IMCLONE SYSTEMS INC/DE - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19612

IMCLONE SYSTEMS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 04-2834797
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

180 VARICK STREET,
NEW YORK, NY 10014
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(212) 645-1405
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
VALUE $.001 AND THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS.

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. [ ]

The aggregate market value of voting and non-voting common equity held
by non-affiliates of the registrant as of March 28, 2002 was $1,379,355,343

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

Documents Incorporated by Reference: The registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held on May 23,
2002 to be filed with the Commission not later than 120 days after the close of
the registrant's fiscal year, has been incorporated by reference, in whole or in
part, into Part III, Items 10, 11, 12 and 13 of this Annual Report on Form 10-K.
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IMCLONE SYSTEMS INCORPORATED

2001 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

i

As used in this Form 10-K, "ImClone Systems," "company," "we," "ours,"
and "us" refer to ImClone Systems Incorporated, except where the context
otherwise requires or as otherwise indicated.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT

This Form 10-K contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about our and our subsidiary's beliefs and
expectations, are forward-looking statements. These statements involve potential
risks and uncertainties; therefore, actual results may differ materially. You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they were made. We do not undertake any
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.

Important factors that may affect these expectations include, but are
not limited to: the risks and uncertainties associated with completing
pre-clinical and clinical trials of our compounds that demonstrate such
compounds' safety and effectiveness; obtaining additional financing to support
our operations; obtaining and maintaining regulatory approval for such compounds
and complying with other governmental regulations applicable to our business;
obtaining the raw materials necessary in the development of such compounds;
consummating and maintaining collaborative arrangements with corporate partners
for product development; achieving milestones under collaborative arrangements
with corporate partners; developing the capacity to manufacture, market and sell
our products, either directly or with collaborative partners; developing market
demand for and acceptance of such products; competing effectively with other
pharmaceutical and biotechnological products; obtaining adequate reimbursement
from third party payers; attracting and retaining key personnel; obtaining
patent protection for discoveries and risks associated with commercial
limitations imposed by patents owned or controlled by third parties; and those
other factors set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview and Risk Factors" and those
other factors set forth in "Risk Factors" in the Company's most recent
Registration Statement.

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PART I

ITEM 1. BUSINESS

OVERVIEW

We are a biopharmaceutical company whose mission is to advance oncology
care by developing a portfolio of targeted biologic treatments designed to
address the medical needs of patients with a variety of cancers. We focus on
what we believe are three promising strategies for treating cancer:

- growth factor blockers

- cancer vaccines and

- angiogenesis inhibitors

We were incorporated under the laws of the State of Delaware on April
26, 1984. Our corporate headquarters and research facility are located at 180
Varick Street, New York, New York 10014 and the telephone number is (212)
645-1405.

Our lead product candidate, ERBITUX(TM) (cetuximab), formerly known as
IMC-C225, is a therapeutic monoclonal antibody that inhibits stimulation of
Epidermal Growth Factor ("EGF") receptor upon which certain solid tumors depend
in order to grow. ERBITUX has been shown in several early stage clinical trials
to have an acceptable safety profile, to be well tolerated and, when
administered with either radiation therapy or chemotherapy, to cause tumor
reduction in certain cases. ERBITUX has also been shown in early stage
monotherapy clinical trials to have an acceptable safety profile, to be well
tolerated and to cause tumor reduction in certain cases. We have completed
potential registration studies evaluating ERBITUX for the treatment of
colorectal and head and neck cancers. The United States Food and Drug
Administration ("FDA") has designated as Fast Track our development program for
ERBITUX for the treatment of irinotecan-refractory (patients previously failed
regimen containing irinotecan) colorectal cancer.

Subject to the receipt of regulatory approval, we intend to market
ERBITUX in the United States and Canada together with our development, promotion
and distribution partner Bristol-Myers Squibb Company ("BMS") through its
wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R. Squibb"). We have
granted our development and marketing partner, Merck KGaA, rights to market
ERBITUX outside the United States and Canada. In Japan, ImClone Systems and E.R.
Squibb will share the development and marketing of ERBITUX with Merck KGaA. We
are manufacturing ERBITUX for clinical trials and eventual commercial sales
worldwide.

On December 28, 2001, the FDA issued a refusal to file letter with
respect to our rolling Biologics License Application ("BLA") for ERBITUX. The
BLA was submitted for marketing approval to treat irinotecan-refractory
colorectal cancer. On February 26, 2002, we, along with representatives from our
strategic partners BMS and Merck KGaA, met with the FDA to discuss the FDA's
letter refusing to file our BLA for ERBITUX and to seek guidance on how to
proceed. We believe the February 26, 2002 meeting with the FDA provided us with
direction on an approach and process for resubmitting the ERBITUX BLA. Based on
concerns raised by the FDA regarding our BLA, we discussed providing the FDA
with data from a European clinical trial in irinotecan-refractory colorectal
cancer currently being enrolled by Merck KGaA in conjunction with reanalyzed
clinical data from our U.S. phase II clinical trials. We believe that ERBITUX
will, if approved, be an important drug in the oncology field and we will
continue to focus our efforts on gaining approval for this product.

Our next most advanced product candidate, BEC2, is a cancer vaccine. In
partnership with Merck KGaA, we are testing BEC2 for preventing recurrence or
progression of limited disease small-cell lung cancer in a phase III pivotal
trial. Subject to the receipt of regulatory approval, we intend to co-promote
BEC2 with Merck KGaA in North America. Merck KGaA will be responsible for
developing and marketing BEC2 outside North America and will be obligated to pay
us royalties on all such sales. In addition, we intend to be the worldwide
manufacturer of BEC2.

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We are also developing inhibitors of angiogenesis, which could be used
to treat various kinds of cancer and other diseases. We have identified
potential monoclonal antibody-based inhibitors, collectively known as IMC-KDR
antibodies. The IMC-KDR antibodies bind selectively and with high affinity to
the kinase insert domain-containing receptor ("KDR"), a principal Vascular
Endothelial Growth Factor ("VEGF") receptor, thereby, we believe, inhibiting
angiogenesis. A phase I clinical trial completed in 2001 demonstrated that an
IMC-KDR antibody, known as IMC-1C11 can be given safely to patients with
refractory colorectal cancer.

In addition to the development of our lead product candidates, we
continue to conduct research, both independently and in collaboration with
academic and corporate partners, in a number of areas related to our core focus
of growth factor blockers, cancer vaccines and angiogenesis inhibitors. We have
also developed diagnostic products and vaccines for certain infectious diseases,
and we have licensed the rights to these products and vaccines to corporate
partners.

DEVELOPMENT PROGRAMS

ERBITUX(TM) CANCER THERAPEUTIC

The activation of the EGF receptor is believed to play a critical role
in the growth and survival of certain types of tumor cells and select normal
cells. Certain cancer types are characterized by the expression of the EGF
receptor. For example, according to the American Cancer Society, there are
approximately 130,000 cases of colorectal cancer diagnosed in the United States
each year. According to the literature in this area, in roughly half of these
cases, the tumor cells express the EGF receptor. Recent studies conducted by us
have indicated that in advanced stage refractory patients this percentage may be
as high as 73%. Also, according to the American Cancer Society, more than 30,000
cases of head and neck cancer are diagnosed in the United States each year.
Similarly, according to the literature in this area, more than 90% of head and
neck cancer cases have been shown to express the EGF receptor on the surface of
the tumor cells. Other types of cancer are also characterized, in certain
patients, by expression of the EGF receptor, including lung, renal, and
pancreatic cancers. By preventing the binding of critical growth factors to the
EGF receptor, we believe it is possible to inhibit the growth of these tumors.

EARLY ERBITUX(TM) CLINICAL TRIALS

ERBITUX is a chimerized (part human, part mouse) monoclonal antibody
that selectively binds to the EGF receptor and thereby inhibits growth of cells
dependent upon activation of the EGF receptor for replication. We have tested
ERBITUX in numerous clinical trials. In these studies, we have given ERBITUX
intravenously at escalating doses, both alone and in combination with radiation
therapy or chemotherapy. We have tested ERBITUX in approximately 1,000 patients
with various solid cancers, such as colorectal, head and neck, lung, renal,
breast, and prostate cancers.

We believe results from phase I/II trials of ERBITUX completed in 1999
established an appropriate dosing regimen and provided preliminary evidence of
the efficacy of ERBITUX used in combination with chemotherapy and radiation
therapy. However, we still need to establish that this dosing regimen is
appropriate to the satisfaction of the FDA. While the data from these early
trials were encouraging, the results were not sufficient to establish that
ERBITUX is safe or effective in treating cancer.

RECENT ERBITUX(TM) CLINICAL TRIALS

In order to establish whether ERBITUX is safe and effective in treating
cancer in larger patient populations and to continue to determine the types of
tumors on which ERBITUX is most effective, we determined to conduct the phase II
and phase III clinical trials in the indications discussed below.

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COLORECTAL CANCER --

At the May 2001 American Society of Clinical Oncologists ("ASCO")
meeting, we presented findings from our phase II clinical study of ERBITUX and
irinotecan in patients with irinotecan-refractory colorectal cancer (Trial
CPO2-9923). The findings demonstrated that of the 120 patients who, in the
opinion of the investigators, had EGF receptor-positive, irinotecan-refractory
colorectal cancer, 22.5% achieved a partial response (greater than 50% tumor
regression) according to the independent response assessment committee ("IRAC").
An additional nine patients (7.5%) achieved stabilization of disease according
to IRAC. The median duration of response was 186 days. On December 28, 2001, the
FDA issued a refusal to file letter with respect to our BLA, in particular the
data relating to the findings referred to above. On February 26, 2002, we, along
with representatives from our strategic partners BMS and Merck KGaA, met with
the FDA to discuss the refusal to file and to seek guidance on how to proceed.
We believe the February 26, 2002 meeting with the FDA provided us with direction
on an approach and a process for resubmitting the ERBITUX BLA. Based on concerns
raised by the FDA regarding our BLA, we discussed an approach to provide the FDA
with (i) data from a European clinical trial in irinotecan-refractory colorectal
cancer that is currently being enrolled by Merck KGaA, in conjunction with (ii)
reanalyzed clinical data from our U.S. phase II clinical trials.

At the May 2002 ASCO meeting, we expect to present the findings from two
of our phase II trials in colorectal cancer: a first-line therapy trial in
combination with chemotherapy (Trial CPO2-0038) in metastatic colorectal cancer
and a single-agent trial in refractory-colorectal cancer patients (Trial
CPO2-0141).

In the coming year, in conjunction with our U.S. partner BMS, we expect
to open additional studies in colorectal cancer, including a larger monotherapy
study, and randomized studies in first line metastatic colorectal cancer.

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HEAD AND NECK CANCER --

At the May 2001 ASCO meeting, we presented interim findings from an
ongoing phase II study (Trial CPO2-9816) suggesting that the combination of
ERBITUX and cisplatin, a standard chemotherapy, can produce major responses in
patients with cisplatin-refractory head and neck cancer. We are scheduled to
present our final data relating to such phase II study at the 2002 ASCO meeting.
At the same meeting, the Eastern Cooperative Oncology Group is scheduled to
present their findings from a randomized phase III trial of ERBITUX and
cisplatin versus cisplatin alone in metastatic head and neck cancer (Trial
ECOG-5397). We understand that our strategic partner Merck KGaA also plans to
present at the 2002 ASCO meeting their findings from a phase II trial of ERBITUX
and platinum-based chemotherapy in patients with platinum-refractory head and
neck cancer.

We expect that results will be available from our phase III locally
advanced head and neck cancer study (Trial CPO2-9815) in 2003. In conjunction
with Merck KGaA, this study was expanded to include Israel, Australia, South
Africa and New Zealand and countries in Europe. We meet regularly with Merck
KGaA to review and coordinate clinical research efforts.

PANCREATIC CANCER --

At the May 2001 ASCO meeting, we presented findings from our phase II
clinical study (Trial CP02-9814) evaluating the use of ERBITUX and gemcitabine,
a standard chemotherapy, in patients with pancreatic cancer. The phase II
findings demonstrated that the combination therapy produced a one-year overall
survival rate of 32.5%. All of the patients enrolled in the study had EGF
receptor-positive pancreatic tumors. The findings from this 41-patient study
demonstrated that five patients (12%) achieved a partial

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response (greater than 50% tumor regression), and an additional 21 patients
(52%) achieved stabilization of disease. The median time to disease progression
was approximately 3.5 months. These results will be further explored by the
Southwest Oncology Group, which plans to conduct a randomized phase III study of
ERBITUX and gemcitabine versus gemcitabine alone in patients with
chemotherapy-naive pancreatic cancer.

LUNG CANCER --

We commenced these studies in patients with metastatic non-small cell
lung cancer. Two studies include patients who have not received prior
chemotherapy and one study includes patients who have received one prior regimen
for metastatic disease. Preliminary results from our phase II clinical study
(Trial CP02-0036) in metastatic non-small cell lung cancer are scheduled to be
presented at the May 2002 ASCO meeting. These studies will provide data that
will help in planning future studies in non-small cell lung cancer.

FUTURE STUDIES --

We intend to explore additional studies in solid tumors.

GENERAL --

The primary side effect observed in trials to date has been a skin rash,
similar in appearance to acne, that has varied in severity depending on the
patient. The rash subsides following completion of therapy. Additionally, a
review of the data from ongoing and completed trials has shown that
approximately 4% of patients have experienced severe hypersensitivity reactions
to the drug.

As described above, we are testing ERBITUX in several different types of
cancer. Whereas in certain cancer types, like head and neck cancer, the EGF
receptor is expressed in nearly every patient with such cancer, in other cancer
types, many patients will not be positive for the EGF receptor. For the purpose
of testing of patients in the colorectal cancer trials, a diagnostic assay must
be used to determine which patients are positive for the EGF receptor. Patients
must be positive for the EGF receptor to be included in these trials. Currently,
such diagnostic tests are being performed in a laboratory setting, since there
are no commercialized assays available for this purpose. If ERBITUX is approved
for treating particular cancer types, standard diagnostic kits will need to be
available commercially. We have an agreement with the DAKO Corporation for the
development of an EGF receptor screening kit. Under the terms of the agreement,
DAKO will develop the kit, which will be used to screen tumors for expression of
the EGF receptor to identify patients that may be receptive to treatment with
ERBITUX. We selected DAKO to develop the screening kit because of its

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reputation for quality and its experience in the development of diagnostics for
other oncology-related monoclonal antibody therapeutics. In parallel with us,
DAKO will be applying to the FDA for approval of the EGF receptor screening kit.

COLLABORATIONS --

On September 19, 2001, we entered into a development, promotion,
distribution and supply agreement with BMS and E.R. Squibb (the "Commercial
Agreement"), subsequently amended on March 5, 2002, pursuant to which, among
other things, BMS and E.R. Squibb will (a) co-develop and co-promote ERBITUX in
the United States and Canada with us, and (b) co-develop and co-promote ERBITUX
in Japan with us and Merck KGaA. In accordance with the terms of the Commercial
Agreement, responsibilities associated with clinical and other ongoing studies
will be apportioned between the parties. The Commercial Agreement provides for
the establishment of clinical development plans setting forth the activities to
be undertaken by the parties for the purpose of obtaining marketing approvals,
providing market support and developing new indications and formulations of
ERBITUX. Except as otherwise agreed upon by the parties, we will own all
registrations for the product and will be primarily responsible for the
regulatory activities leading to the registration in each country. E.R. Squibb
will be primarily responsible for the regulatory activities in each country
after the product has been registered in that country.

