10,020,807 (12,778,752) 292,696
Issuance of common stock for options exercised at
$1.50 per share 63,573 - 64,000
Issuance of common stock for compensation to
directors at $6.38 per share 77,379 - 77,500
Sale of common stock at $6.38 per share, net of
offering costs of approximately $180,000 4,306,382 - 4,313,491
Sale of common stock in connection with research
agreement at $12.00 per share 6,494,583 - 6,500,000
Sale of common stock at $12.00 per share 61,741 - 61,792
Net loss - (7,708,219) (7,708,219)
----------------------------------------------
Balance at December 31, 1995 21,024,465 (20,486,971) 3,601,260
Issuance of common stock for options exercised at
$2.27 per share 225,002 - 225,999
Initial public offering of 3,200,000 shares of
common stock and private placement of 333,333
shares at $15.00 per share, net of offering
costs of approximately $4,459,000 48,505,431 - 48,540,764
Automatic conversion of preferred stock to common
stock upon initial public offering 2,980,000 - -
Warrants issued for consulting services 96,000 - 96,000
Net loss - (4,769,832) (4,769,832)
----------------------------------------------
Balance at December 31, 1996 $72,734,898 $(25,256,803) $47,694,191
==============================================
</TABLE>

See accompanying notes.

F-4
<PAGE> 49

EntreMed, Inc.

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,769,832) $(7,708,219) $(5,114,456)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 190,960 201,593 153,015
Stock and warrants issued for compensation and
consulting expense 96,000 77,500 134,000
Changes in assets and liabilities:
Account receivable (Note 5) 2,500,000 (2,500,000) -
Interest receivable (397,657) (4,016) -
Prepaid expenses and other (98,360) - -
Accounts payable 233,053 (183,796) 475,119
Accrued liabilities 615,942 341,776 -
Deferred revenue (Note 5) (589,999) 5,335,832 -
-----------------------------------------------
Net cash used by operating activities (2,219,893) (4,439,330) (4,352,322)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (34,563,369) - -
Sales of short-term investments 14,893,746 - -
Other investments (100,000) - -
Purchases of furniture and equipment (215,027) (210,829) (91,894)
-----------------------------------------------
Net cash used by investing activities (19,984,650) (210,829) (91,894)

CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 48,766,763 10,939,283 2,474,170
Proceeds from sale lease-back - 654,020 -
Payment of lease obligation (396,113) (276,664) -
Repayment of note payable - (510,000) -
Proceeds from note payable - 510,000 -
-----------------------------------------------
Net cash provided by financing activities 48,370,650 11,316,639 2,474,170

Net increase (decrease) in cash and cash equivalents 26,166,107 6,666,480 (1,970,046)
Cash and cash equivalents at beginning of year 6,885,099 218,619 2,188,665
-----------------------------------------------
Cash and cash equivalents at end of year $ 33,051,206 $ 6,885,099 $ 218,619
===============================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND
NONCASH INVESTMENT AND FINANCING ACTIVITIES
Interest paid $ 27,267 $ 65,754 $ -
===============================================
Purchase of furniture and equipment in exchange for
minority interest $ 44,118 $ - $ -
===============================================
Equipment purchased under capital lease $ - $ 122,909 $ -
===============================================
</TABLE>

See accompanying notes.

F-5
<PAGE> 50

EntreMed, Inc.

Notes to Consolidated Financial Statements

Years ended December 31, 1996, 1995 and 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

EntreMed, Inc. (the "Company") is engaged primarily in the research and
development of biopharmaceutical products that address the role of blood and
blood vessels in the prevention and treatment of a broad range of diseases. The
Company's core technologies include (i) an antiangiogenesis program focused on
the development of proprietary products intended to inhibit the abnormal growth
the new blood vessels associated with cancer and certain causes of blindness
and (ii) a blood cell permeation device designed to enhance the ability of red
blood cells to deliver oxygen to organs and tissues and which may also be used
to deliver drugs, genes or other therapeutic agents that otherwise would not
readily diffuse through blood cell membranes.

The Company's strategy is to accelerate development of its antiangiogenesis and
cell permeation technologies as well as other promising technologies which the
Company perceives to have clinical and commercial potential. The principal
elements of the Company's strategy are (i) to focus its resources on current
core technologies, (ii) to broaden its product and technology portfolio through
sponsored research collaborations with academic institutions, government
organizations and private enterprises, (iii) to augment product development
with its in-house research and development capabilities and (iv) to leverage
its resources through corporate partnerships in order to minimize the cost to
the Company of late-stage clinical trials and to accelerate effective product
commercialization. All of the Company's product candidates are in the
development stage and require further research, development, testing and
regulatory clearances.

The Company was organized in September 1991 as a Delaware Corporation and from
inception through December 1995 was in the development stage. In December 1995,
the Company and Bristol-Myers Squibb Company ("Bristol-Myers Squibb") entered
into a collaboration to develop and commercialize certain antiangiogenesis
therapeutics (see Note 5). The Company received 100% and 50% of its revenues
from Bristol-Myers Squibb in 1996 and 1995, respectively, and expects this
concentration to continue in future years.

The accompanying consolidated financial statements include the accounts of the
Company's 85% owned subsidiary, Cytokine Sciences, Inc. Cytokine was formed in
June 1996 for the purpose of acquiring the assets of Innovative Therapeutics,
Inc. in

F-6
<PAGE> 51
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)

July 1996 in exchange for 15% of the common stock of Cytokine valued at
approximately $44,000. All intercompany balances and transactions have been
eliminated in consolidation. Minority interest expense of $24 is included in
general and administrative expenses for the year ended December 31, 1996.

RESEARCH AND DEVELOPMENT

Research and development expenses consist of independent proprietary research
and development costs, the costs associated with work performed under
collaborative research agreements and the Company's sponsored funding of
research programs performed by others. Research and development costs are
expensed as incurred.

PATENT COSTS

Costs incurred in filing, prosecuting and maintaining patents are expensed
as incurred. Such costs aggregated approximately $565,000, $454,600 and
$455,800 in 1996, 1995 and 1994, respectively.

INVESTMENTS

The Company invests in various debt securities. These investments are accounted
for in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which
requires certain debt securities to be reported at amortized cost, certain debt
and equity securities to be reported at market with current recognition of
unrealized gains and losses, and certain debt and equity securities to be
reported at market with unrealized gains and losses as a separate component of
stockholders' equity.

Management determines the appropriate classification of investments as
held-to-maturity or available-for-sale at the time of purchase and re-evaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and

F-7
<PAGE> 52
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENTS (CONTINUED)

losses, net of tax, reported in stockholders' equity. The amortized cost of
debt securities in this category is adjusted for the amortization of premiums
and accretion of discounts to maturity. Such amortization is included as
investment income. Realized gains and losses and declines in value judged to be
other-than-temporary on the available-for-sale securities are included in
investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost and are depreciated over their
expected useful lives. Depreciation is provided on a straight-line basis.
Amortization associated with capitalized leases is included in depreciation
expense. Furniture and equipment are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
--------------------------------
<S> <C> <C>
Furniture and equipment $1,200,373 $ 941,226
Less: accumulated depreciation (375,814) (186,827)
--------------------------------
$ 824,559 $ 754,399
================================
</TABLE>

CASH EQUIVALENTS

Cash equivalents include cash and short-term investments with original
maturities of less than 90 days.

INCOME TAXES

Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.