In December 1998, we entered into an ERBITUX development and marketing
agreement, as subsequently amended, with Merck KGaA. Under this agreement, we
have retained the right to develop and market ERBITUX within the United States
and Canada, and we have granted Merck KGaA the exclusive right, except in Japan
(where ImClone Systems and BMS will co-develop and co-market ERBITUX with Merck
KGaA) to develop and market ERBITUX outside of the United States and Canada.

BEC2 CANCER VACCINE

A cancer vaccine works by the administration of an antigen or the mimic
of an antigen that is found on the surface of certain types of cancer cells.
Such treatment is intended to activate immune responses and in turn to protect
against metastasis or recurrence of the tumor. A cancer vaccine will generally
be given after the tumor has responded to initial treatment. Often, an antigen
mimic can produce a stronger immune response than that produced by the original
antigen that it resembles.

BEC2 is a monoclonal antibody that we are developing as a cancer
vaccine. BEC2 mimics GD3, a molecule expressed on the surface of several types
of cancer cells. By mimicking GD3, BEC2 stimulates an immune response against
cells expressing GD3.

We have tested BEC2 in phase I clinical trials at Memorial
Sloan-Kettering Cancer Center against certain forms of cancer, including both
limited disease and extensive disease small-cell lung carcinoma and melanoma
(skin cancer). Limited disease small-cell lung carcinoma is limited to the
lungs. Extensive disease small-cell lung carcinoma means that the disease has
migrated to other parts of the body. In one such trial, 15 patients with
small-cell lung carcinoma who had previously received chemotherapy and radiation
therapy and achieved a partial or complete response were treated with BEC2. At
the time the results were analyzed, approximately 27% of the patients had
survived nearly five years following diagnosis. These survival rates were longer
than historical survival rates for similar patients receiving conventional
therapy, and so formed the basis for going forward with phase III studies.
However, this trial alone was not sufficient to establish that BEC2 is safe or
effective in treating cancer.

Therefore, in conjunction with Merck KGaA, we have initiated a
570-patient multinational pivotal phase III trial for BEC2 in the treatment of
limited disease small-cell lung cancer. The trial will examine patient survival
two years after a course of therapy. We expect to complete enrollment in the
trial in approximately 2003.

In 1992, we entered into a BEC2 development and marketing agreement with
Merck KGaA. We have retained the right to co-promote BEC2 with Merck KGaA within
North America, and we have granted

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Merck KGaA exclusive rights to develop and market BEC2 outside of North America.
Under the agreement, Merck KGaA is also funding a portion of the phase III
pivotal trial. In addition, we intend to be the worldwide manufacturer of BEC2.

MONOCLONAL ANTIBODY INHIBITORS OF ANGIOGENESIS

Our general experience with growth factors, particularly the use of
ERBITUX to block the EGF receptor, is mirrored in our pursuit of another
promising approach for the treatment of cancer, the inhibition of angiogenesis.
Angiogenesis is the natural process of new blood vessel growth. VEGF is one of a
group of molecules that helps regulate angiogenesis. Tumor cells, as well as
normal cells, produce VEGF. Once produced by the tumor cells, VEGF stimulates
the production of new blood vessels and ensures an adequate blood supply to the
tumor, enabling the tumor to grow. KDR is a growth factor receptor found almost
exclusively on the surface of human endothelial cells, which are the cells that
line all blood vessels. VEGF must recognize and bind to this KDR receptor in
order to stimulate the endothelial cells to grow and cause new blood vessels to
form. We believe that interference with the binding of VEGF to the KDR receptor
inhibits angiogenesis and can potentially be used to slow or halt tumor growth.
We have identified potential inhibitors collectively known by us as IMC-KDR
antibodies.

In 2001, we concluded a phase I clinical trial with an IMC-KDR known as
IMC-1C11 and demonstrated that it can be given safely in patients with
refractory colorectal cancer. We expect to file an Investigational New Drug
Application ("INDA") for a fully human monoclonal IMC-KDR antibody candidate for
angiogenesis inhibition in the second quarter of 2002 and to start clinical
trials of this candidate in the second half of 2002.

We believe that such inhibitors could be effective in treating many
solid and liquid tumors and may also be useful in treating other diseases, such
as diabetic retinopathy, age-related macular degeneration, and rheumatoid
arthritis that, like cancer, depend on the growth of new blood vessels.

IMCLONE SYSTEMS' RESEARCH PROGRAMS

GENERAL

In addition to concentrating on our products in development, we perform
ongoing research, including research in each of the areas of our ongoing
clinical programs of growth factor blockers, cancer vaccines and angiogenesis
inhibitors. We have assembled a scientific staff with expertise in a variety of
disciplines, including oncology, immunology, molecular and cellular biology,
antibody engineering, protein and medicinal chemistry and high-throughput
screening. In addition to pursuing research programs in-house, we collaborate
with academic institutions and corporations to support our research and
development efforts.

RESEARCH ON GROWTH FACTOR BLOCKERS

We are conducting a research program to develop blockers of the
cell-signal transduction pathways of a class of enzymes referred to as tyrosine
kinases. Like those based on KDR and EGF receptors, these pathways have been
shown to be involved in the rapid proliferation of tumor cells. We are
developing monoclonal antibodies to block the binding of growth factors to a
number of cellular receptors that trigger these pathways, thereby potentially
inhibiting cell division and tumor growth. We are also developing small molecule
inhibitors to tyrosine kinase pathways. Our small molecule program is discussed
below.

RESEARCH ON CANCER VACCINES

We are conducting research to discover possible cancer vaccines as
another route to cancer treatment. Cancer vaccines would activate immune
responses to tumors to protect against metastasis or recurrence of cancer, after
initial remission or treatment. We are focusing our cancer vaccine research
efforts on developing melanoma vaccines.

In addition to the development of BEC2, we are conducting research on a
possible melanoma vaccine based on the melanoma antigen gp75. Melanoma is a
tumor or cancerous growth of the skin. Animal studies have shown that a gp75
cancer vaccine is effective in creating an immune response in the body against
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melanoma cells, and may prevent or inhibit growth of experimental melanoma
tumors in mice. Additionally, we are investigating the use of other melanoma
antigens to be used in conjunction with gp75 for the development of an effective
vaccine. We are also investigating various modes of enhancing the capacity of
the vaccine to elicit an immune response. We have retained North American
marketing and manufacturing rights for IMC-GP75 and have licensed to Merck KGaA
the rights to manufacture and market IMC-GP75 outside North America. We
commenced human clinical trials of IMC-GP75 in March of 2002. We are
collaborating with Memorial Sloan-Kettering Cancer Center on BEC2 and IMC-GP75
in both the clinical and research areas.

We are also seeking to develop a multimeric vaccine consisting of human
melanoma-associated antigens. The vaccine, referred to as IMC-TRPx3, has
demonstrated the ability to produce antibody and cellular immune responses in
mice. Additionally, preclinical findings have shown that mice vaccinated with
IMC-TRPx3 and challenged with melanoma have a significantly reduced number of
lung metastases as compared with a control group.

RESEARCH ON ANGIOGENESIS INHIBITORS

We are continuing to work with an experimental antibody known as DC101
in animal models. DC101 neutralizes the flk-1 receptor, which is the mouse
receptor to VEGF that corresponds to KDR in humans. Such models have shown that
DC101 inhibits tumor growth, and we are now focusing on establishing protocols
for combination therapies of DC101 with radiation therapy or chemotherapy.
Preliminary studies have shown that such combination results in better efficacy
in animals than with the DC101 antibody alone.

In another approach to angiogenesis inhibition, we are exploring the
therapeutic potential of antibodies against vascular-specific cadherin
("VE-cadherin"). Cadherins are a family of cell surface molecules that help
organize tissue structures. Researchers believe that VE-cadherin plays an
important role in angiogenesis by organizing endothelial cells into vascular
tubes, which is a necessary step in the formation of new blood vessels. As we
stated above, advanced tumor growth is dependent on the formation of a capillary
blood vessel network in the tumor to ensure an adequate blood supply to the
tumor. Therefore, antibodies that inhibit VE-cadherin may inhibit such capillary
formation in tumors, and help fight cancer by cutting off adequate blood supply
to the tumor. Preclinical studies using monoclonal antibodies against
VE-cadherin have been shown to inhibit angiogenesis, tumor growth and metastasis
by blocking the ability of VE-cadherin to form tubular structures. We are
evaluating antibodies that are efficacious in inhibiting angiogenesis and tumor
growth without negatively affecting existing vessels.

In connection with our VE-cadherin research program, we have been
assigned the exclusive rights to VE-cadherin-2, antibodies that may inhibit
angiogenesis and tumor growth. We also have an exclusive license to the patent
rights pertaining to VE-cadherin for the treatment of cancer in humans.

SMALL MOLECULE DRUG DISCOVERY

We have established a chemistry department, which we plan to expand and
relocate in the second quarter of 2002 to a new Brooklyn, New York laboratory
facility, with capabilities in medicinal, combinatorial and computational
chemistry. We are also establishing our own chemical compound library for
screening, and we are increasing our capacity to perform high throughput
screening. This department, working together with our other research groups will
focus on the discovery of small molecule inhibitors of tyrosine kinases involved
in intracellular pathways (signal transduction, cell cycle, cell survival)
activated by cancer-promoting growth factors or angiogenesis-promoting growth
factors.

MISCELLANEOUS RESEARCH AREAS

We are investigating the activities of antibodies that block the
function of flt-1, another receptor to which VEGF binds. This receptor is also
believed to be involved in blood vessel formation, but recent data suggest that
it may function in novel ways unrelated to angiogenesis. We have discovered that
antibodies against this receptor may block inflammatory processes in such
diseases as atherosclerosis and arthritis. In

8

addition, we have found that flt-1 antibodies can block the growth of certain
breast cancers. We are evaluating the therapeutic potential of flt-1 antibodies
in these indications.

We are conducting additional research outside of our principal areas of
clinical focus. These include: (1) a means to induce apoptosis (programmed
cell-death) in order to enhance tumor cell killing, including looking for
antibodies and for small molecules that enhance the apoptotic process; (2)
efforts to identify new genes from hematopoietic stem and stromal cell
populations, as well as from tumor endothelial cells, that are potential
oncology targets and (3) development of a panel of genes potentially useful for
the maintenance and stimulation of stem cells. We are collaborating with various
academic institutions including Princeton University and The University of
Pennsylvania on the latter two projects.

CORPORATE COLLABORATIONS

In addition to our collaborations in the research and clinical areas
with academic institutions, we have a number of collaborations with other
corporations, the most significant of which are discussed below.

COLLABORATIONS WITH BRISTOL-MYERS SQUIBB COMPANY

On September 19, 2001, we entered into an acquisition agreement (the
"Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics Company, a
Delaware corporation ("BMS Biologics") which is a wholly-owned subsidiary of
BMS, providing for the tender offer by BMS Biologics to purchase up to
14,392,003 shares of our common stock for $70.00 per share, net to the seller in
cash. The tender offer by BMS Biologics, available to all shareholders, allowed
for our present or former employees and directors who held exercisable options
to purchase shares of our common stock having exercise prices less than $70.00
per share to conditionally exercise any or all of those options and tender the
underlying shares in the tender offer. In connection with the Acquisition
Agreement, we entered into a stockholder agreement with BMS and BMS Biologics,
dated as of September 19, 2001 (the "Stockholder Agreement"), pursuant to which
we agreed with BMS and BMS Biologics to various arrangements regarding each of
our respective rights and obligations with respect to, among other things, the
ownership of shares of our common stock by BMS and BMS Biologics. Concurrently
with the execution of the Acquisition Agreement and the Stockholder Agreement,
we entered into the Commercial Agreement with BMS and E.R. Squibb, pursuant to
which, among other things, BMS and E.R. Squibb are (a) co-developing and
co-promoting the biologic pharmaceutical product ERBITUX in the United States
and Canada with us, and (b) co-developing and co-promoting ERBITUX in Japan with
us and Merck KGaA.

On March 5, 2002, we amended the Commercial Agreement with E.R. Squibb
and BMS. The amendment changed certain economics of the Commercial Agreement and
has expanded the clinical and strategic role of BMS in the ERBITUX development
program. One of the principal economic changes to the Commercial Agreement is
that we received $140,000,000 on March 7, 2002 and an additional payment of
$60,000,000 is payable on March 5, 2003. Such payments are in lieu of the
$300,000,000 payment we would have received on acceptance by the FDA of the
ERBITUX BLA under the original terms of the Commercial Agreement. In addition,
we agreed to resume construction of our second commercial manufacturing facility
as soon as reasonably practicable after the execution of the amendment. The
terms of the Commercial Agreement, as amended on March 5, 2002, are set forth in
more detail below.

ACQUISITION AGREEMENT

On October 29, 2001 BMS Biologics accepted for payment pursuant to the
tender offer, 14,392,003 shares of our common stock on a pro rata basis from all
tendering shareholders and those conditionally exercising stock options.

STOCKHOLDER AGREEMENT

Pursuant to the Stockholder Agreement, our Board of Directors (the
"Board") was increased from ten to twelve members. BMS received the right to
nominate two directors to our Board of Directors (each a "BMS director") so long
as its ownership interest in ImClone Systems is 12.5% or greater. If BMS'
ownership

9

interest is 5% or greater but less than 12.5%, BMS will have the right to
nominate one BMS director, and if BMS' ownership interest is less than 5%, BMS
will have no right to nominate a BMS director. Based on the number of shares of
common stock acquired pursuant to the tender offer, BMS has the right to
nominate two directors. Currently BMS has designated Peter S. Ringrose, M.A.,
Ph.D., BMS's Chief Scientific Officer, and Andrew G. Bodnar, M.D., J.D., BMS's
Senior Vice President, Medical and External Affairs, as the initial BMS
directors. The nominations of such individuals were approved by the Board on
November 15, 2001.

If the size of our Board is increased to a number greater than twelve,
the number of BMS directors would be increased, subject to rounding, such that
the number of BMS directors is proportionate to the lesser of BMS' then-current
ownership interest and 19.9%. BMS has agreed to waive this right until our next
annual meeting of stockholders to the extent we choose to increase the Board to
13 members.

Notwithstanding the foregoing, BMS will have no right to nominate any
BMS directors if (i) we have terminated the Commercial Agreement due to a
material breach by BMS or (ii) BMS' ownership interest were to remain below 5%
for 45 consecutive days.

Voting of Shares. During the period in which BMS has the right to
nominate at least one BMS director, BMS and its affiliates are required to vote
all of their shares in the same proportion as the votes cast by all of our other
stockholders with respect to the election or removal of non-BMS directors.

Committees of the Board of Directors. During the period in which BMS
has the right to nominate at least one BMS director, BMS also has the right,
subject to certain exceptions and limitations to have one member of each
committee of the Board be a BMS director.

Approval Required for Certain Actions. We may not take any action that
constitutes a prohibited action under the Stockholder Agreement without the
consent of the BMS directors, until September 19, 2006 or, if earlier, the
occurrence of any of (i) a reduction in BMS's ownership interest to below 5% for
45 consecutive days, (ii) a transfer or other disposition of shares of our
common stock by BMS or any of its affiliates such that BMS and its affiliates
own or have control over less than 75% of the maximum number of shares of our
common stock owned by BMS and its affiliates at any time after September 19,
2001, (iii) an acquisition by a third party of more than 35% of the outstanding
shares of our common stock, (iv) a termination of the Commercial Agreement by
BMS due to significant regulatory or safety concerns regarding ERBITUX, or (v) a
termination of the Commercial Agreement due to a material breach by BMS. Such
prohibited actions include (i) issuing additional shares or securities
convertible into shares in excess of 21,473,002 shares of our common stock in
the aggregate, subject to certain exceptions; (ii) incurring additional
indebtedness if the total of (A) the principal amount of indebtedness incurred
since September 19, 2001 and then-outstanding, and (B) the net proceeds from the
issuance of any redeemable preferred stock then-outstanding, would exceed our
amount of indebtedness for borrowed money outstanding as of September 19, 2001
by more than $500 million; (iii) acquiring any business if the aggregate
consideration for such acquisition, when taken together with the aggregate
consideration for all other acquisitions consummated during the previous twelve
months, is in excess of 25% of our aggregate value at the time the binding
agreement relating to such acquisition was entered into; (iv) disposing of all
or any substantial portion of our non-cash assets; (v) entering into
non-competition agreements that would be binding on BMS, its affiliates or any
BMS director; (vi) taking certain actions that would have a discriminatory
effect on BMS or any of its affiliates as a stockholder; and (vii) issuing
capital stock with more than one vote per share.

Limitation on Additional Purchases of Shares and Other Actions. Subject
to the exceptions set forth below, until September 19, 2006 or, if earlier, the
occurrence of any of (i) an acquisition by a third party of more than 35% of our
outstanding shares, (ii) the first anniversary of a reduction in BMS's ownership
interest in us to below 5% for 45 consecutive days, or (iii) our taking a
prohibited action under the Stockholder Agreement without the consent of the BMS
directors, neither BMS nor any of its affiliates will acquire beneficial
ownership of any shares of our common stock or take any of the following
actions: (i) encourage any proposal for a business combination with us or an
acquisition of our shares; (ii) participate in the solicitation of proxies from
holders of shares of our common stock; (iii) form or participate in any

10

"group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934) with respect to shares of our common stock; (iv) enter into any voting
arrangement with respect to shares of our common stock; or (v) seek any
amendment to or waiver of these restrictions.

The following are exceptions to the standstill restrictions described
above: (i) BMS Biologics may acquire beneficial ownership of shares of our
common stock either in the open market or from us pursuant to the option
described below, so long as, after giving effect to any such acquisition of
shares, BMS's ownership interest would not exceed 19.9%; (ii) BMS may make,
subject to certain conditions, a proposal to the Board to acquire shares of our
common stock if we provide material non-public information to a third party in
connection with, or begin active negotiation of, an acquisition by a third party
of more than 35% of the outstanding shares; (iii) BMS may acquire shares of our
common stock if such acquisition has been approved by a majority of the non-BMS
directors; and (iv) BMS may make, subject to certain conditions, including that
an acquisition of shares be at a premium of at least 25% to the prevailing
market price, non-public requests to the Board to amend or waive any of the
standstill restrictions described above. Certain of the exceptions to the
standstill provisions described above will terminate upon the occurrence of: (i)
a reduction in BMS's ownership interest in us to below 5% for 45 consecutive
days, (ii) a transfer or other disposition of shares of our common stock by BMS
or any of its affiliates such that BMS and its affiliates own or have control
over less than 75% of the maximum number of shares owned by BMS and its
affiliates at any time after September 19, 2001, (iii) a termination of the
Commercial Agreement by BMS due to significant regulatory or safety concerns
regarding ERBITUX, or (iv) a termination of the Commercial Agreement by us due
to a material breach by BMS.

Option to Purchase Shares in the Event of Dilution. BMS Biologics has
the right under certain circumstances to purchase additional shares of common
stock from us at market prices, pursuant to an option granted to BMS by us, in
the event that BMS's ownership interest is diluted (other than by any transfer
or other disposition by BMS or any of its affiliates). BMS can exercise this
right (i) once per year, (ii) if we issue shares of common stock in excess of
10% of the then-outstanding shares in one day, and (iii) if BMS's ownership
interest is reduced to below 5% or 12.5%. BMS Biologics's right to purchase
additional shares of common stock from us pursuant to this option will terminate
on September 19, 2006 or, if earlier, upon the occurrence of (i) an acquisition
by a third party of more than 35% of the outstanding shares, or (ii) the first
anniversary of a reduction in BMS's ownership interest in us to below 5% for 45
consecutive days.

Transfers of Shares. Until September 19, 2004, neither BMS nor any of
its affiliates may transfer any shares of our common stock or enter into any
arrangement that transfers any of the economic consequences associated with the
ownership of shares. After September 19, 2004, neither BMS nor any of its
affiliates may transfer any shares or enter into any arrangement that transfers
any of the economic consequences associated with the ownership of shares, except
(i) pursuant to registration rights granted to BMS with respect to the shares,
(ii) pursuant to Rule 144 under the Securities Act of 1933, as amended or (iii)
for certain hedging transactions. Any such transfer is subject to the following
limitations: (i) the transferee may not acquire beneficial ownership of more
than 5% of the then-outstanding shares of common stock; (ii) no more than 10% of
the total outstanding shares of common stock may be sold in any one registered
underwritten public offering; and (iii) neither BMS nor any of its affiliates
may transfer shares of common stock (except for registered firm commitment
underwritten public offerings pursuant to the registration rights described
below) or enter into hedging transactions in any twelve-month period that would,
individually or in the aggregate, have the effect of reducing the economic
exposure of BMS and its affiliates by the equivalent of more than 10% of the
maximum number of shares of common stock owned by BMS and its affiliates at any
time after September 19, 2001. Notwithstanding the foregoing, BMS Biologics may
transfer all, but not less than all, of the shares of common stock owned by it
to BMS or to E.R. Squibb or another wholly-owned subsidiary of BMS.

Registration Rights. We granted BMS customary registration rights with
respect to shares of common stock owned by BMS or any of its affiliates.

11

COMMERCIAL AGREEMENT

Rights Granted to E.R. Squibb. Pursuant to the Commercial Agreement, as
amended on March 5, 2002, we granted to E.R. Squibb (i) the exclusive right to
distribute, and the co-exclusive right to develop and promote (together with us)
any prescription pharmaceutical product using the compound ERBITUX (the
"product") in the United States and Canada, (ii) the co-exclusive right to
develop, distribute and promote (together with us and Merck KGaA and its
affiliates) the product in Japan, and (iii) the non-exclusive right to use our
registered trademarks for the product in the United States, Canada and Japan
(collectively, the "territory") in connection with the foregoing. In addition,
we agreed not to grant any right or license to any third party, or otherwise
permit any third party, to develop ERBITUX for animal health or any other
application outside the human health field without the prior consent of E.R.
Squibb (which consent may not be unreasonably withheld).

Rights Granted to the Company. Pursuant to the Commercial Agreement,
E.R. Squibb has granted to us and our affiliates a license, without the right to
grant sublicenses (other than to Merck KGaA and its affiliates for use in Japan
and to any third party for use outside the territory), to use solely for the
purpose of developing, using, manufacturing, promoting, distributing and selling
ERBITUX or the product, any process, know-how or other invention developed
solely by E.R. Squibb or BMS that has general utility in connection with other
products or compounds in addition to ERBITUX or the product ("E.R. Squibb
Inventions").

Up-Front and Milestone Payments. The Commercial Agreement provides for
up-front and milestone payments by E.R. Squibb to us of $900,000,000 in the
aggregate, of which $200,000,000 was paid on September 19, 2001, $140,000,000
was paid on March 7, 2002, $60,000,000 is payable on March 5, 2003, $250,000,000
is payable upon receipt of marketing approval from the FDA with respect to an
initial indication for ERBITUX and $250,000,000 is payable upon receipt of
marketing approval from the FDA with respect to a second indication for ERBITUX.
All such payments are non-refundable and non-creditable.

Distribution Fees. The Commercial Agreement provides that E.R. Squibb
shall pay us distribution fees based on a percentage of "annual net sales" of
the product (as defined in the Commercial Agreement) by E.R. Squibb in the
United States and Canada. The distribution fee is 39% of net sales in the United
States and Canada.

The Commercial Agreement also provides that the distribution fees for
the sale of the product in Japan by E.R. Squibb or ImClone Systems shall be
equal to 50% of operating profit or loss with respect to such sales for any
calendar month. In the event of an operating profit, E.R. Squibb shall pay us
the amount of such distribution fee, and in the event of an operating loss, we
shall credit E.R. Squibb the amount of such distribution fee.

Development of the Product. Responsibilities associated with clinical
and other ongoing studies will be apportioned between the parties as determined
by the product development committee described below. The Commercial Agreement
provides for the establishment of clinical development plans setting forth the
activities to be undertaken by the parties for the purpose of obtaining
marketing approvals, providing market support and developing new indications and
formulations of the product. After transition of responsibilities for certain
clinical and other studies, each party will be primarily responsible for
performing the studies designated to it in the clinical development plans. In
the United States and Canada, E.R. Squibb will be responsible for 100% of the
cost of all clinical studies other than those studies undertaken post-launch
which are not pursuant to an INDA (e.g. phase IV studies), the cost of which
will be shared equally between E.R. Squibb and ImClone Systems. As between E.R.
Squibb and ImClone Systems, each will be responsible for 50% of the costs of all
studies in Japan. Except as otherwise agreed upon by the parties, we will own
all registrations for the product and will be primarily responsible for the
regulatory activities leading to registration in each country. E.R. Squibb will
be primarily responsible for the regulatory activities in each country after the
product has been registered in that country. Pursuant to the terms of the
Commercial Agreement, as amended, Andrew G. Bodnar, M.D., J.D., Senior Vice
President of Medical and External Affairs of BMS, and a member of our Board of
Directors, will oversee the implementation of the clinical and regulatory plan
for ERBITUX.
12

Distribution and Promotion of the Product. Pursuant to the Commercial
Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to
launch, promote and sell the product in the territory with the objective of
maximizing the sales potential of the product and promoting the therapeutic
profile and benefits of the product in the most commercially beneficial manner.
In connection with its responsibilities for distribution, marketing and sales of
the product in the territory, E.R. Squibb will perform all relevant functions,
including but not limited to the provision of all sales force personnel,
marketing (including all advertising and promotional expenditures), warehousing
and physical distribution of the product. However, we have the right, at our
election and sole expense, to co-promote with E.R. Squibb the product in the
territory. Pursuant to this co-promotion option, which we have exercised, we
will be entitled on and after April 11, 2002 (at our sole expense) to have our
sales force and medical liaison personnel participate in the promotion of the
product consistent with the marketing plan agreed upon by the parties, provided
that E.R. Squibb will retain the exclusive rights to sell and distribute the
product. Except for our expenses incurred pursuant to the co-promotion option,
E.R. Squibb will be responsible for 100% of the distribution, sales and
marketing costs in the United States and Canada, and as between E.R. Squibb and
ImClone Systems, each will be responsible for 50% of the distribution, sales,
marketing costs and other related costs and expenses in Japan.

Manufacture and Supply. The Commercial Agreement provides that we will
be responsible for the manufacture and supply of all requirements of ERBITUX in
bulk form ("API") for clinical and commercial use in the territory, and that
E.R. Squibb will purchase all of its requirements of API for commercial use from
us. We will supply API for clinical use at our fully burdened manufacturing
cost, and will supply API for commercial use at our fully burdened manufacturing
cost plus a mark-up of 10%. The parties intend to negotiate our use of process
development at one of BMS's facilities for the support of a non-commercial
supply of API. Upon the expiration, termination or assignment of any existing
agreements between ImClone Systems and third party manufacturers, E.R. Squibb
will be responsible for processing API into the finished form of the product.

Management. The parties have formed the following committees for
purposes of managing their relationship and their respective rights and
obligations under the Commercial Agreement:

- a joint executive committee (the "JEC"), which consists of certain
senior officers of each party. The JEC is co-chaired by a
representative of each of BMS and us. The JEC is responsible for,
among other things, managing and overseeing the development and
commercialization of ERBITUX pursuant to the terms of the Commercial
Agreement, approving the annual budgets and multi-year expense
forecasts, and resolving disputes, disagreements and deadlocks arising
in the other committees;

- a product development committee (the "PDC"), which consists of members
of senior management of each party with expertise in pharmaceutical
drug development and/or marketing. The PDC is chaired by our
representative. The PDC is responsible for, among other things,
managing and overseeing the development and implementation of the
clinical development plans, comparing actual versus budgeted clinical
development and regulatory expenses, and reviewing the progress of the
registrational studies;

- a joint commercialization committee (the "JCC"), which consists of
members of senior management of each party with clinical experience
and expertise in marketing and sales. The JCC is chaired by a
representative of BMS. The JCC is responsible for, among other things,
overseeing the preparation and implementation of the marketing plans,
coordinating the sales efforts of E.R. Squibb and us, and reviewing
and approving the marketing and promotional plans for the product in
the territory; and

- a joint manufacturing committee (the "JMC"), which consists of members
of senior management of each party with expertise in manufacturing.
The JMC is chaired by our representative (unless a determination is
made that a long-term inability to supply API exists, in which case
the JMC will be co-chaired by representatives of E.R. Squibb and us).
The JMC is responsible for, among other things, overseeing and
coordinating the manufacturing and supply of API and the product, and
formulating and directing the manufacturing strategy for the product.
13

Any matter which is the subject of a deadlock (i.e., no consensus
decision) in the PDC, the JCC or the JMC will be referred to the JEC for
resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved
as follows: (i) if the matter was also the subject of a deadlock in the PDC, by
the co-chairperson of the JEC designated by us, (ii) if the matter was also the
subject of a deadlock in the JCC, by the co-chairperson of the JEC designated by
BMS, or (iii) if the matter was also the subject of a deadlock in the JMC, by
the co-chairperson of the JEC designated by us. All other deadlocks in the JEC
will be resolved by arbitration.

Right of First Offer. E.R. Squibb has a right of first offer with
respect to our IMC-KDR antibodies should we decide to enter into a partnering
arrangement with a third party with respect to IMC-KDR antibodies at any time
prior to the earlier to occur of September 19, 2006 and the first anniversary of
the date which is 45 days after any date on which BMS's ownership interest in
ImClone Systems is less than 5%. If we decide to enter into a partnering
arrangement during such period, we must notify E.R. Squibb. If E.R. Squibb
notifies us that it is interested in such an arrangement, we will provide our
proposed terms to E.R. Squibb and the parties will negotiate in good faith for
90 days to attempt to agree on the terms and conditions of such an arrangement.
If the parties do not reach agreement during this period, E.R. Squibb must
propose the terms of an arrangement which it is willing to enter into, and if we
reject such terms we may enter into an agreement with a third party with respect
to such a partnering arrangement (provided that the terms of any such agreement
may not be more favorable to the third party than the terms proposed by E.R.
Squibb).