F-8
<PAGE> 53
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Revenue from the collaborative research and development agreement is recorded
when earned as defined under the terms of the agreement. Nonrefundable fees
received upon contract signing are recorded as deferred revenue and recognized
over the term of the agreement mentioned in Note 5. Revenues related to grants
received for specific project proposals are recognized in revenue as earned in
accordance with specified provisions, including performance requirements, in
the contracts. Other periodic research funding payments received which are
related to future performance are deferred and recognized as income when
earned.

NET LOSS PER SHARE

Pro forma net loss per common share is calculated using the weighted average
number of common and common equivalent shares outstanding during 1996 and 1995
assuming the conversion of the convertible preferred stock at the beginning of
each respective period. Net loss per share is based on the weighted average
number of common shares outstanding. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common and convertible preferred
stock issued for consideration below the initial public offering (the "IPO")
price of $15.00 and stock options and warrants issued with exercise prices
below the IPO price during the twelve-month period preceding the initial filing
of the registration statement (commonly referred to as "Cheap Stock"), have
been included in the calculation of common shares using the treasury stock
method, as if they were outstanding for all periods prior to the effective date
of the IPO.

F-9
<PAGE> 54
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET LOSS PER SHARE (CONTINUED)

The net loss per share amounts as required by generally accepted accounting
principles, which do not give effect to the pro forma conversion of preferred
stock and Cheap Stock described above, or any stock option or warrant common
share equivalents considered antidilutive, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Net loss per share $ (0.50) $ (1.41) $ (1.09)
============================================
Weighted average common and common
equivalent shares outstanding during
the period 9,532,671 5,485,763 4,712,776
============================================
</TABLE>

STOCK BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("SFAS 123") sets forth accounting and reporting standards for
stock based employee compensation plans (see Note 9). As permitted by SFAS 123,
the Company continues to account for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB No. 25, no compensation expense is recognized for
stock or stock options issued at fair market value. Accordingly, adoption of
SFAS 123 has not affected the Company's results of operations or financial
position.

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.

F-10
<PAGE> 55
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

2. RELATED PARTY TRANSACTIONS

During 1995, the Company borrowed approximately $510,000 from related parties,
of which $162,916 was borrowed from a director of the Company, and issued to
such lenders notes payable at 9% interest. Upon receipt of proceeds from a
collaborative research and development agreement mentioned in Note 5, the
Company paid the notes and accrued interest.

The Company receives legal services from a law firm in which a Company
Director is a partner. The cost of these services amounted to $406,000 for
the year ended December 31, 1996.

As of December 31, 1996, the Company maintained approximately 88% of its cash,
cash equivalents and short-term investments under the management of a
registered investment advisory firm for which a Company director serves as
chairman of the board. Such assets under management are maintained by a high
quality, third party financial institution custodian.

3. INVESTMENTS

All of the Company's investments are classified as available-for-sale and are
summarized as follows:

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury securities $14,751,966 $ - $ - $14,751,966
U.S. corporate securities 4,917,657 - - 4,917,657
--------------------------------------------------------
Total securities $19,669,623 $ - $ - $19,669,623
========================================================
</TABLE>

The Company had no realized gains or losses from the sale of short-term
investments for the year ended December 31, 1996. All U.S. Treasury and U.S.
corporate securities have maturity dates of less one year as of December 31,
1996.

F-11
<PAGE> 56
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

4. SPONSORED RESEARCH PROGRAM AGREEMENTS

The Company has entered into several agreements to sponsor external research
programs. The Company's primary external research program agreement was entered
into in September 1993 with the Children's Hospital in Boston, Massachusetts,
an entity affiliated with Harvard Medical School ("Children's Hospital"). Under
this sponsored research agreement the Company agreed to pay Children's Hospital
$11,000,000 to support research on the role of angiogenesis in pathological
conditions. In accordance with the terms of this sponsored research agreement,
$6,000,000 has been paid as of December 31, 1996, $1,000,000 is due on April 1,
1997 and the remainder is due in equal semi-annual payments until April 1,
1999. This sponsored research agreement gives the Company an exclusive option
to negotiate an exclusive, worldwide, royalty-bearing license to any technology
resulting from the research at Children's Hospital in areas covered by the
agreement. Amounts due under the sponsored research agreement with Children's
Hospital, which is cancelable by the Company upon six months' notice, are paid
in advance each six months and are expensed as incurred as research and
development costs. As of December 31, 1996, the Company's total commitments for
external research programs are as follows:

<TABLE>
<S> <C>
1997 $3,192,000
1998 2,115,000
1999 1,073,000
---------------
Total commitments $6,380,000
===============
</TABLE>

F-12
<PAGE> 57
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT

In December 1995, the Company and Bristol-Myers Squibb entered into a
collaboration to develop and commercialize certain antiangiogenesis
therapeutics. This collaboration provides for Bristol-Myers Squibb to fund the
Company's research, provide milestone payments to the Company, and pay the
Company royalties on net sales of any products developed under the
collaboration. In return, the Company granted Bristol-Myers Squibb exclusive
worldwide rights to antiangiogenic applications of thalidomide, thalidomide
analogs and the Angiostatin protein.

Bristol-Myers Squibb is obligated under the BMS Collaboration to fund
$18.35 million over five years for costs to be incurred by the Company related
to specified research and development. The Company may receive an additional
$32 million if the Company attains certain late-stage clinical development and
regulatory filing milestones under the BMS Collaboration, a portion of which
will be credited against royalties. In addition to this funding, Bristol-Myers
Squibb has reimbursed the Company $730,000 for clinical studies and
ophthalmological trials. Bristol-Myers Squibb may terminate this collaboration
for any reason with six months notice, in which event Bristol-Myers Squibb
would have no further funding obligation to the Company. In the event
Bristol-Myers Squibb were to terminate the BMS Collaboration or otherwise fail
to conduct its collaborative activities successfully and in a timely manner,
the preclinical and clinical development or commercialization of the Company's
licensed antiangiogenesis product candidates might be delayed or terminated.

The Company received a non-refundable, non-creditable licensing fee of $1
million in 1995 under the BMS Collaboration and an additional $2.5
million on March 31, 1996 in recognition of certain research and development
efforts of the Company. These amounts were recorded as deferred revenue and are
being recognized over five years, the initial term of the collaboration
agreement.

Concurrent with the signing of the BMS Collaboration, the Company issued
Bristol-Myers Squibb 541,666 shares of common stock for aggregate cash proceeds
of $6,500,000. Bristol-Myers Squibb also purchased 333,333 shares of additional
common stock of the Company at the initial public offering price of $15 per
share, or a total of $5,000,000, at the time the Company completed its initial
public offering in June 1996 and was

F-13
<PAGE> 58
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CONTINUED)

granted the right to purchase an additional $10,000,000 of the Company's
common stock at $22.50 per share, or 444,444 shares from the Company at any
time up to June 19, 1997.

During 1996 and 1995, the Company recognized approximately $4,625,000 and
$347,000 in revenue , respectively, and incurred costs of approximately $4.0
million and $500,000 related to the above described collaborative research and
development agreement.

6. SALE-LEASEBACK AGREEMENT

During 1995, the Company entered into a sale-leaseback agreement which is
accounted for as a capital lease. The lessor agreed to purchase the Company's
equipment and also assumed and exercised the Company's purchase option on other
leased equipment. The Company agreed to lease-back the equipment over an
initial term of two years with annual renewal options in years three and four.
The Company has the option to purchase the equipment at fair market value at
the end of years two and three. If the option is not exercised, the Company
must purchase all equipment at fair market value at the end of year four. In
connection with this agreement, the Company granted the lessor warrants for
33,334 shares of common stock at an exercise price of $6.38 per share.