Right of First Negotiation. If, at any time during the restricted
period (as defined below), we are interested in establishing a partnering
relationship with a third party involving certain compounds or products not
related to ERBITUX, the product or IMC-KDR antibodies, we must notify E.R.
Squibb and E.R. Squibb will have 90 days to enter into a non-binding heads of
agreement with us with respect to such a partnering relationship. In the event
that E.R. Squibb and ImClone Systems do not enter into a non-binding heads of
agreement, we are free to negotiate with third parties without further
obligation to E.R. Squibb. The "restricted period" means the period from
September 19, 2001 until the earliest to occur of (i) September 19, 2006, (ii) a
reduction in BMS's ownership interest in ImClone Systems to below 5% for 45
consecutive days, (iii) a transfer or other disposition of shares of our common
stock by BMS or any of its affiliates such that BMS and its affiliates own or
have control over less than 75% of the maximum number of shares of our common
stock owned by BMS and its affiliates at any time after September 19, 2001, (iv)
an acquisition by a third party of more than 35% of the outstanding Shares, (v)
a termination of the Commercial Agreement by BMS due to significant regulatory
or safety concerns regarding ERBITUX, or (vi) our termination of the Commercial
Agreement due to a material breach by BMS.

Restriction on Competing Products. During the period from the date of
the Commercial Agreement until September 19, 2008, the parties have agreed not
to, directly or indirectly, develop or commercialize a competing product
(defined as a product that has as its only mechanism of action an antagonism of
the EGF receptor) in any country in the territory. In the event that any party
proposes to commercialize a competing product or purchases or otherwise takes
control of a third party which has developed or commercialized a competing
product, then such party must either divest the competing product within 12
months or offer the other party the right to participate in the
commercialization and development of the competing product on a 50/50 basis
(provided that if the parties cannot reach agreement with respect to such an
agreement, the competing product must be divested within 12 months).

Ownership. The Commercial Agreement provides that we will own all data
and information concerning ERBITUX and the product and (except for the E.R.
Squibb Inventions) all processes, know-how and other inventions relating to the
product and developed by either party or jointly by the parties. E.R. Squibb
will, however, have the right to use all such data and information, and all such
processes, know-how or other inventions, in order to fulfill its obligations
under the Commercial Agreement.

Product Recalls. If E.R. Squibb is required by any regulatory authority
to recall the product in any country in the territory (or if the JCC determines
such a recall to be appropriate), then E.R. Squibb and ImClone Systems shall
bear the costs and expenses associated with such a recall (i) in the United
States and Canada, in the proportion of 39% for ImClone Systems and 61% for E.R.
Squibb and (ii) in Japan, in the

14

proportion for which each party is entitled to receive operating profit or loss
(unless, in the territory, the predominant cause for such a recall is the fault
of either party, in which case all such costs and expenses shall be borne by
such party).

Mandatory Transfer. Each of BMS and E.R. Squibb has agreed under the
Commercial Agreement that in the event it sells or otherwise transfers all or
substantially all of its pharmaceutical business or pharmaceutical oncology
business, it must also transfer to the transferee its rights and obligations
under the Commercial Agreement.

Indemnification. Pursuant to the Commercial Agreement, each party has
agreed to indemnify the other for (i) its negligence, recklessness or wrongful
intentional acts or omissions, (ii) its failure to perform certain of its
obligations under the agreement, and (iii) any breach of its representations and
warranties under the agreement.

Termination. Unless earlier terminated pursuant to the termination
rights discussed below, the Commercial Agreement expires with regard to the
product in each country in the territory on the later of September 19, 2018 and
the date on which the sale of the product ceases to be covered by a validly
issued or pending patent in such country. The Commercial Agreement may also be
terminated prior to such expiration as follows:

- by either party, in the event that the other party materially breaches
any of its material obligations under the Commercial Agreement and has
not cured such breach within 60 days after notice;

- by E.R. Squibb, if the JEC determines that there exists a significant
concern regarding a regulatory or patient safety issue that would
seriously impact the long-term viability of all products; or

- by either party, in the event that the JEC does not approve additional
clinical studies that are required by the FDA in connection with the
submission of the initial regulatory filing with the FDA within 90
days of receiving the formal recommendation of the PDC concerning such
additional clinical studies.

We incurred approximately $16,055,000 in advisor fees associated with
consummating the Acquisition Agreement, the Stockholder Agreement and the
Commercial Agreement with BMS and its affiliates through December 31, 2001.
These costs have been expensed during the year ended December 31, 2001 and
included as a separate line item in operating expenses in the consolidated
statement of operations.

COLLABORATIONS WITH MERCK KGAA

ERBITUX License and Development Agreement. In December 1998, we entered
into an agreement with Merck KGaA relating to the development and
commercialization of ERBITUX. Under this agreement:

- we retained the rights to market ERBITUX within the United States and
Canada;

- we granted Merck KGaA exclusive rights, except in Japan, to market
ERBITUX outside of the United States and Canada;

- we agreed to seek to supply Merck KGaA, and Merck KGaA agreed to
purchase from us, ERBITUX for conducting clinical trials and the
commercialization of the product outside of the United States and
Canada (which we are now currently supplying to Merck KGaA, and Merck
KGaA is currently purchasing from us);

- we (along with E.R. Squibb pursuant to the terms of the Commercial
Agreement) will co-develop and co-market ERBITUX in Japan with Merck
KGaA;

- we granted Merck KGaA an exclusive license outside of the United
States and Canada, without the right to sublicense, to apply certain
of our patents to a humanized EGF receptor antibody on which Merck
KGaA has performed preclinical studies.

15

In return, Merck KGaA:

- has paid to us $30,000,000 in up-front fees and early cash-based
milestone payments based upon achievement of certain milestones set
forth in the agreement, all of which had been received as of June
2001;

- will pay to us an additional $30,000,000 assuming achievement of
further milestones for which Merck KGaA will receive equity (the
"milestone shares") in our company, which will be at prices at varying
premiums to the then market price of the common stock depending upon
the timing of the achievement of the respective milestones, of which
$5,000,000 had been received and 63,027 shares of common stock issued
as of March 28, 2002;

- will fund clinical development of ERBITUX outside of the United States
and Canada;

- is required to pay us royalties on its future sales of ERBITUX outside
of the United States and Canada, if any.

To the extent the milestone shares are issued, then such issuance will
be shares of our common stock (or a non-voting security convertible into our
common stock). The number of shares issued to Merck KGaA will be determined by
dividing the particular milestone payment due by the purchase price of the
common stock when the milestone is achieved. The purchase price will relate to
the then market price of our common stock, plus a premium which varies,
depending upon whether the milestone is achieved early, on-time or late. In
August 2001, we received our first equity-based milestone payment totaling
$5,000,000 and, accordingly, issued to Merck KGaA 63,027 shares of our common
stock. The number of shares issued for this milestone payment was determined
using a price of $79.33 per share. During the year ended December 31, 2001, the
Company recognized revenue of approximately $1,760,000 representing the excess
of the amount paid by Merck KGaA for these shares over the fair value of the
Company's common stock.

In August 2001, ImClone Systems and Merck KGaA amended this agreement to
provide, among other things, that Merck KGaA may manufacture ERBITUX for supply
in its territory and may utilize a third party to do so upon ImClone Systems'
reasonable acceptance. The amendment further released Merck KGaA from its
obligations under the agreement relating to providing a guaranty under a
$30,000,000 credit facility relating to the build-out of the product launch
manufacturing facility. In addition, the amendment provides that the companies
have co-exclusive rights to ERBITUX in Japan, including the right to sublicense
and Merck KGaA waived its right of first offer in the case of a proposed
sublicense by ImClone Systems of ERBITUX in ImClone Systems' territory. In
consideration for the amendment, we agreed to a reduction in royalties payable
by Merck KGaA on sales of ERBITUX in Merck KGaA's territory.

If issuing shares of common stock to Merck KGaA would result in Merck
KGaA owning greater than 19.9% of our common stock, the milestone shares will be
a non-voting preferred stock, or other non-voting stock convertible into our
common stock. These convertible securities will not have voting rights. They
will be convertible at a price determined in the same manner as the purchase
price for shares of our common stock if shares of common stock were to be
issued. They will not be convertible into common stock if, as a result of the
conversion, Merck KGaA would own greater than 19.9% of our common stock. This
19.9% limitation is in place through December 2002. After this date, Merck KGaA
must sell shares it receives as a result of conversion to the extent such shares
result in Merck KGaA's owning in excess of 19.9% of our common stock. We have
granted Merck KGaA certain registration rights regarding the shares of common
stock that it may acquire upon conversion of the milestone shares.

This agreement may be terminated by Merck KGaA in various instances,
including (1) at its discretion on any date on which a milestone is achieved (in
which case no milestone payment will be made), or (2) for a one-year period
after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck
KGaA's reasonable determination that the product is economically unfeasible (in
which case Merck KGaA is entitled to receive back 50% of the cash-based up-front
fees and milestone payments then paid to date, but only out of revenues
received, if any, based upon a royalty rate applied to the gross profit from
ERBITUX sales or a percentage of ERBITUX fees and royalties from a sublicensee
on account of the sale of ERBITUX in the United States and Canada).
16

Through December 31, 2001, ImClone Systems has received the $30,000,000
in up-front fees and cash-based milestone payments as well as, $5,000,000 of the
equity-based milestone payments. Of the cash-based milestone payments received
through December 31, 2001, $2,000,000 was received and recognized as revenue in
the year ended December 31, 2001. A total of $28,000,000 was received prior to
January 1, 2001 and originally recorded as fees potentially refundable to
corporate partner and not as revenue due to the fact that they were refundable
to Merck KGaA in the event a condition relating to obtaining certain collateral
license agreements was not satisfied by us. In March 2001, this condition was
satisfied and $24,000,000 in milestone payments was recognized as revenue by us
during the three months ended March 31, 2001. The remaining $4,000,000
represents the up-front payment associated with the agreement and has been
recorded as deferred revenue.

BEC2 Research and License Agreement. Effective April 1990, we entered
into an agreement with Merck KGaA relating to the development and
commercialization of BEC2 and the recombinant gp75 antigen. Under this
agreement:

- we granted Merck KGaA a license, with the right to sublicense, to
make, have made, use, sell, or have sold BEC2 and gp75 outside North
America;

- we granted Merck KGaA a license, without the right to sublicense, to
use, sell, or have sold, but not to make BEC2 within North America in
conjunction with ImClone Systems;

- we retained the rights, (1) without the right to sublicense, to make,
have made, use, sell, or have sold BEC2 in North America in
conjunction with Merck KGaA and (2) with the right to sublicense, to
make, have made, use, sell, or have sold gp75 in North America;

- we are required to give Merck KGaA the opportunity to negotiate a
license in North America to gp75 before granting such a license to any
third party.

In return, Merck KGaA:

- has made research support payments to us totaling $4,700,000;

- is required to make milestone payments to us of up to $22,500,000, of
which $4,000,000 has been received through December 31, 2001, based on
milestones achieved in the product development of BEC2;

- is required to make royalty payments to us on all sales of the
licensed products outside North America, if any, with a portion of the
earlier funding received under the agreement being creditable against
the amount of royalties due.

Merck KGaA is responsible for conducting the clinical trials and
regulatory submissions outside North America, and we are responsible for
conducting those within North America. Costs worldwide to conduct a multi-site,
multinational phase III clinical trial to obtain approval for the indication of
the treatment of limited disease small-cell lung carcinoma for BEC2 are the
responsibility of Merck KGaA. These include our out-of-pocket costs (but do not
include costs of establishing a manufacturing facility) for manufacturing
materials for clinical trials, conduct of clinical trials and regulatory
submissions (other than drug approval fees, which are the responsibility of
Merck KGaA or ImClone Systems in our respective territories). If these expenses,
including such expenses of Merck KGaA, exceed DM17,000,000, such excess expenses
will be shared 60% by Merck KGaA and 40% by us. This expense level was reached
during the fourth quarter of 2000 and all expenses from that point forward are
being shared 60% by Merck KGaA and 40% by us. We will negotiate with Merck KGaA
the allocation of costs for the conduct of additional clinical trials for other
indications. We are responsible for providing the supply of the active agent
outside of North America at the expense of Merck KGaA, and the parties intend
that the cost of goods sold in North America be paid out of gross sales of any
licensed product in North America in accordance with a co-promotion agreement to
be negotiated.

The agreement terminates upon the later of (1) the last to expire of any
patents issued and covered by the technology or (2) fifteen years from the date
of the first commercial sale. After termination, the license

17

will survive without further royalty payment and is irrevocable. The agreement
may be terminated earlier by us in the event Merck KGaA fails to pursue in a
timely fashion regulatory approval or sale of a licensed product in a country in
which it has the right to do so. It also may be terminated earlier by Merck KGaA
if milestones are not achieved.

In connection with the December 1997 amendment to the agreement with
Merck KGaA for BEC2, Merck KGaA purchased from us 400,000 shares of our series A
convertible preferred stock (the "series A preferred stock") for a total price
of approximately $40,000,000. Of its 400,000 shares of series A preferred stock,
Merck KGaA converted 100,000 shares in 1999 and 100,000 shares in 2000 into a
total of 2,099,220 shares of common stock. In December 2000, we redeemed the
remaining 200,000 outstanding shares of series A preferred stock for a total
redemption price of $24,000,000 plus accrued and unpaid dividends of
approximately $1,200,000. We also paid Merck KGaA a dividend of approximately
$574,000 in connection with the 100,000 shares of series A preferred stock
converted in December 2000.

OTHER CORPORATE COLLABORATIONS

ABBOTT LABORATORIES

We have licensed some of our diagnostic products and techniques to
Abbott Laboratories ("Abbott") on a worldwide basis. In mid-1995, Abbott
launched its first DNA-based diagnostic test in Europe, using our Repair Chain
Reaction ("RCR") DNA probe technology. Abbott's test is used to diagnose the
sexually transmitted diseases chlamydia and gonorrhea, as well as mycobacteria.
The RCR DNA probe technology uses DNA amplification techniques to detect the
presence of DNA or RNA in biological samples thereby indicating the presence of
disease.

In December 1996, we amended our agreement with Abbott to allow Abbott
to exclusively license our patented DNA signal amplification technology,
Ampliprobe, to Chiron Diagnostics. DNA signal amplification technology such as
Ampliprobe also uses DNA signal amplification techniques in detecting the
presence of DNA or RNA in biological samples, thereby indicating the presence of
disease. Abbott receives a royalty payment from Chiron on all sales of Chiron
branched DNA diagnostic probe technology in countries covered by our patents.
Abbott, in turn, pays any such royalties it receives to us. The Chiron branched
DNA diagnostic probe technology was sold to Bayer Pharmaceutical Corporation in
2000.

Under the agreement Abbott has paid us up-front fees and research
support, and is obligated to pay milestone fees and royalties on sales. In June
1997, we received two milestone payments from Abbott totaling $1,000,000, as a
result of a patent issuance in Europe for our RCR technology. This was partially
credited against royalties. The issuance of the patent also entitles ImClone
Systems to receive royalty payments on sales in covered European countries for
products using our RCR technology. In December 1999, a U.S. patent was issued
for the RCR technology for which we have received a $500,000 milestone payment
from Abbott and have received royalties on sales by Abbott of products using the
RCR technology. In February 2000, a Japanese patent was issued on this
technology and as a result we received a $250,000 milestone payment. The
agreement terminates upon the later of (1) the last to expire of any patents
issued covered by the technology or (2) if no patents are granted, twenty years,
subject to certain earlier termination provisions contained in the agreement. We
have an exclusive worldwide fully paid up license to the RCR technology and the
patents issued with respect to it.

For the year ended December 31, 2001 we earned total revenues of
$1,480,000 pursuant to our strategic alliance with Abbott which consisted of
royalties.

WYETH

In December 1987, we entered into a vaccine development and licensing
agreement with American Cyanamid Company ("Cyanamid") that provided Cyanamid an
exclusive worldwide license to manufacture and sell vaccines developed during
the research period of the agreement. In connection with the agreement, Cyanamid
purchased 410,001 shares of our common stock. During the three-year research
period of the agreement, which period expired in December 1990, we were engaged
in the development of two vaccine

18

candidates, the first of which was for N. gonorrhea based on recombinant
proteins, and the second of which was for Herpes Simplex Virus based on
recombinant glycoproteins B and D.

In September 1993, Cyanamid's Lederle-Praxis Biologicals division and
ImClone Systems entered into a research collaboration agreement, which by its
terms supersedes the earlier agreement as to N. gonorrhea vaccine candidates,
but not as to Herpes Simplex Virus vaccine candidates. The successor to
Cyanamid, Wyeth (formerly known as American Home Products Corporation), has the
responsibility under this agreement to pay research support to us, as well as
milestone fees and royalties on sales of any N. gonorrhea vaccine that might
arise from the collaboration. In January 1998, this agreement was extended to
continue annual research funding payable to us in the amount of $300,000 through
September 1999 and to extend the period by which Wyeth was required to have
filed an INDA to initiate clinical trials with a vaccine candidate. In October
1999, this milestone was achieved, and Wyeth made a $500,000 payment to us.

Wyeth has the responsibility under both agreements for conducting
pre-clinical and clinical trials of the vaccine candidates, obtaining regulatory
approval, and manufacturing and marketing the vaccines. Wyeth is required to pay
royalties to us in connection with sales of the vaccines, if any.

In the year ended December 31, 2001, we recorded no revenues under the
Wyeth agreements.

GLAXOSMITHKLINE PLC

In February 2000, we licensed to GlaxoSmithKline plc (formerly known as
SmithKline Beecham) certain patents and patent applications to meningitis
antigens along with related know-how and materials, exclusively for the purpose
of developing meningitis vaccines. In return we will receive license fees, as
well as milestone fees should an antigen or antigens based on our claims be
included in its vaccine candidate, and royalties on sales of such vaccine.

In the year ended December 31, 2001, we recorded revenues of $40,000
under the GlaxoSmithKline plc agreement, which consisted of a license fee.

DAKO CORPORATION

We have an agreement with DAKO Corporation for the development of an EGF
receptor screening kit. Under the terms of the agreement, DAKO will develop the
kit, which will be used to screen tumors for expression of EGF receptor to
identify patients that may be receptive to treatment with ERBITUX. We selected
DAKO to develop the screening kit because of its reputation for quality and its
experience in the development of diagnostics for other oncology-related
monoclonal antibody therapeutics. A wholly-owned subsidiary of DAKO A/S of
Denmark, DAKO is a global provider of cancer diagnostics and research products
that use antibodies, nucleic acid probes and proprietary detection technologies
to identify specific disease-associated molecules in tissues and cells. In
parallel with us, DAKO will be applying to the FDA for approval of the EGF
receptor screening kit.

IMMUNEX CORPORATION

We are the exclusive licensee of a family of patents and patent
applications covering the flk-2/flt-3 receptor. The flk-2/flt-3 growth factor is
a protein that binds to and activates the flk-2/flt-3 receptor. The flk-2/flt-3
growth factor is owned by Immunex.

In December 1996, we entered into a non-exclusive license and supply
agreement with Immunex Corporation ("Immunex"), under which we granted Immunex
an exclusive worldwide license to the flk-2/ flt-3 receptor for the limited use
of the manufacture of the flk-2/flt-3 growth factor. Immunex is currently
testing the growth factor in human trials for stem cell stimulation and for
tumor inhibition. Under this agreement, we receive royalty and licensing fees
from Immunex, and Immunex has granted us a license to use the flk-2/flt-3 growth
factor for use in our ex vivo research on stem cells. In addition, Immunex has
granted us a worldwide non-exclusive license to use and sell the flk-2/flt-3
growth factor, manufactured by Immunex, for ex vivo stem cell expansion,
together with an exclusive license to distribute the growth factor with our own
proprietary products for ex vivo stem cell expansion. Immunex will also supply
flk-2/flt-3 growth factor to us.
19

The purchase and supply provisions of our original license and supply agreement
were renewed for five years from December 2001, and the license remains in
force. Immunex's license terminates thirteen years after the first commercial
sale of the product.

In the year ended December 31, 2001, we recorded no revenues under this
agreement.

MONSANTO COMPANY

In July 2000, we entered into two agreements with Monsanto Company,
pursuant to which Monsanto will investigate the feasibility of expressing in
plants nonglycosylated and glycosylated monoclonal antibodies comparable to
ERBITUX. The glycosylated antibody feasibility study provides for up-front and
milestone payments by us to Monsanto of up to $335,000 in the aggregate, with
$150,000 paid upon signing the agreement. The nonglycosylated antibody
feasibility study provides for up-front and milestone payments by us to Monsanto
of up to $855,000 in the aggregate, with $150,000 paid upon signing the
agreement.

MANUFACTURING

We own and operate a pilot manufacturing facility for biologics in
Somerville, New Jersey for the manufacture of clinical trial materials. At our
pilot facility, we previously manufactured a portion of the ERBITUX utilized for
clinical trials. We now are using our pilot facility to develop the cell culture
and purification process for IMC-KDR antibodies and are in the early stages of
production for clinical trials. Our pilot facility is operated in accordance
with current Good Manufacturing Practices ("cGMP"), which is a requirement for
product manufactured for use in clinical trials and for commercial sale.

Production in commercial quantities required the expansion of our
manufacturing capabilities and the hiring and training of additional personnel.
We built a new 80,000 square foot product launch manufacturing facility on our
Somerville, New Jersey campus. The manufacturing facility contains three 10,000
liter (working volume) fermenters and is dedicated to the clinical and
commercial production of ERBITUX. The construction of the product launch
manufacturing facility cost a total of approximately $53,000,000 excluding
capitalized interest of approximately $1,966,000. The product launch
manufacturing facility was ready for its intended use and put in operation in
July 2001. We expect that the product launch manufacturing facility will be
included in the resubmission of our BLA and material produced in the product
launch manufacturing facility will be used to support ongoing clinical trials
and product launch.

In December 1999, we entered into a development and manufacturing
services agreement with Lonza Biologics plc ("Lonza"). This agreement was
amended in April 2001 to include additional services. Under the agreement, Lonza
is responsible for process development and scale-up to manufacture ERBITUX in
bulk form under cGMP conditions. These steps were taken to assure that the
manufacturing process would produce bulk material that conforms with our
reference material and to support, in part, our regulatory filing with the FDA.
As of December 31, 2001, we had incurred approximately $7,030,000 for services
provided under the development and manufacturing services agreement. In
September 2000, we entered into a three-year commercial manufacturing services
agreement with Lonza relating to ERBITUX. This agreement was amended in June
2001 and again in September 2001 to include additional services. As of December
31, 2001, we had incurred approximately $10,313,000 for services provided under
the commercial manufacturing services agreement. Under these two agreements,
Lonza is manufacturing ERBITUX at the 5,000 liter scale under cGMP conditions
and is delivering it to us over a term ending no later than December 2003. The
costs associated with both of these agreements are included in research and
development expenses when incurred and will continue to be so classified until
such time as ERBITUX may be approved for sale or until we obtain obligations
from our corporate partners for supply of approved product. In the event of such
approval or obligations from our corporate partners, the subsequent costs
associated with manufacturing ERBITUX for commercial sale will be included in
inventory and expensed as cost of goods sold when sold. In the event we
terminate the commercial manufacturing services agreement with Lonza without
cause, we will be required to pay 85% of the stated costs for each of the first
ten batches cancelled, 65% of the stated costs for each of the next ten batches
cancelled and 40% of the stated costs for each of the next six batches
cancelled. The batch cancellation provisions for the subsequent batches
contained in the amendment to the commercial manufac-

20

turing services agreement require us to pay 100% of the stated costs of
cancelled batches scheduled within six months of the cancellation, 85% of the
stated costs of cancelled batches scheduled between six and twelve months
following the cancellation and 65% of the stated costs of cancelled batches
scheduled between twelve and eighteen months following the cancellation. These
amounts are subject to mitigation should Lonza use its manufacturing capacity
caused by such termination for another customer.

In December 2001, we entered into an agreement with Lonza to manufacture
ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA. As of
December 31, 2001, we had incurred approximately $2,483,000 for services
provided under this agreement, to be reimbursed by Merck KGaA.

On January 2, 2002 we executed a letter of intent with Lonza to enter
into a long term supply agreement. The long term supply agreement would apply to
a large scale manufacturing facility that Lonza is constructing. We expect such
facility would be able to produce ERBITUX in 20,000 liter batches. We paid Lonza
$3,250,000 for the exclusive rights to reserve and negotiate a long term supply
agreement for a portion of the new facility's overall capacity. Under certain
conditions, such payment shall be refunded to us. If we enter into a long term
supply agreement, such payment will be creditable to us against the 20,000 liter
batch price, such credit to be spread evenly over the batches manufactured each
year of the initial term of the long term supply agreement.

If we obtain FDA approval to market ERBITUX prior to the FDA approval
required of our product launch manufacturing facility, or if a contract
manufacturer retained for such contingency is unable to deliver approved product
to ImClone Systems on a timely basis, we may have insufficient quantities of
ERBITUX for the product launch. In any event, we will continue to seek to enter
into arrangements with contract manufacturers in order to provide a second
source of supply for our products as well as additional capacity for the
manufacture of our products.

Engineering plans have been developed relating to a second commercial
manufacturing facility that would be a multi-use facility with capacity of up to
110,000 liters (working volume). Such a facility would be built on property we
recently purchased that is adjacent to our product launch manufacturing
facility. We are proceeding with the construction of the second commercial
manufacturing facility.

MARKETING AND SALES

We intend to develop the capacity to market our cancer therapeutic
products directly in the U.S. and Canada. As part of this strategy, we have
entered into the Commercial Agreement with BMS and E.R. Squibb pursuant to which
we have exercised the right to co-promote ERBITUX in the U.S. and Canada. We
also have co-promotion rights for commercialization of our BEC2 cancer vaccine
in North America pursuant to our BEC2 agreement with Merck KGaA. In order to
develop our internal marketing and sales capabilities, ImClone Systems hired a
strategic marketing team with experience in the commercial launch of a
monoclonal antibody cancer therapeutic and we intend to build an internal sales
force and an infrastructure to support our cancer therapeutic products.

Pursuant to the terms of the Commercial Agreement, E.R. Squibb has
primary responsibility for distribution, marketing and sales of ERBITUX in the
territory and will provide sales force personnel and marketing services for
ERBITUX. We have the right, at our election and sole expense, to co-promote
ERBITUX with E.R. Squibb. Pursuant to this co-promotion option, which we have
exercised, we will be entitled on or after April 11, 2002, to have our sales
force and medical liaison personnel participate in the promotion of ERBITUX,
provided that E.R. Squibb will retain the exclusive rights to sell and
distribute the product. Except for our expenses incurred pursuant to the
co-promotion option, E.R. Squibb will be responsible for 100% of the
distribution, sales and marketing costs in the United States and Canada, and as
between E.R. Squibb and ImClone Systems, each will be responsible for 50% of the
distribution, sales, marketing costs and other related costs and expenses in
Japan.

We will continue to evaluate future arrangements and opportunities with
respect to other products we may develop in order to optimize our profits,
distribution, marketing and sales.

21

PATENTS AND TRADE SECRETS

GENERALLY

We seek patent protection for our proprietary technology and products in
the United States and abroad. Patent applications have been submitted and are
pending in the United States, Canada, Europe and Japan, as well as other
countries. The patent position of biopharmaceutical firms generally is highly
uncertain and involves complex legal and factual questions. Our success will
depend, in part, on whether we can:

- obtain patents to protect our own products

- obtain licenses to use the technologies of third parties, which may be
protected by patents

- protect our trade secrets and know-how

- operate without infringing the intellectual property and proprietary
rights of others

PATENT RIGHTS; LICENSES

We currently have exclusive licenses or assignments to 86 issued patents
worldwide that relate to our proprietary technology in the United States and
foreign countries, 48 of which are issued United States patents. In addition, we
currently have exclusive licenses or assignments to approximately 59 families of
patent applications.

ERBITUX(TM). We have an exclusive license from the University of
California at San Diego to an issued U.S. patent for the murine form of ERBITUX,
our EGF receptor antibody product. We believe that this patent's scope should be
its literal claim scope as well as other antibodies not literally embraced but
potentially covered under the patent law doctrine of equivalents. Whether or not
a particular antibody is found to be an equivalent to the antibodies literally
covered by the patent can only be determined at the time of a potential
infringement, and in view of the technical details of the potentially infringing
antibody in question. Our licensor of this patent did not obtain patent
protection outside the U.S. for this antibody.

We are pursuing additional patent protection relating to the field of
EGF receptor antibodies in the treatment of cancer that may limit the ability of
third parties to commercialize EGF receptor antibodies for such use.
Specifically, we are pursuing patent protection for the use of EGF receptor
antibodies in combination with chemotherapy to inhibit tumors or tumor growth.
We have exclusively licensed, from Rhone-Poulenc Rorer Pharmaceuticals, now
known as Aventis, patent applications seeking to cover the therapeutic use of
antibodies to the EGF receptor in conjunction with anti-neoplastic agents. Both
a U.S. patent and a Canadian patent were issued in this family and the patent
examiner in Europe has indicated an intent to issue a European patent. We have
filed additional patent applications based, in part, on our own research that
would cover the use of ERBITUX as well as other EGF receptor antibodies in
conjunction with radiation therapy, and the use of ERBITUX as well as other EGF
receptor inhibitors in refractory patients, either alone or in combination with
chemotherapy or radiation therapy. We have also filed patent applications that
include claims on the use of conjugated forms of ERBITUX, as well as humanized
forms of the antibody and fragments.

Our license agreements with the University of California, San Diego and
Aventis require us to pay royalties on sales of ERBITUX that are covered by
these licenses.

There can be no assurance that patent applications related to the field
of antibodies in the treatment of cancer to which our company holds rights will
result in the issuance of patents, that any patents issued or licensed to our
company related to ERBITUX or its use will not be challenged and held to be
invalid or of a scope of coverage that is different from what we believe the
patent's scope to be, or that our company's present or future patents related to
these technologies will ultimately provide adequate patent coverage for or
protection of our company's present or future EGF receptor antibody
technologies, products or processes. Since, until recently, patent applications
were secret until patents were issued in the U.S., or corresponding applications
were published in foreign countries, and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we cannot
be certain that we were the first to make our

22

inventions, or that we were the first to file patent applications for such
inventions. In addition, patents do not give the holder the right to
commercialize technology covered by the patents, should our production or its
use be found by a court to be embraced by the patent of another.