Capitalized leased furniture and equipment with a cost of $753,140 is included
in furniture and equipment (see Note 1).

Future minimum payments under this lease agreement as of December 31, 1996 are
as follows:

<TABLE>
<S> <C>
1997 $105,570
Less amount representing interest 1,418
-------------------
Present value of net minimum
lease payments $104,152
===================
</TABLE>

F-14
<PAGE> 59
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

7. INCOME TAXES

The Company has net operating loss carryforwards of approximately $22,150,000
and $17,000,000 at December 31, 1996 and 1995, respectively, for income tax
purposes that expire in years 2006 through 2011. The Company also has research
and development tax credit carryforwards of approximately $1,330,000 and
$1,239,000 as of December 31, 1996 and 1995, respectively, that expire in years
2007 through 2011. The utilization of the net operating loss and research and
development carryforwards may be limited in future years due to changes in
ownership of the Company pursuant to Internal Revenue Code Section 382. For
financial reporting purposes, a valuation allowance has been recognized to
reduce the net deferred tax assets to zero due to uncertainties with respect to
the Company's ability to generate taxable income in the future sufficient to
realize the benefit of deferred income tax assets.

Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred income tax assets and liabilities as of December 31, 1996
and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
----------------------------------------
<S> <C> <C>
Deferred income tax assets (liability):
Research and development credit carryforward $ 1,330,000 $ 1,239,000
Net operating loss carryforwards 8,146,000 6,504,000
Deferred revenues 1,073,000 1,092,000
Other 371,000 204,000
Depreciation (17,000) (27,000)
Valuation allowance for deferred income tax assets (10,903,000) (9,012,000)
----------------------------------------
Net deferred income tax assets $ - $ -
========================================
</TABLE>

F-15
<PAGE> 60
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

7. INCOME TAXES (CONTINUED)

A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
Tax benefit at statutory rate $(1,813,000) $(2,929,000) $(1,943,000)
Tax credits (91,000) (120,000) (287,000)
Other 13,000 13,000 2,000
Valuation allowance 1,891,000 3,036,000 2,228,000
--------------------------------------------------------
$ - $ - $ -
========================================================
</TABLE>

8. CONVERTIBLE PREFERRED STOCK

The preferred stock had certain preferential rights in the event of liquidation
or dissolution of the Company but did not have any preferences in regard to
voting rights or dividend distributions. The preferred stock was automatically
converted into the Company's common stock upon the effective date of the
initial public offering of the Company's common stock.

9. STOCK OPTIONS AND WARRANTS

In 1992 and 1996, the Company adopted incentive and nonqualified stock
option plans whereby an aggregate of 1,750,000 shares of the Company's common
stock have been reserved for grants to various executive, scientific and
administrative personnel of the Company as well as outside directors and
consultants, of which 161,700 remain available for grant as of December 31,
1996. These options vest over periods varying from vesting immediately through
four years and generally expire 10 years from the date of grant.

Pro forma information regarding net income and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method subsequent to December 31,
1994. The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-

F-16
<PAGE> 61
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS AND WARRANTS (CONTINUED)

free interest rates of 6.36% and 5.96%; no dividend yields; volatility factors
of the expected market price of the Company's common stock of 0.65; and a
weighted-average expected life of an option of 7 years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
and warrants granted to employees are amortized to expense over the vesting
period. The weighted average fair value per option granted in 1996 and 1995 was
$9.73 and $4.62, respectively. The weighted average fair value per warrant
granted to employees during 1995 was $4.38. The Company's pro forma information
follows (in thousands except for loss per share information):

<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Pro forma net loss $(6,965,172) $(8,758,895)
Pro forma loss per share $ (0.71) $ (1.20)
</TABLE>

F-17
<PAGE> 62
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS AND WARRANTS (CONTINUED)

A summary of the Company's stock options and warrants granted to employees, and
related information for the years ended December 31 follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1994 1,140,680 $1.50 - $6.00
Exercised (33,331) $1.50
Granted 63,340 $6.00 - $6.38
---------------------
Outstanding at December 31, 1994 1,170,689 $1.50 - $6.38
Exercised (42,663) $1.50
Granted 436,343 $6.00 - $12.00
---------------------
Outstanding at December 31, 1995 1,564,369 $1.50 - $12.00
Exercised (99,677) $1.50 - $6.38
Granted 1,188,364 $9.00 - $16.25
Cancelled (73,112) $6.38
---------------------
Outstanding at December 31, 1996 2,579,944 $1.50 - $16.25
=====================
Exercisable at December 31, 1996 1,725,360 $1.50 - $16.25
=====================
</TABLE>

The following summarizes information about outstanding stock options and
warrants granted to employees at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE IN YEARS PRICE AT 12/31/96 PRICE
- -------------------- ------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
$1.50 853,354 5.7 $ 1.50 853,354 $ 1.50
$6 - $6.375 1,078,869 8.5 $ 6.31 594,443 $ 6.26
$9 - $16.25 647,721 9.8 $14.09 277,563 $14.28
------------------ ------------------
2,579,944 7.9 $ 7.59 1,725,360 $ 5.20
================== ==================
</TABLE>

F-18
<PAGE> 63
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS AND WARRANTS (CONTINUED)

The Company also granted 83,334 and 50,000 options to purchase common stock at
$6.00 and $6.38 per share during 1993 and 1995, respectively, to Children's
Hospital in connection with a sponsored research agreement (see Note 4). These
options are not covered by the incentive and nonqualified stock option plan and
are included in the table below.

The Company also has granted warrants to various executive, scientific and
administrative personnel of the Company as well as outside directors,
consultants, and certain third parties. Warrants granted generally expire after
10 years from the date of grant. Stock warrant activity is as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE PER
WARRANTS SHARE
------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1994 83,334 $6.00
Granted 44,648 $7.65
---------------------
Outstanding at December 31, 1994 127,982 $6.00 - $7.65
Granted 139,354 $6.38
---------------------
Outstanding at December 31, 1995 267,336 $6.00 - $7.65
Granted 10,000 $14.00
---------------------
Outstanding at December 31, 1996 277,336 $6.00 - $14.00
=====================

Exercisable at December 31, 1996 29,561 $6.00 - $7.65
=====================
</TABLE>

The Company also granted warrants to Bristol-Myers Squibb in connection with the
BMS Collaboration described in Note 5.

F-19
<PAGE> 64
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

10. FINANCIAL INSTRUMENTS

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and account receivable. As of December 31, 1996, the
Company maintained approximately 88% of its cash, cash equivalents and
short-term investments (short-duration, high quality debt securities) under the
management of a registered investment advisory firm for which a Company
director serves as chairman of the board. Such assets under management are
maintained by a high credit quality, third party financial institution
custodian. The account receivable at December 31, 1995 was due from
Bristol-Myers Squibb as part of the BMS Collaboration described in Note 5
and was unsecured.

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.

Short-term investments: The carrying amount reported in the balance sheet
for short-term investments is its fair value, see also Note 3.

Account receivable and accounts payable: The carrying amounts reported in
the balance sheet for the account receivable and accounts payable
approximate their fair values.