In the event that we are called upon to defend and/or prosecute patent
suits and/or related legal or administrative proceedings, such proceedings are
costly and time consuming and could result in loss of our patent rights,
infringement penalties or both. Litigation and patent interference proceedings
could result in substantial expense to us and significant diversion of efforts
by our technical and management personnel. An adverse determination in any such
interference or in patent litigation, particularly with respect to ERBITUX, to
which we may become a party could subject us to significant liabilities to third
parties or require us to seek licenses from third parties. If required, the
necessary licenses may not be available on acceptable financial or other terms
or at all. Adverse determinations in a judicial or administrative proceeding or
failure to obtain necessary licenses could prevent us, in whole or in part, from
commercializing our products, which could have a material adverse effect on our
business, financial condition and results of operations.

In the event that there is patent litigation involving one or more of
the patents issued to our company, there can be no guarantee that the patents
will be held valid and enforceable. The scope of patents are expected to be
called into question and could result in a decision by a court that the claims
have a different scope than we believe them to have. Further, the outcome of
patent litigation is subject to intangibles that cannot be adequately quantified
in advance, including the demeanor and credibility of witnesses that will be
called to testify, the identity of the adverse party, etc. This is especially
true in biotechnology related patent cases that may turn on the testimony of
experts as to technical facts upon which experts may reasonably disagree.

We are aware of a U.S. patent issued to a third party that includes
claims covering the use, subject to certain restrictions, of antibodies to the
EGF receptor and cytotoxic factors to inhibit tumor growth. Our patent counsel
has advised us that in its opinion, subject to the assumptions and
qualifications set forth in such opinion, no valid claim of this third party
patent is infringed by reason of our manufacture or sale, or medical
professionals' use of ERBITUX alone or in combination with chemotherapy or
radiation therapy and, therefore, in the event of litigation for infringement of
this third party patent, a court should find that no valid claim of this third
party patent is infringed. Based upon this opinion, as well as our review, in
conjunction with our patent counsel, of other relevant patents, we believe that
we will be able to commercialize ERBITUX alone and in combination with
chemotherapy and radiation therapy provided we successfully complete our
clinical trials and receive the necessary FDA approvals. This opinion of
counsel, however, is not binding on any court or the U.S. Patent and Trademark
Office. In addition, there can be no assurance that we will not in the future,
in the U.S. or any other country, be subject to patent infringement claims,
patent interference proceedings or adverse judgments in patent litigation.

There can be no assurance that our company will not be subject to claims
in patent suits, that one or more of our products or processes infringe their
patents or violate the proprietary rights of third parties. Defense and
prosecution of such patent suits can result in the diversion of substantial
financial, management and other resources from our company's other activities.
An adverse outcome could subject our company to significant liability to third
parties, require our company to obtain licenses from third parties, or require
our company to cease any related product development activities or product
sales.

An adverse determination by a court in any such patent litigation, or
the U.S. Patent and Trademark Office in a patent interference proceeding,
particularly with respect to ERBITUX, to which we may become a party would
subject us to significant liabilities to third parties or require us to seek
licenses from third parties, or loss in whole or part of our ability to continue
to sell our product. If required, the necessary licenses may not be available on
acceptable terms or at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us, in whole or in part, from commercializing our products, which could have a
material adverse effect on our business, financial condition and results of
operations.

ERBITUX is a "chimerized" monoclonal antibody, which means it is made of
antibody fragments derived from more than one type of animal. Patents have been
issued to other biotechnology companies that relate to chimerized antibodies or
their manufacture. Therefore, we may be required to obtain licenses under
23

these patents before we can commercialize our own chimerized monoclonal
antibodies, including ERBITUX. We cannot be certain that we will ever be able to
obtain such patent licenses related to chimerized monoclonal antibodies in the
U.S. or in other territories of the world where we would want to commercialize
ERBITUX. Even if we are able to obtain other licenses as requested, there can be
no assurance that our company would be able to obtain a license on financial or
other terms acceptable to our company or that we would be able to successfully
redesign our products or processes to avoid the scope of such patents. In either
such case, such inability would have a material adverse effect on our business,
financial condition and results of operations. We cannot guarantee that the cost
of such licenses would not materially affect the ability to commercialize
ERBITUX.

BEC2. We have exclusively licensed from Memorial Sloan-Kettering Cancer
Center a family of patents and patent applications relating to our BEC2
monoclonal anti-idiotypic antibody. We know that others have been issued patents
in the U.S. and Europe relating to anti-idiotypic antibodies or their use for
the treatment of tumors. These patents could be alleged by the third party
patent holders in a suit for patent infringement to be valid and to cover BEC2
or certain uses of BEC2. We have entered into a license agreement with Merck
KGaA, which entitles Merck KGaA to market BEC2 worldwide with the exception of
North America, while we are entitled to co-promote BEC2 in North America. Merck
KGaA, our licensee of BEC2, has informed us that it has obtained non-exclusive,
worldwide licenses to some of these patents in order for Merck KGaA to market
BEC2 within its territory.

Our license from Memorial Sloan-Kettering Cancer Center requires us to
pay royalties on sales of BEC2.

Even if the BEC2-related patent applications mature into issued patents,
there can be no assurance that others will not be, or have not been, issued
patents that may prevent the sale of one or more of our company's products or
the practice of one or more of our company's processes, or require licensing and
the payment of significant fees or royalties by our company to third parties in
order to enable us to conduct its business.

There can be no assurance that our company will not be subject to claims
that one or more of its products or processes infringe other patents or violate
the proprietary rights of third parties. In the event that we are called upon to
defend and/or prosecute patent suits the related legal and administrative
proceedings would be costly and time consuming and could result in loss of
patent rights, infringement penalties or both. In addition, defense and
prosecution of patent suits can result in the diversion of substantial
financial, management and other resources from our company's other activities.
An adverse outcome could subject our company to significant liability to third
parties, require our company to obtain licenses from third parties, or require
our company to cease any related product development activities or product
sales.

In the event we are required to seek other patent licenses related to
BEC2, we cannot be certain that we will ever be able to obtain such patent
licenses in the U.S. or other parts of the world where we would want to
commercialize BEC2. Even if we are able to obtain other licenses as requested,
there can be no assurance that our company would be able to obtain a license on
financial or other terms acceptable to our company or that we would be able to
successfully redesign its products or processes to avoid such patents. In either
such case, such inability could have a material adverse effect on our business,
financial condition and results of operations. We cannot guarantee that the cost
of such licenses would not materially affect the ability to commercialize BEC2.

ANGIOGENESIS INHIBITORS. With respect to our research on inhibitors to
angiogenesis based on the flk-1 receptor, we are the exclusive licensee from
Princeton University of a family of patents and patent applications covering
recombinant nucleic acid molecules that encode the flk-1 receptor and antibodies
to extracellular portions of the receptor and its human homolog, KDR. We are
also the assignee of a family of patents and patent applications filed by our
scientists generally related to angiogenesis-inhibiting antibodies to receptors
that bind VEGF as covered by the claim language, which is not presented herein.
One of the patents licensed from Princeton University claims the use of flk-1
receptor antibodies to isolate cells expressing the

24

flk-1receptor on their cell surfaces. Additionally, we are a co-owner of a
patent application claiming the use of flk-1/KDR receptor antibodies to isolate
endothelial stem cells that express flk-1/KDR on their cell surfaces. At
present, we are seeking exclusive rights to this invention from the co-owners.

Our license from Princeton University requires us to pay royalties on
sales that would otherwise infringe the licensed patents, which cover antibodies
to the flk-1/KDR receptor including IMC-1C11.

IMC-1C11 is a "chimerized" monoclonal antibody, which means it is made
of antibody fragments derived from more than one type of animal. Patents have
been issued to other biotechnology companies that relate to chimerized
antibodies or their manufacture. Therefore, we may be required to obtain
licenses under these patents before we can commercialize our own chimerized
monoclonal antibodies, including IMC-1C11.

IMC-1C11 is a phage-derived antibody, which means it is made using phage
technology. Patents have been issued to biotechnology companies that relate to
phage-derived antibodies and their manufacture. We are additionally developing
other IMC-KDR antibodies that are phage-derived, therefore, we may be required
to obtain licenses under these patents before we can commercialize certain
phage-derived antibodies.

We cannot be certain that we will ever be able to obtain such patent
licenses related to chimerized monoclonal antibodies in the U.S. or in other
territories of the world where we would want to commercialize IMC-1C11. Even if
we are able to obtain other licenses as requested, there can be no assurance
that our company would be able to obtain a license on financial or other terms
acceptable to our company or that we would be able to successfully redesign our
products or processes to avoid the scope of such patents. In either such case,
such inability could have a material adverse effect on our business, financial
condition and results of operations. We cannot guarantee that the cost of such
licenses would not materially affect the ability to commercialize IMC-1C11.

There can be no assurance that others will not be, or have not been,
issued patents that may prevent the sale of one or more of our company's
products or the practice of one or more of our company's processes, or require
licensing and the payment of significant fees or royalties by us to third
parties in order to enable us to conduct business.

There can be no assurance that our company will not be subject to claims
that one or more of our products or processes infringe other patents or violate
the proprietary rights of third parties. In the event that we are called upon to
defend and/or prosecute patent suits the related legal and administrative
proceedings would be costly and time consuming and could result in loss of
patent rights, infringement penalties or both. In addition, defense and
prosecution of patent suits can result in the diversion of substantial
financial, management and other resources from our company's other activities.
An adverse outcome could subject our company to significant liability to third
parties, require our company to obtain licenses from third parties, or require
our company to cease any related product development activities or product
sales.

VE-CADHERIN. We have been assigned the exclusive rights to
VE-cadherin-2, antibodies and we have an exclusive license to the patent rights
pertaining to VE-cadherin for the treatment of cancer in humans. These two
families of patent applications cover cadherin molecules that are involved in
endothelial cell interactions. These interactions are believed to be involved in
angiogenic processes. The subject patent applications also cover antibodies that
bind to, and affect, the cadherin molecules.

DIAGNOSTICS. Our diagnostics program has been licensed for commercial
development to Abbott. The program includes target amplification technology and
detection methods, such as RCR technology, signal amplification technology, such
as Ampliprobe, and p53 mutation detection for assisting in cancer diagnosis. We
have pending patent applications and have obtained patents that relate to our
diagnostics program. We have either an assignment from our own scientists or
exclusive licenses from academic institutions to these families of patents and
patent applications. We have an exclusive license to an issued patent assigned
to Princeton University related to the underlying technology for our Ampliprobe
signal amplification and detection system. We are aware that patent applications
have been filed by, and that patents have been issued to, third parties in the
field of DNA amplification technology. This could affect Abbott's ability to
commercialize our diagnostic products, and our ability to collect royalties for
such commercialization.

25

Even if the diagnostics-related patent applications mature into issued
patents, there can be no assurance that others will not be, or have not been,
issued patents that may prevent the commercial development of one or more of the
technologies included in the diagnostics program or practice of one or more of
the technologies included in the diagnostics program, or require licensing and
the payment of significant fees or royalties by our company to third parties in
order to enable us to conduct our business.

There can be no assurance that our company will not be subject to claims
that one or more of our products or processes infringe other patents or violate
the proprietary rights of third parties. In the event that we are called upon to
defend and/or prosecute patent suits the related legal and administrative
proceedings would be costly and time consuming and could result in loss of
patent rights, infringement penalties or both. In addition, defense and
prosecution of patent suits can result in the diversion of substantial
financial, management and other resources from our company's other activities.
An adverse outcome could subject our company to significant liability to third
parties, require our company to obtain licenses from third parties, or require
our company to cease any related product development activities or product
sales.

TRADEMARKS. ERBITUX, IMCLONE, IMCLONE SYSTEMS, IMCLONE SYSTEMS
INCORPORATED, ENDOCLONE and the ANTIBODY DESIGN (Orange), our corporate icon,
are trade and/or service marks of ImClone Systems. Applications are pending or
registrations have been issued for various of these marks in the United States
and/or foreign jurisdictions.

TRADE SECRETS. With respect to certain aspects of our technology, we
rely, and intend to continue to rely, on our confidential trade secrets,
unpatented proprietary know-how and continuing technological innovation to
protect our competitive position. Such aspects of our technology include methods
of isolating and purifying antibodies and other proteins, collections of
plasmids in viable host systems, and antibodies that are specific for proteins
that are of interest to us. We cannot be certain that others will not
independently develop substantially equivalent proprietary information or
techniques, or that we are free of the patent or other rights of third parties
to commercialize this technology.

Relationships between us and our employees, scientific consultants and
collaborators provide these persons with access to our trade secrets, know-how
and technological innovation under confidentiality agreements with the parties
involved. Similarly, our employees and consultants enter into agreements with us
that require that they do not disclose confidential information of ours and they
assign to us all rights to any inventions made while in our employ relating to
our activities.

GOVERNMENT REGULATION

The research and development, manufacture and marketing of human
therapeutic and diagnostic products are subject to regulation, primarily by the
FDA in the United States and by comparable authorities in other countries. These
national agencies and other federal, state and local entities regulate, among
other things, research and development activities (including testing in animals
and in humans) and the testing, manufacturing, handling, labeling, storage,
record keeping, approval, advertising and promotion of the products that we are
developing. Noncompliance with applicable requirements can result in various
adverse consequences, including, delay in approving or refusal to approve
product licenses or other applications, suspension or termination of clinical
investigations, revocation of approvals previously granted, fines, criminal
prosecution, recall or seizure of products, injunctions against shipping
products and total or partial suspension of production and/or refusal to allow a
company to enter into governmental supply contracts.

The process of obtaining requisite FDA approval has historically been
costly and time consuming. Current FDA requirements for a new human drug or
biological product to be marketed in the United States include: (1) the
successful conclusion of pre-clinical laboratory and animal tests, if
appropriate, to gain preliminary information on the product's safety; (2) filing
with the FDA of an Investigational New Drug Application, commonly known as an
INDA, to conduct human clinical trials for drugs or biologics; (3) the
successful completion of adequate and well-controlled human clinical
investigations to establish the safety and efficacy of the product for its
recommended use; and (4) filing by a company and acceptance and approval by the
FDA of a New Drug Application ("NDA") for a drug product or a Biological License
Application ("BLA") for a biological product to allow commercial distribution of
the drug or biologic.
26

Pre-clinical tests include the evaluation of the product in the
laboratory and in animal studies to assess the potential safety and efficacy of
the product and its formulation. The results of the pre-clinical tests are
submitted to the FDA as part of an INDA to support the evaluation of the product
in human subjects or patients.

Clinical trials involve administration of the product to patients under
supervision of a qualified principal investigator. Such trials are typically
conducted in three sequential phases, although the phases may overlap. In phase
I, the initial introduction of the drug into human subjects, the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution, and
excretion. Phase II involves studies in a limited patient population to: (1)
determine the biological or clinical activity of the product for specific,
targeted indications; (2) determine dosage tolerance and optimal dosage; and (3)
identify possible adverse effects and safety risks. If phase II evaluations
indicate that a product is effective and has an acceptable benefit-to-risk
relationship, phase III trials may be undertaken to further evaluate clinical
efficacy and to further test for safety within an expanded patient population.
Phase IV studies, or post-marketing studies, may also be required to provide
additional data on safety or efficacy.

The FDA reviews the results of the clinical trials and may order the
temporary or permanent discontinuation of clinical trials at any time if it
believes the product candidate exposes clinical subjects to an unacceptable
health risk. Investigational products used in clinical studies must be produced
in compliance with cGMP pursuant to FDA regulations.

On November 21, 1997, President Clinton signed into law the Food and
Drug Administration Modernization Act. That act codified the FDA's policy of
granting "fast track" approval for cancer therapies and other therapies intended
to treat serious or life threatening diseases and that demonstrate the potential
to address unmet medical needs. The fast track program emphasizes close, early
communications between FDA and the sponsor to improve the efficiency of
preclinical and clinical development, and to reach agreement on the design of
the major clinical efficacy studies that will be needed to support approval.
Under the fast track program, a sponsor also has the option to submit and
receive review of parts of the NDA or BLA on a rolling schedule approved by FDA,
which expedites the review process.

The FDA's Guidelines for Industry Fast Track Development Programs
require that a clinical development program must continue to meet the criteria
for Fast Track designation for an application to be reviewed under the Fast
Track Program. Previously, the FDA approved cancer therapies primarily based on
patient survival rates or data on improved quality of life. While the FDA could
consider evidence of partial tumor shrinkage, which is often part of the data
relied on for approval, such information alone was usually insufficient to
warrant approval of a cancer therapy, except in limited situations. Under the
FDA's new policy, which became effective on February 19, 1998, fast track
designation ordinarily allows a product to be considered for accelerated
approval through the use of surrogate endpoints to demonstrate effectiveness. As
a result of these provisions, the FDA has broadened authority to consider
evidence of partial tumor shrinkage or other surrogate endpoints of clinical
benefit for approval. This new policy is intended to facilitate the study of
cancer therapies and shorten the total time for marketing approvals. Under
accelerated approval, the manufacturer must continue with the clinical testing
of the product after marketing approval to validate that the surrogate endpoint
did predict meaningful clinical benefit. We intend to take advantage of the fast
track programs; however, it is too early to tell what effect, if any, these
provisions may have on the approval of our product candidates.

The orphan drug provisions of the Federal Food, Drug, and Cosmetic Act
provide incentives to drug and biologics manufacturers to develop and
manufacture drugs for the treatment of rare diseases, currently defined as
diseases that exist in fewer than 200,000 individuals in the U.S. or, for a
disease that affects more than 200,000 individuals in the U.S., where the
sponsor does not realistically anticipate that its product will become
profitable. Under these provisions, a manufacturer of a designated orphan
product can seek tax benefits, and the holder of the first FDA approval of a
designated orphan product will be granted a seven-year period of marketing
exclusivity for that product for the orphan indication. While the marketing
exclusivity of an orphan drug would prevent other sponsors from obtaining
approval of the same compound for the same indication, it would not prevent
other types of drugs from being approved for the same indication.

27

Some of our cancer treatments require the use of in vitro diagnostic
products to test patients for particular traits. In vitro diagnostic products
are generally regulated by the FDA as medical devices. Before a medical device
may be marketed in the United States, the manufacturer generally must obtain
either clearance through a 510(k) premarket notification ("510(k)") process or
approval through the premarket approval application ("PMA") process. Section
510(k) notifications may be filed only for those devices that are "substantially
equivalent" to a legally marketed predicate device. If a device is not
"substantially equivalent" to a legally marketed predicate device, a PMA must be
filed. The premarket approval procedure generally involves more complex and
lengthy testing, and a longer review process than the 510(k) process.

Under current law, each domestic and foreign drug and device
product-manufacturing establishment must be registered with the FDA before
product approval. Domestic and foreign manufacturing establishments must meet
strict standards for compliance with cGMP regulations and licensing
specifications after the FDA has approved an NDA, BLA or PMA. The FDA and
foreign regulatory authorities periodically inspect domestic and foreign
manufacturing facilities where applicable.

Sales outside the United States of products we develop will also be
subject to regulatory requirements governing human clinical trials and marketing
for drugs and biological products and devices. The requirements vary widely from
country to country, but typically the registration and approval process takes
several years and requires significant resources. In most cases, if the FDA has
not approved a product for sale in the United States the product may be exported
to any country if it complies with the laws of that country and has valid
marketing authorization by the appropriate authority (i) in Canada, Australia,
New Zealand, Japan, Israel, Switzerland or South Africa, or (ii) in the European
Union or a country in the European Economic Area if the drug is marketed in that
country or the drug is authorized for general marketing in the European Economic
Area. There are specific FDA regulations that govern this process.

Our ability to earn sufficient returns on our products may depend in
part on the extent to which government health administration authorities,
private health coverage insurers and other organizations will provide
reimbursement for the costs of such products and related treatments. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that adequate third-party coverage will
be available.

ENVIRONMENTAL AND SAFETY MATTERS

We use hazardous chemicals, viruses and various radioactive isotopes and
compounds in our research and development activities. Accordingly, we are
subject to regulations under federal, state and local laws regarding employee
safety, environmental protection and hazardous substance control, and to other
present and possible future federal, state and local regulations. We have in
place safety procedures for storing, handling and disposing of these materials
and to provide, in general, a safe working environment. However, we cannot
completely eliminate the risk of contamination or injury. We could be held
liable for any resulting damages, injuries or civil penalties, and our trials
could be suspended. In addition, environmental laws or regulations may impose
liability for the clean-up of contamination at properties we own or operate,
regardless of fault.

These environmental laws and regulations do not currently materially
adversely affect our operations, business or assets. However, these laws may
become more stringent, other facts may emerge, and our processes may change, and
therefore the amount and timing of expenditures in the future may vary
substantially from those currently anticipated.

COMPETITION

Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors. These factors include the
availability of patent and other protection for technology and products, the
ability to commercialize technological developments and the ability to obtain
governmental approval for testing, manufacturing and marketing. We compete with
specialized biopharmaceutical firms in the United States, Europe and elsewhere,
as well as a growing number of large pharmaceutical companies that are applying
biotechnology to their operations. Many biopharmaceutical companies have focused
their
28

development efforts in the human therapeutics area, including cancer. 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 us in recruiting
and retaining highly qualified scientific personnel and consultants. Our ability
to compete successfully with other companies in the pharmaceutical field will
also depend to a considerable degree on the continuing availability of capital
to us.

We are aware of certain products under development or manufactured by
competitors that are used for the prevention, diagnosis, or treatment of certain
diseases we have targeted for product development. Various companies are
developing biopharmaceutical products that potentially directly compete with our
product candidates. These include areas such as (1) the use of small molecules
to the receptor or antibodies to those receptors to treat cancer, (2) the use of
anti-idiotypic antibody or recombinant antigen approaches to cancer vaccine
therapy, (3) the development of inhibitors to angiogenesis, and (4) the use of
hematopoietic growth factors to treat blood system disorders to or for stem cell
or gene therapy. Some of these product candidates are in advanced stages of
clinical trials. We are aware of at least four companies that have potential
antibody and small-molecule product candidates in clinical testing that may
compete with our lead drug candidate, ERBITUX. The companies are (1) AstraZeneca
PLC, (2) OSI Pharmaceuticals Inc. in collaboration with Genentech, Inc. (3)
Abgenix, Inc. and (4) Pfizer/Warner-Lambert.

We expect that our products under development and in clinical trials
will address major markets within the cancer sector. Our competition will be
determined in part by the potential indications for which drugs are developed
and ultimately approved by regulatory authorities. Additionally, the timing of
market introduction of some of our potential products or of competitors'
products may be an important competitive factor. Accordingly, the relative speed
with which we can develop products, complete pre-clinical testing, clinical
trials and approval processes and supply commercial quantities to market are
expected to be important competitive factors. We expect that competition among
products approved for sale will be based on various factors, including product
efficacy, safety, reliability, availability, price, and patent position.

HUMAN RESOURCES

We initiated our in-house research and development in 1986. We have
assembled a scientific staff with a variety of complementary skills in a broad
base of advanced research technologies, including oncology, immunology,
molecular and cell biology, antibody engineering, protein and medicinal
chemistry and high-throughput screening. We have also recruited a staff of
technical and professional employees to carry out manufacturing of clinical
trial materials at our Somerville, New Jersey facilities. Of our 399 full-time
personnel on March 28, 2002, 223 were employed in our product development,
clinical and manufacturing programs, 78 in research, and 98 in administration.
Our staff includes 37 persons with Ph.D.s and 5 with M.D.s.

29

ITEM 2. PROPERTIES

180 VARICK STREET, NEW YORK, NEW YORK

We have occupied two contiguous leased floors at 180 Varick Street in
New York City since 1986. The property currently serves as our corporate
headquarters and research facility. The current lease for the two floors was
effective as of January 1, 1999 and expires in December 2004. The rent under the
lease increases by 3% per year. During 2000, we completed renovations of this
facility to better fit our needs at a cost of approximately $2,800,000. In
December 2000, we modified our lease to provide for another approximately 1,800
square feet on a contiguous floor for an initial annual rent of $63,000, which
increases annually by 3%. Rent expense for the Varick Street facility was
approximately $946,000 for the year ended December 31, 2001.

The original acquisition, construction and installation of our New York
research and development facilities were financed principally through the sale
of Industrial Development Agency Revenue Bonds (the "IDA Bonds") issued by the
New York Industrial Development Agency ("NYIDA"). Equipment at these facilities
purchased with the proceeds of the bond secure the payment of debt service on
the outstanding IDA Bond.

BROOKLYN, NEW YORK

On May 1, 2001, we leased a 4,000 square foot portion of a 15,000 square
foot building known as 710 Parkside Avenue, Brooklyn, New York and we have
leased an adjacent 6,250 square foot building known as 313-315 Clarkson Avenue,
Brooklyn, New York, (collectively "the premises"). The term of the lease is for
five years with five successive one year extensions. The initial annual lease
rate is $9 per square foot or $92,250 annually until six months after we have
received all necessary permits for our improvements to the premises at which
time the annual base rent will be $18 per square foot or $184,500 annually. When
improvements are completed, the premises will serve as our new chemistry and
high throughput screening facility. We expect to relocate our chemistry and high
throughput screening personnel from 180 Varick Street to the premises during the
second quarter of this year. In the year ended December 31, 2001, we incurred
rent expense for the premises of $113,000.

325 SPRING STREET, NEW YORK, NEW YORK

In October 2001, we entered into a sublease for a four story building
located at 325 Spring Street, New York, New York to serve as our future
corporate headquarters and research facility. The space, to be designed and
improved by us in the future, includes between 75,000 and 100,000 square feet of
usable space, depending on design, and includes possible additional expansion
space. The sublease has a term of 22 years, followed by two five year renewal
option periods. The future minimum lease payments are approximately $51,025,000
over the term of the sublease. In order to induce the sublandlord to enter into
the sublease, we made a loan to and accepted from the sublandlord a $10,000,000
note receivable. The note is secured by a leasehold mortgage on the prime lease
as well as a collateral assignment of rents by the sublandlord. The note is
payable over 20 years and bears interest at 5 1/2% in years one through five,
6 1/2% in years six through ten, 7 1/2% in years eleven through fifteen and
8 1/2% in years sixteen through twenty. In addition, we paid the owner of the
building a consent fee in the amount of $500,000. In the year ended December 31,
2001, we incurred rent expense of $414,000 for this sublease.

22 CHUBB WAY, SOMERVILLE, NEW JERSEY

In 1992, we acquired a 5.1 acre parcel of land and a 54,400 square foot
building located at 22 Chubb Way, Somerville, New Jersey at a cost to us of
approximately $4,665,000, including expenses. We have retrofitted the building
to serve as our pilot facility for clinical trial manufacturing. When purchased,
the facility had in place various features, including clean rooms, air handling,
electricity, and water for injection systems and administrative offices. The
cost for completion of facility modifications was approximately $5,400,000. We
currently operate the facility to develop and manufacture materials for a
portion of our clinical trials. Under certain circumstances, we also may use the
facility for the manufacturing of commercial
30

products. In January 1998, we completed the construction and commissioning of a
1,750 square foot process development center at this facility dedicated to
manufacturing process optimization for existing products and the pre-clinical
and phase I development of new biological therapeutics.

36 CHUBB WAY, SOMERVILLE, NEW JERSEY

We built a new 80,000 square foot product launch manufacturing facility
adjacent to the pilot facility in Somerville, New Jersey. The product launch
manufacturing facility was built on a 5.7 acre parcel of land we purchased in
December 1999 for approximately $700,000. The product launch manufacturing
facility contains three 10,000 liter (working volume) fermenters and is
dedicated to the clinical and commercial production of ERBITUX(TM). The product
launch manufacturing facility was ready for its intended use and put in
operation in July 2001. The product launch manufacturing facility cost a total
of approximately $53,000,000 excluding capitalized interest of approximately
$1,966,000.

50 CHUBB WAY, SOMERVILLE, NEW JERSEY

We have completed conceptual design and preliminary engineering plans
and are currently reviewing detailed design plans for, and proceeding with
construction of, the second commercial manufacturing facility. The second
commercial manufacturing facility would be a multi-use facility with capacity of
up to 110,000 liters (working volume). The facility would be built on a 7.12
acre parcel of land that we purchased in July 2000 for approximately $950,000,
which is the parcel immediately to the west of 36 Chubb Way. We have broken
ground on the initial construction of the second commercial manufacturing
facility. The cost of this facility, for two completely fitted out suites and a
third suite with utilities only, is expected to be approximately $225,000,000,
excluding capitalized interest. We have incurred approximately $30,414,000 in
costs through December 31, 2001.

41 CHUBB WAY, SOMERVILLE, NEW JERSEY

In September 2000, we entered into a one-year lease with GM Stainless,
Inc. for approximately 7,600 square feet of office space in a building across
the street from the product launch manufacturing facility in order to house the
additional personnel being hired in connection with our expansion of our
clinical, medical and regulatory affairs functions. The lease will automatically
renew each year for up to three additional years unless terminated three months
prior to the expiration of that year. In the year ended December 31, 2001, we
incurred rent expense of $103,000.

CHUBB WAY PARKING LOT

On May 2, 2001, we purchased a 4.45 acre parcel of land on Chubb Way,
which is the parcel immediately to the east of 22 Chubb Way for approximately
$597,000. We intend to use this property for a future parking lot for our
Somerville campus.

LOGISTICS BUILDING

On January 31, 2002, we purchased a 7.5 acre parcel of land located at
1181 Route 202, which is the parcel immediately to the north of 36 Chubb Way and
immediately to the East of 50 Chubb Way. The parcel includes a 50,000 square
foot building, 40,000 square feet of which is warehouse space and 10,000 square
feet of which is office space. The purchase price for the property and
improvements was approximately $7,000,000. We intend to use this property for
warehousing and logistics for our Somerville campus.