11. COMMITMENTS AND CONTINGENCIES

The Company is a party to certain litigation initiated in August 1995 in the
United States District Court for the Eastern District of Tennessee by Bolling,
McCool & Twist, a consulting firm. The suit relates to a claim for services
rendered in the approximate amount of $50,000 and seek a finder's fee in an
unspecified amount in connection with BMS Collaboration. The Company is unable
to predict with certainty the eventual outcome of the lawsuit. The Company is
contesting the action vigorously and believes that the proceeding will not have
a material adverse effect on the Company or on its financial statements.

F-20
<PAGE> 65
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

In May 1994, the Company entered into two license agreements, whereby the
Company acquired the exclusive, worldwide, royalty-bearing licenses to make,
use and sell Angiostatin(TM), thalidomide and thalidomide analogs, all
inhibitors of angiogenesis developed by Children's Hospital. In consideration
for receiving the rights, the Company must pay a royalty on any sublicensing
fees, as defined in the agreement, to Children's Hospital. The Company is also
required to pay certain amounts upon the attainment of certain milestones. The
milestone payments aggregate $2,650,000, of which $290,000 has been paid to
date, and are based upon license fees and achievement of regulatory approvals.

In addition, in 1996, the Company entered into two license agreements with
Children's Hospital for the exclusive, worldwide, royalty-bearing licenses to
make, use and sell Endostatin(TM) and 2-Methoxyestradiol, both inhibitors
of angiogenesis. In consideration for receiving the rights, the Company must pay
a royalty on any sublicensing fees, as defined in the agreements, to Children's
Hospital. Each agreement obligates the Company to pay up to $1,000,000 upon the
attainment of certain milestones. As of December 31, 1996, no payments were due
under these agreements.

These license agreements require the Company to pay Children's Hospital a
specified percentage of the royalty income received on the first $100 million
in net sales of the licensed products, and an increased percentage thereafter,
with a minimum payment based on a percentage of net sales of the licensed
products by any sublicensees.

The Company leases its primary facilities through March 31, 2003. The lease
agreement provides for escalation of the lease payments over the term of the
lease, however, rent expense is recognized under the straight-line method. The
future minimum payments under such lease as of December 31, 1996 are as
follows:

<TABLE>
<S> <C>
1997 $ 221,100
1998 227,100
1999 233,200
2000 239,400
Thereafter 484,200
--------------
Total minimum payments $1,405,000
==============
</TABLE>

Rental expense for the years ended December 31, 1996, 1995 and 1994 was
$226,000, $210,000, and $187,000, respectively.

F-21
<PAGE> 66
EntreMed, Inc.

Notes to Consolidated Financial Statements (continued)

12. EMPLOYEE RETIREMENT PLAN

The Company sponsors the EntreMed, Inc. 401(k) and Trust. The plan covers
substantially all employees and enables participants to contribute a portion
of salary and wages on a tax-deferred basis.

13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial information for the years ended December 31,
1996 and 1995 is as follows:

<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenues $ 1,092,500 $ 1,092,500 $ 1,092,500 $ 1,347,500
Research and development costs 2,063,270 1,246,045 2,429,696 1,814,782
General and administrative expenses 771,411 472,224 721,022 1,470,844
Net loss (1,675,407) (464,938) (1,379,087) (1,250,400)
Net loss per share $(0.23) $(0.06) $(0.11) $(0.10)

1995
Revenues $ - $ 88,098 $ 45,814 $ 577,257
Research and development costs 1,596,677 1,115,838 1,161,948 2,065,049
General and administrative expenses 455,342 466,724 457,272 1,079,638
Net loss (2,046,460) (1,503,921) (1,582,545) (2,575,293)
Net loss per share $ (0.29) $ (0.22) $ (0.21) $ (0.35)
</TABLE>

F-22
<PAGE> 67
SIGNATURES

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

ENTREMED, INC.

By: /s/ John W. Holaday, Ph.D.
---------------------------------------
John W. Holaday, Ph.D., Chairman of the
Board and Chief Executive Officer

POWER OF ATTORNEY

The Registrant and each person whose signature appears below hereby
appoint John W. Holaday, Ph.D. as attorney-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the Registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make such changes in
the report at the attorney-in-fact acting in the premises deems appropriate and
to file any such amendment to the report with the Securities and Exchange
Commission.

SIGNATURE

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ John W. Holaday Chairman of the Board and April 9, 1997
- -------------------------- Chief Executive Officer
John W. Holaday, Ph. D. (principal executive officer)

/s/ R. Nelson Campbell Chief Financial Officer April 9, 1997
- -------------------------- (principal financial and
R. Nelson Campbell accounting officer)

/s/ John C. Thomas, Jr. Secretary/Treasure April 9, 1997
- --------------------------
John C. Thomas, Jr.

/s/ Carl R. Alving Director April 9, 1997
- --------------------------
Carl R. Alving, M. D.
</TABLE>

II-1
<PAGE> 68
<TABLE>
<S> <C> <C>
/s/ Donald S. Brooks Director April 9, 1997
- --------------------------
Donald S. Brooks

/s/ Bart Chernow Director April 9, 1997
- --------------------------
Bart Chernow, M. D.

/s/ Samuel R. Dunlap, Jr. Director April 9, 1997
- --------------------------
Samuel R. Dunlap, Jr.

/s/ Mark C. M. Randall Director April 9, 1997
- --------------------------
Mark C. M. Randall

/s/ Leon Rosenberg Director April 9, 1997
- --------------------------
Leon Rosenberg, M. D.

/s/ Wendell M. Starke Director April 9, 1997
- --------------------------
Wendell M. Starke
</TABLE>

II-2

<PAGE> 1

EXHIBIT 10.24
<PAGE> 2
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
seperately filed with Commission.

LICENSE AGREEMENT

This Agreement is made and entered into this _____ day December, 1996
(the Effective Date), by and between CHILDREN'S MEDICAL CENTER CORPORATION, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 300 Longwood Avenue, Boston,
Massachusetts, 02115, U.S.A. (hereinafter referred to as CMCC), and ENTREMED,
INC., a corporation duly organized under the laws of Maryland and having its
principal office at 9610 Medical Center Drive, Suite 200, Rockville, MD 20850
(hereinafter referred to as LICENSEE).

WITNESSETH

WHEREAS, CMCC is the owner of certain "Patent Rights" (as later
defined herein) relating to CMCC Case No. 474, "Endostatin, An Inhibitor of
Angiogenesis" (US. Patent Applications listed in Exhibit A attached hereto) and
has the right to grant licenses under said Patent Rights;

WHEREAS, CMCC desires to have the Patent Rights utilized in the public
interest and is willing to grant a license thereunder;

WHEREAS, LICENSEE has represented to CMCC, to induce CMCC to enter
into this Agreement, that LICENSEE is capable of the development, production,
manufacture, marketing and sale of products similar to the "Licensed
Product(s)" (as later defined herein) and/or the use of the "Licensed
Process(es)" (as later defined herein) and that it shall commit itself to a
thorough, vigorous and diligent program of exploiting the Patent Rights so that
public utilization shall result therefrom; and

WHEREAS, LICENSEE desires to obtain a license under the Patent Rights
upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein, the parties hereto agree as follows:

1
<PAGE> 3
ARTICLE I - DEFINITIONS

For the purpose of this Agreement, the following words and phrases
shall have the following meanings:

1.1 "LICENSEE" shall mean EntreMed, Inc. and any Subsidiary or joint
venture of EntreMed, Inc.

1.2 "Sublicensee" shall mean any corporation, partnership or business
organization which is not controlled directly or indirectly by
LICENSEE but to whom LICENSEE transfers know-how, rights or products
to enable said party to sell Licensed Products and/or Licensed
Processes.

1.3 "Subsidiary" shall mean any corporation, company or other entity more
than fifty percent (50%) of whose voting stock is owned or controlled
directly or indirectly by LICENSEE

1.4 "Patent Rights" shall mean all of the following CMCC intellectual
property:

1.4.1. The United States and foreign patents and/or patent
applications listed in AppendixEA;

1.4.2. United States and foreign patents issued from the applications
listed in Appendix A and from divisionals and continuations of
these applications;

1.4.3. Claims of U.S. and foreign continuation-in-part applications,
and of the resulting patents, which are directed to subject
matter specifically described in the U.S. and foreign
applications listed in Appendix A;

1.4.4. Claims of all later filed foreign patent applications, and of
the resulting patents, which are directed to subject matter
specifically described in the United States patent and/or
patent applications described in (a), (b), or (c) above;

1.4.5. Any reissues of United States patents described in (a), (b),
(c), or (d) above.

2
<PAGE> 4
1.5 A "Licensed Product" shall mean any product or part thereof which:

1.5.1. Is covered in whole or in part by an issued, unexpired claim
or a pending claim contained in the Patent Rights in the
country in which any Licensed Product is made, used, or sold;

1.5.2. Is manufactured by using a process which is covered in whole
or in part by an issued, unexpired claim or a pending claim
contained in the Patent Rights in the country in which any
Licensed Process is used or in which the Licensed Product is
used or sold.

1.6 A "Licensed Process" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained
in the Patent Rights.

1.7 "Net Sales" shall mean the gross amount invoiced for all sales of
Licensed Products by LICENSEE, its Subsidiaries or its Sublicensees
less:

1.7.1. trade, quantity and cash discounts, allowed, incurred or
actually taken;

1.7.2. sales taxes directly related to the sale to the extent
included in the gross invoice price;

1.7.3. the portion of freight, postage and shipping insurance
expenses paid by LICENSEE;

1.7.4. value added tax, sales or turnover tax, or excise taxes or
duties which are included in said invoiced amount;

1.7.5. rebates accrued, incurred or paid to Federal Medicaid or State
Medicare and amounts exactly repaid or credited by reason of
rejections or the return of Licensed Products (due to recalls,
dating or other reasons) and retroactive deductions; and

1.7.6. cost of export licenses and any taxes, fees or other charges
associated with the exportation or importation of Licensed
Products.

3
<PAGE> 5
1.7.7 No deductions shall be made for commissions paid to
individuals employed by LICENSEE and on its payroll, or for
the cost of collections.

1.7.8 Licensed Products shall be considered "sold" when billed out or
invoiced.

ARTICLE II - GRANT OF LICENSE

2.1 CMCC hereby grants to LICENSEE the exclusive worldwide right and
license to make, have made, use, lease and sell the Licensed Products,
and to practice the Licensed Processes to the end of the term for
which the Patent Rights are granted unless sooner terminated according
to the terms hereof. CMCC shall retain a royalty-free, nonexclusive,
irrevocable license to practice the Patent Rights for research
purposes only.

2.2 LICENSEE agrees that it will use its best efforts to manufacture
substantially in the United States the Licensed Products leased or
sold in the United States.

2.3 To establish exclusivity for LICENSEE, CMCC hereby agrees that it
shall not grant any other license to make, have made, use, lease
and/or sell Licensed Products or to utilize Licensed Processes during
the period of time in which this Agreement is in effect.

2.4 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges, and licenses granted hereunder. Such
sublicenses will expire upon the expiration of LICENSEE's rights
granted herein.

4
<PAGE> 6
2.5 LICENSEE agrees that any sublicense granted by it shall provide that
the obligations to CMCC of Articles II, V, VII, VIII, IX, X, XII,
XIII, and XV of this Agreement shall be binding upon the sublicensee
as if it were a party to this Agreement. LICENSEE further agrees to
attach copies of these Articles to sublicense agreements. Further,
LICENSEE hereby agrees that every sublicensing agreement to which it
shall be a party and which shall relate to the rights, privileges and
license granted hereunder shall contain a statement setting forth the
event or date upon which LICENSEE'S exclusive rights, privileges and
license hereunder shall terminate.

2.6 LICENSEE agrees to forward to CMCC a copy of any and all fully
executed sublicense agreements, and further agrees to forward to CMCC
annually a copy of such reports received by LICENSEE from its
sublicensees during the preceding twelve (12) month period under the
sublicenses as shall be pertinent to a royalty accounting under said
sublicense agreements.

2.7 LICENSEE shall not receive from sublicensees anything of value in lieu
of cash payments based upon payment obligations of any sublicense
under this Agreement, without the express prior written permission of
CMCC.

2.8 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any
technology not specifically set forth in Appendix A hereof.

2.9 LICENSEE agrees, to the best of its ability, to adhere to Public Laws
96-517 and 98-620.

ARTICLE III - DUE DILIGENCE

3.1 LICENSEE shall use its best efforts to bring one or more Licensed
Products or Licensed Processes to market through a thorough, vigorous
and diligent program for exploitation of the Patent Rights.
Thereafter, LICENSEE agrees that until expiration or termination of
this Agreement, LICENSEE shall continue active and diligent efforts to
keep Licensed Products and/or Licensed Processes reasonably available
to the public. CMCC agrees that LICENSEE

5
<PAGE> 7
shall have complete control of all regulatory submissions of Licensed
Products to the appropriate regulatory agencies worldwide. In the
event LICENSEE decides not to exploit a licensed Patent Right, it
shall promptly inform CMCC in writing and shall surrender to CMCC its
license to that Patent Right. Only one payment will be made for each
of the milestones recited under 3.1.1, 3.1.2, 3.1.3 and 3.1.4. Due
diligence shall be demonstrated by attaining the following milestones:

3.1.1 -within 5 years of the Effective Date, the filing of an IND in
the U.S. for a Licensed Product by LICENSEE;

3.1.2 -within 6.5 years of the Effective Date, the initiation of
Phase II trials of a Licensed Product;

3.1.3 -within 8.5 years of the Effective Date, the initiation of
Phase III trials of a Licensed Product; and

3.1.4 -within 11 years of the Effective Date, the submission of an
NDA or similar application to gain regulatory approval for the
marketing of a Licensed Product; and by continuing sponsorship
of related preclinical studies at Children's Hospital, if
appropriate.

3.2 LICENSEE acknowledges that, prior to attaining the first milestone of
3.1.1 above, additional activities must be undertaken including but
not limited to: 1) development of a plan describing the scientific
and technical goals to be accomplished prior to attaining the
milestone of 3.1.1 and allocation the LICENSEE resources, either
internal or contracted, that will be applied in accomplishing those
goals, 2) confirmation of the antitumor activity of one or more
Licensed Products in one or more animal models, 3) development of
processes for manufacturing one or more Licensed Products on a scale
capable of producing sufficient material for testing and evaluation,
4) conduct of preclinical toxicology and pharmacology studies, and 4)
determination of whether Licensee or a sublicense will be initiating
clinical trials. Licensee agrees to keep CMCC reasonable informed of
the additional activities by preparing at least annually a

6
<PAGE> 8
written summary of the activities planned and completed and by
holding on at least annually a meeting with CMCC representatives to
review progress to date.

3.3 LICENSEE acknowledges that the primary objective of CMCC in entering
this License Agreement is to promote the development and marketing of
Licensed Products and Processes for the public good. To this end, CMCC
shall have the right to terminate this Agreement pursuant to Paragraph
13.3 below if LICENSEE fails to attain any of the above milestones for
more than six (6) months after the milestone time period because of
business circustances such as merger, acquisition or the like.
However, if LICENSEE can demonstrate to the satisfaction of CMCC, at
CMCC's sole discretion, that circumstances beyond LICENSEE's control
precluded LICENSEE from fulfilling its diligence obligations, and that
it is unlikely that any third party could overcome these circumstances
better than LICENSEE, then CMCC shall not exercise its termination
rights under this Article for one year from the date on which CMCC
give notice of termination and if LICENSEE reestablishes diligence
towards it objectives during this one year period, any prior lack of
diligence will be deemed cured.

ARTICLE IV - PAYMENTS AND ROYALTIES

4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay to CMCC in the manner hereinafter provided to the end of the
term of the Patent Rights or until this Agreement shall be terminated
as hereinafter provided, whether the milestones are achieved under the
sponsorship of LICENSEE or a sublicensee, the following milestone
payments totaling $1,000,000 (one million dollars):

4.1.1 -$50,000 (fifty thousand dollars) due four (4) months from the
date of execution of this Agreement;

4.1.2 -$100,000 (one hundred thousand dollars) due upon initiation
of the first Phase I/II IND (Investigational New Drug
application) clinical trials for any indication;

4.1.3 -$350,000 (three hundred and fifty thousand dollars) due upon
completion of a Phase II clinical trials for any indication;
and

4.1.4 -$500,000 (five hundred thousand dollars) due upon submission
of a PLA (Product License Application) or NDA (New Drug
Application) for any indication.

7
<PAGE> 9
The information below marked by [****] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been seperately filed with
the Commission.

4.2 A royalty based on the Net Sales Price of the Licensed Products or
Licensed Processes used, leased or sold by LICENSEE or a joint venture
in which LICENSEE is involved, which said royalty shall be [****]
of Net Sales Price.

4.3 Where sublicenses have been granted or strategic partnerships entered
into, EntreMed shall pay to CMCC [****] of any and all sublicensing
payments. Sublicensing payments are defined as any and all payments
made to EntreMed by the Sublicensee or strategic partner except for
payments to support research and development conducted by EntreMed,
for purchases of equity or for payments for goods and services.
EntreMed shall pay to CMCC [****] of the royalty income paid to
EntreMed up to $100,000,000 of cumulative Net Sales of the Licensed
Product and, after $100,000,000 of cumulative Net Sales, EntreMed
shall pay to CMCC [****] of royalty payments to EntreMed from the
Sublicensee with a minimum of [****] of net sales of the Licensed
Product made by the Sublicensee.

4.4 No multiple royalties shall be payable because any Licensed Product,
its manufacture, use, lease or sale are or shall be covered by more
than one Patent Rights Patent Application or Patent Rights Patent
licensed under this Agreement.

4.5 Royalty payments shall be paid in United States dollars in Boston,
Massachusetts, or at such other place as CMCC may reasonably designate
consistent with the laws and regulations controlling in any foreign
country. If any currency conversion shall be required in connection
with the payment of royalties hereunder, such conversion shall be made
by using the exchange rate prevailing at the Bank of Boston on the
last business day of the calendar quarterly reporting period to which
such royalty payments relate.

ARTICLE V -- REPORTS AND RECORDS

5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of
showing the amounts payable to CMCC hereunder. Said books of account
shall be kept at LICENSEE's principal place of business or the
principal place of business of the appropriate Division of

8
<PAGE> 10
LICENSEE to which this Agreement relates. Said books and the
supporting data shall be open at all reasonable times for five (5)
years following the end of the calendar year to which they pertain, to
the inspection of CMCC or its agents for the purpose of verifying
LICENSEE's royalty statement or compliance in other respects with
this Agreement. CMCC can request auditing of said books and supporting
data no more than once each calendar year.

5.2. LICENSEE, within forty-five (45) days after the initial sale or
sublicense of the product on March 31, June 30, September 30 and
December 31, of each year, shall deliver to CMCC true and accurate
reports, giving such particulars of the business conducted by LICENSEE
and its sublicensees during the preceding three month period under
this Agreement as shall be pertinent to a royalty accounting
hereunder. These shall include at least the following:

5.2.1 Number of Licensed Products manufactured and sold.

5.2.2 Total billings for Licensed Products sold.

5.2.3 Accounting for all Licensed Products used or sold.

5.2.4 Deductions applicable as provided in Paragraph 1.7

5.2.5 Total royalties due.

5.2.6 Names and addresses of all sublicensees of LICENSEE.

5.3 With each such report submitted, LICENSEE shall pay to CMCC the
royalties due and payable under this Agreement. If no royalties shall
be due after the initial sublicense agreement or sale, LICENSEE shall
so report. On or before the ninetieth (90th) day following the close
of LICENSEE's fiscal year, LICENSEE shall provide CMCC with LICENSEE's
certified financial statements for the preceding fiscal year
including, at a minimum, a Balance Sheet and an Operating Statement.

5.4 The royalty payments set forth in this Agreement shall, if overdue,
bear interest until payment at a per annum rate of two percent (2%)
above the prime rate in effect at the Bank of Boston on the due date.
The payment of such interest shall not foreclose CMCC from exercising
any other rights it may have as a consequence of the lateness of any
payment.

9
<PAGE> 11
ARTICLE VI -- PATENT PROSECUTION

6.1 CMCC and LICENSEE shall apply for, seek prompt issuance of, and
maintain during the term of this Agreement the Patent Rights set forth
in Appendix A. The prosecution, filing and maintenance of all Patent
Rights Patents and Applications shall be the primary responsibility of
LICENSEE; with appropriate and timely review and approval by CMCC.
LICENSEE shall solicit CMCC's comment prior to any significant actions
required during filing, prosecution, and maintenance and provide CMCC
with drafts of proposed actions and responses in advance and file
copies after the action is completed. If CMCC elects to consult with
patent attorneys more than is considered necessary and reasonable by
LICENSEE, such consultation shall be at CMCCGs expense.

6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the Patent Rights shall be the responsibility of
LICENSEE, whether such fees and costs were incurred before or after
the date of this Agreement.

ARTICLE VII - INFRINGEMENT

7.1 LICENSEE shall inform CMCC promptly in writing of any alleged
infringement of the Patent Rights by a third party and of any
available evidence thereof.

7.2 If at any time during the term of this Agreement, LICENSEE furnishes
to CMCC reasonably convincing written evidence of an infringement of a
patent included in the Patent Rights covering the Inventions which
adversely and substantially affects the commercial operations of
LICENSEE in the country where the infringement of the patent is
occurring, under the license granted hereunder, and CMCC shall within
three (3) months after receipt of such evidence (the three month
period) fail to cause such infringement to terminate or to bring a
suit or action to compel termination, then payment of one half (1/2)
the royalties and one half (1/2) minimum amounts which are earned and
payable to CMCC on Net Sales by licensee or sublicensees under Article
IV hereof shall be waived in the country of the infringement, so long
as such infringement continues; provided, however, that such royalties
and minimum amounts shall not be waived so long as at least one suit
or action is being prosecuted by CMCC for infringement of a patent in
the country in which the infringement of the patent is occurring,
covering the

10
<PAGE> 12
Inventions. In no event shall such waiver of royalties and minimum
amounts exceed 50% of the royalties and minimum amounts payable
hereunder.

7.3 If after the three month period, CMCC fails to cause such infringement
to terminate or to bring a suit or action to compel termination,
LICENSEE shall have the right, but not the obligation, to bring such
suit or action to compel termination at LICENSEE's expense. CMCC
independently shall have the right to join any such suit or action
brought by LICENSEE and, in such event. No settlement, consent
judgment or other voluntary final disposition of the suit may be
entered into without the consent of CMCC which consent shall not
unreasonably be withheld. Any damages recovered by suit or action
shall be first used to reimburse each party hereto for the cost of
such suit or action (including attorney's fees) actually paid by each
party hereto as the case may be, then to reimburse CMCC for any
royalties and minimum royalties waived under this Section 7.3 and the
residue, if any, shall be belong to the party responsible for the
prosecution of the suit.

7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the Patent Rights by litigation, LICENSEE may withhold up
to fifty percent (50%) of the royalties otherwise thereafter due CMCC
hereunder and apply the same toward reimbursement of its expenses,
including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for any such suit shall be applied
first in satisfaction of any unreimbursed expenses and legal fees of
LICENSEE relating to the suit, next toward reimbursement of CMCC for
any royalties past due or withheld and applied pursuant to this
Article VII, and to royalties due to CMCC for infringing sales as if
sales had been made by LICENSEE. The balance remaining from any such
recovery shall belong to LICENSEE.

7.5 In the event that a declaratory judgment action alleging invalidity or
non-infringement of any of the Patent Rights shall be brought against
LICENSEE, CMCC, at its option, shall have the right, within thirty
(30) days after commencement of such action, to intervene and take
over the sole defense of the action at its own expense.

11
<PAGE> 13
7.6 If, for any reason, LICENSEE should choose not undertake the
enforcement and/or defense of the Patent Rights by litigation after
the three month period, CMCC shall have the right, but not the
obligation, to prosecute, at its own expense, any such infringements
of the Patent Rights and, in furtherance of such right, CMCC hereby
agrees that LICENSEE may join CMCC as a party plaintiff in any such
suit, without expense to LICENSEE. The total cost of any such
infringement action commenced or defended solely by CMCC shall be
borne by CMCC and CMCC shall keep any recovery or damages for past
infringement derived therefrom.

7.7 In any infringement suit as either party may institute to enforce the
Patent Rights pursuant to this Agreement, the other party hereto
shall, at the request and the expense of the party initiating such
suit, cooperate in all respects and, to the extent possible, have its
employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like.

7.8 LICENSEE, during the period of this Agreement, shall have the sole
right in accordance with the terms and conditions herein to sublicense
any alleged infringer for future use of the Patent Rights.

ARTICLE VIII - INDEMNIFICATION, PRODUCT LIABILITY AND INSURANCE

8.1. Indemnification

8.1.1 LICENSEE shall indemnify, defend and hold harmless CMCC and
its trustees, officers, medical and professional staff,
employees, and agents and their respective successors, heirs
and assigns (the "Indemnitees"), against any liability,
damage, loss or expense (including reasonable attorney's fees
and expenses of litigation) incurred by or imposed upon the
Indemnitees or any one of them in connection with any claims,
suits, actions, demands or judgments arising out of any theory
of product liability (including, but not limited to, actions
in the form of tort, warranty, or strict liability) concerning
any product, process or service made, used or sold pursuant to
any right or license granted under this Agreement.

12
<PAGE> 14
8.1.2 LICENSEE's indemnification under (a) above shall not apply to
any liability, damage, loss or expense to the extent that it
is directly attributable to the negligent activities, reckless
misconduct or intentional misconduct of the Indemnitees.

8.1.3 LICENSEE agrees, at its own expense, to provide attorneys
reasonably acceptable to CMCC to defend against any actions
brought or filed against any party indemnified hereunder with
respect to the subject of indemnity contained herein, whether
or not such actions are rightfully brought.

8.1.4 CMCC shall indemnify, defend and hold harmless Licensee for
any damage, loss or expense to the extent that it is directly
attributable to the negligent activities, reckless misconduct,
or intentional misconduct of the employees or subcontractors
of CMCC.

8.1.5 This Section 8.1 shall survive expiration or termination of
this Agreement.

8.2. Insurance

8.2.1 Beginning at the time as any such product, process or service
is being commercially distributed or sold (other than for the
purpose of obtaining regulatory approvals) by LICENSEE or by a
sublicensee, affiliate or agent of LICENSEE, LICENSEE shall,
at its sole cost and expense, procure and maintain
comprehensive general liability insurance in amounts not less
than $2,000,000 per incident and $2,000,000 annual aggregate
and naming the Indemnitees as additional insureds. Such
comprehensive general liability insurance shall provide

8.2.1.1 product liability coverage and

8.2.1.2 broad form contractual liability coverage for
LICENSEE's indemnification under Section 8.1 of this
Agreement. If LICENSEE elects to selfinsure all or
part of the limits described

13
<PAGE> 15
above (including deductibles or retentions which are
in excess of $250,000 annual aggregate) such
self-insurance program must be acceptable to the CMCC
and the Risk Management Foundation of the Harvard
Medical Institutions, Inc. The minimum amount of
insurance coverage required under this Section 8.2
shall not be construed to create a limit of
LICENSEE's liability with respect to its
indemnification under Section 8.1 of this Agreement.

8.2.2 LICENSEE shall provide CMCC with written evidence of such
insurance upon request of CMCC. LICENSEE shall provide CMCC
with written notice at lease forty-five (45) days prior to any
material change in such insurance. If the insurnace is
canceled and if LICENSEE does not obtain replacement insurance
providing comparable coverage within such forty-five (45) day
period, CMCC shall have the right to terminate this Agreement
effective at the end of such forty-five (45) day period after
providing notice of CMCC's intent to do so.

8.2.3 LICENSEE shall maintain such comprehensive general liability
insurance during

8.2.3.1 the period that any such product, process or service
is being commercially distributed or sold (other than
for the purpose of obtaining regulatory approvals) by
LICENSEE or by a sublicensee, affiliate or agent of
LICENSEE, and

8.2.3.2 a reasonable period after the period referred to in
8.2.3.1 above which in no event shall be less than
five (5) years.

8.2.4 This ARTICLE 8.2 shall survive expiration or termination of
this Agreement.

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ARTICLE IX -- EXPORT CONTROLS

It is understood that CMCC is subject to United States laws and
regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities (including the
Arms Export Control Act, as amended and the Export Administration Act
of 1979), and that its obligations hereunder are contingent on
compliance with applicable United States export laws and regulations.
The transfer of certain technical data and commodities may require a
license from the cognizant agency of the United States Government
and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior
approval of such agency. CMCC neither represents that a license shall
not be required nor that, if required, it shall be issued.

ARTICLE X -- NON-USE OF NAMES

LICENSEE shall not use the names of the Children's Medical Center
Corporation nor of any of its employees, nor any adaptation thereof,
in any advertising, promotional or sales literature without prior
written consent obtained from CMCC in each case except that LICENSEE
may state that it is licensed by CMCC under one or more of the patents
and/or applications comprising the Patent Rights, and LICENSEE may
comply with disclosure requirements of all applicable laws relating to
its business, including United States and state security laws.

ARTICLE XI -- ASSIGNMENT

Subject to the restrictions set forth herein, this Agreement, and
each and every provision hereof, shall be binding upon and shall inure
to the benefit of the parties, their respective successors,
successors-in-title, heirs and assigns, and each and every
successor-in-interest to any party, whether such successor acquires
such interest by way of gift, inheritance, purchase, foreclosure, or
by any other method, shall hold such interest subject to all the terms
and provisions of this Agreement; provided however that LICENSEE shall
not assign or transfer the whole or any part of this Agreement or its
rights hereunder without the express written agreement of CMCC which
agreement shall not be unreasonably withheld.

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ARTICLE XII -- ARBITRATION

12.1 Any and all claims, disputes or controversies arising under, out of,
or in connection with this Agreement, which have not been resolved by
good faith negotiations between the parties, shall be resolved by
final and binding arbitration in Boston, Massachusetts, under patent
arbitration rules of the American Arbitration Association then
obtaining. The arbitrators shall have no power to add to, subtract
from or modify any of the terms or conditions of this Agreement. Any
award rendered in such arbitration may be enforced by either party in
either the courts of the Commonwealth of Massachusetts or in the
United States District Court for the District of Massachusetts, to
whose jurisdiction for such purposes CMCC and LICENSEE each hereby
irrevocably consents and submits.

12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations
existing under this Agreement.

ARTICLE XIII -- TERM AND TERMINATION

13.1 Unless earlier terminated as hereinafter provided, this Agreement
shall remain in full force and effect for the life of the last to
expire patent issued under the Patent Rights.

13.2 If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by CMCC.

13.3 Should LICENSEE fail to pay CMCC royalties due and payable hereunder,
CMCC shall have the right to terminate this Agreement on sixty (60)
days' notice, unless LICENSEE shall pay CMCC within the sixty (60) day
period, all such royalties and interest due and payable. Upon the
expiration of the sixty (60) day period, if LICENSEE shall not have
paid all such royalties and interest due and payable, the rights,
privileges and license granted hereunder shall terminate.

13.4 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 13.2 and 13.3
herein above, which shall always take precedence in that order over
any material breach or default referred to in this Paragraph 13.3,
CMCC shall have the right to terminate this Agreement

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and the rights, privileges and license granted hereunder by ninety
(90) days' notice to LICENSEE. Such termination shall become effective
unless LICENSEE shall have cured any such breach or default prior to
the expiration of the ninety (90) day period.

13.5 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice to CMCC, and upon payment of all amounts due
CMCC through the effective date of termination.

13.6 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that
matured prior to the effective date of such termination. LICENSEE and
any sublicensee thereof may, however, after the effective date of such
termination, sell all Licensed Products, and complete Licensed
Products in the process of manufacture at the time of such termination
and sell the same, provided that LICENSEE shall pay to CMCC the
royalties thereon as required by Article IV of this Agreement and
shall submit the reports required by Article V hereof on the sales of
Licensed Products.

13.7 CMCC agrees that if LICENSEE has provided to CMCC notice that LICENSEE
has granted a sublicense to a sublicensee under this Agreement, then
in the event CMCC terminates this Agreement for any reason, CMCC shall
provide to such sublicensee no less than thirty (30) days prior to the
effective date of said termination, written notice of said termination
at the address specified by LICENSEE to CMCC in LICENSEE's notice to
CMCC under Article XIV. CMCC agrees that upon the sublicensee's notice
as described below and provided the sublicensee is not in breach of
its sublicense, CMCC shall grant to such sublicensee license rights
and terms equivalent to the sublicense rights and terms which the
sublicense shall have granted to said sublicensee; provided that the
sublicensee shall remain a sublicensee under this Agreement for a
period of at least sixty (60) days following receipt of notice from
CMCC. Sublicenses shall during said sixty (60) day period provide to
CMCC notice wherein the sublicensee;

13.7.1 reaffirms the terms and conditions of this Agreement as it
relates to the rights the sublicensee has been granted under
the sublicense;

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13.7.2 agrees to abide by all of the terms and conditions of this
Agreement applicable to sublicensees and to discharge directly
all pertinent obligations of LICENSEE which LICENSEE is
obligated hereunder to discharge excluding any financial
obligations; and

13.7.3 acknowledges that CMCC shall have no obligations to the
sublicensee other than its obligations set forth in this
Agreement with regard to LICENSEE.

ARTICLE XIV -- PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS

Any payment, notice or other communication pursuant to this Agreement shall be
sufficiently made or given on the date of the mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:

In the case of CMCC:

Director, Technology Transfer Office
Office of Research Administration
THE CHILDREN'S HOSPITAL
300 Longwood Avenue
Boston, MA 02115

In the case of LICENSEE:

John W. Holaday, Ph.D.
Chief Executive Officer
ENTREMED, INC.
9610 Medical Center Drive, Suite 200
Rockville, MD 20850

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With copy to:

James Dean Johnson, Ph.D.
JONES & ASKEW
37th Floor
191 Peachtree Street
Atlanta, GA 30303

ARTICLE XV -- MISCELLANEOUS PROVISIONS

15.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts,
U.S.A., except that questions affecting the construction and effect of
any patent shall be determined by the law of the country in which the
patent was granted.

15.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the
subject matter hereof, and shall not be subject to any change or
modification except by the execution of a written instrument
subscribed to by the parties hereto.

15.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.

15.4 LICENSEE agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed
Products shipped to or sold in other countries shall be marked in such
a manner as to conform with the patent laws and practice of the
country of manufacture or sale.

15.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent
failure to perform any such term or condition by the other party.

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IN WITNESS WHEREOF this Agreement has been executed in duplicate on
behalf of the parties hereto by their respective authorized officers as of the
date first written above.

CHILDREN'S MEDICAL CENTER CORPORATION

Name /s/ William New
---------------------------------------

Title Vice President, Research Administration
---------------------------------------

Date Novmeber 29, 1996

ENTREMED, INC.

Name /s/ John W. Holaday, PhD.
---------------------------------------

Title Chairman, CEO and President

Date December 5, 1996

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Appendix A

CMCC No.: 474
Inventors: J. Folkman, M. O'Reilly
Title: Endostatin: an Endogenous Inhibitor of Angiogenesis and Tumor
Growth
Filings:

<TABLE>
<CAPTION>
Country Date Filed Serial No. Type Jones and Askew Ref. No.
- ------- ---------- ---------- ---- ------------------------
<S> <C> <C> <C> <C>
USA 10/23/95 60/005,835 Provsnl 05213-0220P
USA 8/2/96 tbd Provsnl 05213-0221P
USA 10/22/96 tbd Parent 05213-0223
PCT 10/22/96 tbd Internatl 05213-0223WP
</TABLE>

<PAGE> 1
EXHIBIT 10.25

<PAGE> 2
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
seperately filed with Commission.

LICENSE AGREEMENT

WITNESSETH

WHEREAS, CMCC is the owner of certain "Patent Rights" (as later
defined herein) relating to CMCC Case No. 372, "Estrogenic Compounds as
Anti-Mitotic Agents" (US. Patent Applications listed in Exhibit A attached
hereto) and has the right to grant licenses under said Patent Rights;