31

ITEM 3. LEGAL PROCEEDINGS

A. LITIGATION

1. FEDERAL SECURITIES CLASS ACTIONS

A number of complaints asserting claims under Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated
thereunder and Section 20(a) of the Exchange Act have been filed in the U.S.
District Court for the Southern District of New York against us and certain of
our directors and officers on behalf of purported classes of our shareholders.
The first-filed of these actions, which was filed on approximately January 7,
2002, is captioned Irvine v. ImClone Systems Inc., et al., No. 02 Civ. 0109
(RO). Several plaintiffs in these actions have filed motions that, if granted
will result in the consolidation of these and any subsequently-filed actions
that assert similar claims under the caption In re ImClone Systems Incorporated
Securities Litigation. The complaints in these actions allege generally that
various public statements made by us or our senior officers during 2001 and
early 2002 regarding the prospects for FDA approval of ERBITUX(TM) were false or
misleading when made, that various Company insiders were aware of material,
non-public information regarding the actual prospects for ERBITUX at the time
that those insiders engaged in transactions in our common stock and that members
of the purported shareholder class suffered damages when the market price of our
common stock declined following disclosure of the information that allegedly had
not been previously disclosed. On December 28, 2001, we disclosed that we had
received a "refusal to file" letter from the FDA relating to our biologics
license application for ERBITUX. Thereafter, various news articles purported to
describe the contents of the FDA's "refusal to file" letter. During this period,
the market price of our common stock declined. The complaints in the various
actions seek to proceed on behalf of a class of our present and former
shareholders, other than defendants or persons affiliated with the defendants,
seek monetary damages in an unspecified amount and seek recovery of plaintiffs'
costs and attorneys' fees.

2. DERIVATIVE ACTIONS

Beginning on January 13, 2002 and continuing thereafter, six separate
purported shareholder derivative actions have been filed against the members of
our Board of Directors and the Company, as nominal defendant, advancing claims
based on allegations similar to the allegations in the federal securities class
action complaints. Three of these derivative cases were filed in the Delaware
Court of Chancery and have been consolidated in that court under the caption In
re ImClone Systems Incorporated Derivative Litigation, Cons. C.A. No. 19341-NC.
In addition, two purported derivative actions have been filed in the U.S.
District Court for the Southern District of New York, styled Lefanto v. Waksal,
et al., No. 02 Civ. 0163 (LLS), and Forbes v. Barth, et al., No. 02 Civ. 1400
(RO), and a sixth purported derivative action has been filed in New York State
Supreme Court in Manhattan, styled Boghosian v. Barth, et al., Index No.
100759/02. All of these actions assert claims, purportedly on our behalf, for
breach of fiduciary duty by certain members of the Board of Directors based on
the allegation, among others, that certain directors engaged in transactions in
our common stock while in possession of material, non-public information
concerning the regulatory and marketing prospects for ERBITUX. A seventh
complaint, purportedly asserting direct claims on behalf of a class of the
Company's shareholders but in fact asserting derivative claims that are similar
to those asserted in these six cases, was filed in the U.S. District Court for
the Southern District of New York on February 13, 2002, styled Dunlap v. Waksal,
et al., No. 02 Civ. 1154 (RO). The Dunlap complaint asserts claims against the
Board of Directors for breach of fiduciary duty purportedly on behalf of all
persons who purchased shares of the Company's common stock prior to June 28,
2001 and then held those shares through December 6, 2001. It alleges that the
members of the purported class suffered damages as a result of holding their
shares based on allegedly false information about the financial prospects of the
Company that was disseminated during this period.

All of these actions are in their earliest stages. We intend to contest
vigorously the claims asserted in these actions.

32

B. GOVERNMENT INQUIRIES AND INVESTIGATIONS

As previously reported, we have received subpoenas and requests for
information in connection with investigations by the Securities Exchange
Commission, the Subcommittee on Oversight and Investigations of the U.S. House
of Representatives Committee on Energy and Commerce and the U.S. Department of
Justice relating to the circumstances surrounding the disclosure of the FDA
letter dated December 28, 2001 and trading in our securities by certain Company
insiders in 2001. We are cooperating with all of these inquiries and intend to
continue to do so.

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

Not applicable.

33

PART II

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

MARKET INFORMATION

Our common stock is traded in the over-the-counter market and prices are
reported on the Nasdaq National Market tier of The Nasdaq Stock Market under the
symbol "IMCL."

The following table sets forth, for the periods indicated, the range of
high and low sale prices for the common stock on the Nasdaq National Market, as
reported by The Nasdaq Stock Market. The quotations shown represent inter-dealer
prices without adjustment for retail mark-ups, mark downs or commissions, and
may not necessarily reflect actual transactions. Share prices shown are adjusted
for our 2-for-1 stock split effected in the form of a dividend in October 2000.

On March 28, 2002, the closing price of our common stock was $24.63.

STOCKHOLDERS

As of the close of business on March 28, 2002, there were approximately
330 holders of record of our common stock. We estimate that there are
approximately 41,200 beneficial owners of our common stock.

DIVIDENDS

We have never declared cash dividends on our common stock and have no
present intention of declaring such cash dividends in the foreseeable future.

RECENT SALES BY THE COMPANY OF UNREGISTERED SECURITIES

In 2001, we issued an aggregate of 1,218,600 shares of unregistered
common stock to holders of warrants upon exercise of such warrants for a total
purchase price of approximately $1,400,000 which were consummated as private
sales under Section 4(2) of the Securities Act of 1933, as amended.

34

ITEM 6. SELECTED FINANCIAL DATA

- ---------------
(1) Net interest and other income is presented net of interest income, interest
expense and realized and unrealized gains and losses on securities and
investments.

35

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

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

CRITICAL ACCOUNTING POLICIES

During January 2002, the Securities and Exchange Commission ("SEC")
published a Commission Statement in the form of Financial Reporting Release No.
61 which requested that all registrants discuss their most "critical accounting
policies" in management's discussion and analysis of financial condition and
results of operations. The SEC has defined critical accounting policies as those
that are both important to the portrayal of a company's financial condition and
results, and that require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. While our significant accounting policies
are summarized in Note 2 to our consolidated financial statements included in
this Form 10-K, we believe the following accounting policies to be critical:

Revenue -- We adopted Staff Accounting Bulletin No. 101 ("SAB 101") in
the fourth quarter of 2000 with an effective date of January 1, 2000,
implementing a change in accounting policy with respect to revenue recognition.
Beginning January 1, 2000, nonrefundable fees received upon entering into
collaborative agreements where the Company has continuing involvement are
recorded as deferred revenue and recognized over the estimated service period.

Payments received under the development, promotion, distribution and
supply agreement (the "Commercial Agreement") dated September 19, 2001 with
Bristol-Myers Squibb Company ("BMS") and E.R. Squibb & Sons, L.L.C., a Delaware
limited liability company and a wholly-owned subsidiary of BMS ("E.R. Squibb"),
relating to ERBITUX, are being deferred and recognized as revenue based upon the
actual product research and development costs incurred to date by BMS, E.R.
Squibb and ImClone Systems as a percentage of the estimated total of such costs
to be incurred over the term of the agreement. Of the $200,000,000 upfront
payment we received from BMS in September 2001, approximately $2,553,000 was
recognized as revenue during the year ended December 31, 2001.

The methodology used to recognize revenue previously deferred involves a
number of estimates and judgments, such as the estimate of total product
research and development costs to be incurred under the Commercial Agreement.
Changes in these estimates and judgments can have a significant effect on the
timing of when revenue is recognized.

Non-refundable milestone payments, which represent the achievement of a
significant step in the research and development process, pursuant to
collaborative agreements, other than the Commercial Agreement with BMS, are
recognized as revenue upon the achievement of the specified milestone.

Research and development funding revenue is derived from collaborative
agreements and is recognized in accordance with the terms of the respective
contracts. Royalty revenue is recognized when earned and collection is probable.

Litigation -- We are currently involved in certain legal proceedings as
discussed in "Contingencies" Note 13 to the financial statements and Item 3 of
this 10-K. In accordance with Statement of Financial Accounting Standards No. 5,
no legal reserve has been established in our financial statements for these
matters because we do not believe that a loss is probable at this time. However,
if we deem it probable that an unfavorable ruling in any such legal proceeding
will occur, there exists the possibility of a material adverse impact on the
operating results of that period.

Long-Lived Assets -- We review long-lived assets for impairment when
events or changes in business conditions indicate that their full carrying value
may not be recovered. Assets are considered to be impaired and written down to
fair value if expected associated undiscounted cash flows are less than carrying

36

amounts. Fair value is generally the present value of the expected associated
cash flows. We recently built a product launch manufacturing facility and are
building a second commercial manufacturing facility which are summarized in Note
4 to the financial statements. The product launch manufacturing facility is
dedicated to the clinical and commercial production of ERBITUX and the second
commercial manufacturing facility will be a multiuse production facility.
ERBITUX is currently being produced for clinical trials and potential
commercialization. We believe that ERBITUX will ultimately be approved for
commercialization. As such, we believe that the full carrying value of both the
product launch manufacturing facility and the second commercial manufacturing
facility will be recovered. Changes in business conditions in the future could
change our judgements about the carrying value of these facilities which could
result in the recognition of material impairment losses.

Manufacturing Contracts -- As summarized under Contract Services in
"Commitments", Note 14 to the financial statements, we have entered into certain
development and manufacturing services agreements with Lonza Biologics plc
("Lonza") for the clinical and commercial production of ERBITUX. We have
commitments from Lonza to manufacture ERBITUX at the 5,000 liter scale through
December 2003. On December 31, 2001, the estimated remaining future commitments
under the amended commercial manufacturing services agreement with Lonza were
$42,563,000 in 2002 and $10,175,000 in 2003. If ERBITUX were not to receive
regulatory approval when anticipated it is possible that a liability would need
to be recognized for any remaining commitments to Lonza.

Valuation of Stock Options -- We apply APB Opinion No. 25 and related
interpretations in accounting for our stock options and warrants. Accordingly,
compensation expense is recorded on the date of grant of an option to an
employee or member of the Board of Directors only if the fair market value of
the underlying stock at the time of grant exceeded the exercise price. Had we
applied the fair-value-based-method as defined in SFAS No. 123 instead of APB
Opinion No. 25, our net loss to common stockholders in 2001, 2000 and 1999 would
have been increased by approximately $67,244,000, $33,730,000 and $9,282,000,
respectively. In addition, we have granted options to certain Scientific
Advisory Board members and outside consultants, which are required to be
measured at fair value. Estimating the fair value of equity securities involves
a number of judgements and variables that are subject to significant change. A
change in the fair value estimate could have a significant effect on the amount
of compensation expense recognized. See Note 11(d).

Production Costs -- The costs associated with the manufacture of ERBITUX
are included in research and development expenses when incurred and will
continue to be so classified until such time as ERBITUX may be approved for sale
or until we obtain obligations from our corporate partners for supply of such
product. In the event of such approval or obligations from our corporate
partners, the subsequent costs associated with manufacturing ERBITUX for
commercial sale will be included in inventory and expensed as cost of goods sold
when sold. If ERBITUX is approved by the United States Food and Drug
Administration ("FDA"), any subsequent sale of this inventory, previously
expensed, will result in revenue from product sales with no corresponding cost
of goods sold.

RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS:

In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations completed after June 30, 2001. SFAS No.
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual value, and reviewed for
impairment in accordance with SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company does
not have any goodwill or other intangible assets acquired in business
combinations.

In August 2001 the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
37

Long-Lived Assets to Be Disposed Of. However, SFAS 144 retains the fundamental
provisions of SFAS 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sale. SFAS 144 supersedes the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. However, SFAS 144 retains the requirement of Opinion 30
to report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, by abandonment, or in distribution to owners) or is classified as
held for sale. SFAS 144 also amends ARB No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a temporarily
controlled subsidiary. The Company is required to adopt SFAS 144 effective
January 1, 2002. We do not expect the adoption of SFAS 144 for long-lived assets
held for sale to have a material impact on our consolidated financial statements
because the impairment assessment under SFAS 144 is largely unchanged from SFAS
121.

OVERVIEW AND RISK FACTORS

We are a biopharmaceutical company whose mission is to advance oncology
care by developing a portfolio of targeted biologic treatments, which address
the unmet medical needs of patients with a variety of cancers. Our three
programs include growth factor blockers, cancer vaccines and angiogenesis
inhibitors. Since our inception in April 1984, we have devoted substantially all
of our efforts and resources to research and development conducted on our own
behalf and through collaborations with corporate partners and academic research
and clinical institutions. We have not derived any revenue from commercial
product sales. As a result of our substantial research and development costs, we
have incurred significant operating losses and we have generated a cumulative
net loss of approximately $346,000,000 for the period from our inception to
December 31, 2001. We expect to incur additional operating losses, which could
be substantial.

Substantially all of our revenues were generated from collaborative
arrangements with our partners. Such revenues, as well as our results of
operations, have fluctuated and are expected to continue to fluctuate
significantly from period to period due to:

- the status of development of our various product candidates;

- the time at which we enter into collaborative arrangements with
corporate partners that provide for payments to us, and the timing and
accounting treatment of payments to us under these agreements;

- whether or not we achieve specified research or commercialization
milestones;

- timely payment by our corporate partners of amounts payable to us;

- the addition or termination of research programs or funding support;

- variations in the level of expenses related to our proprietary product
candidates during any given period.

To be commercialized our product candidates will require additional
development and clinical testing. Generally, to make a profit we will need to
successfully develop, test, introduce and market our products. It is not certain
that any of our products will be successfully developed or that required
regulatory approvals to commercialize them can be obtained. Further, even if we
successfully develop a product, there is no assurance that we will be able to
successfully manufacture or market that product or that potential customers will
buy it.

In December 1998, we entered into an agreement with Merck KGaA, a
Germany-based drug company, relating to the development, marketing and sale of
ERBITUX. Under the terms of this agreement (which were subsequently amended in
August 2001, see below): (1) we retained the rights to develop and market
ERBITUX within the United States and Canada (which we subsequently licensed to
BMS and E.R. Squibb pursuant to the terms of the Commercial Agreement), (2) we
granted Merck KGaA exclusive rights, except in Japan, to develop and market
ERBITUX outside of the United States and Canada; (3) we agreed to
38

seek to supply Merck KGaA, and Merck KGaA agreed to purchase from us, ERBITUX
for conducting clinical trials and the commercialization of the product outside
of the United States and Canada (which we are now currently supplying to Merck
KGaA, and Merck KGaA is currently purchasing from us) (4) we (along with E.R.
Squibb pursuant to the terms of the Commercial Agreement) will co-develop and
co-market ERBITUX in Japan with Merck KGaA; and (5) we granted Merck KGaA an
exclusive license outside of the United States and Canada, without the right to
sublicense, to certain of our patents to apply to a humanized antibody to the
EGF receptor on which Merck KGaA currently has in development.

In return, Merck KGaA (1) has paid us $30,000,000 in up-front fees and
early cash-based milestone payments based upon our achievement of the milestones
set forth in the agreement, and (2) has agreed, subject to the terms of the
agreement, to pay us an additional $30,000,000 if further milestones are
achieved, for which Merck KGaA will receive equity in ImClone Systems that will
be priced at varying premiums to the then-market price of our common stock
depending upon the timing of the achievement of the respective milestones,
$5,000,000 of which was achieved and received by ImClone Systems through
December 31, 2001 (3) fund clinical development of ERBITUX outside of the United
States and Canada, except in Japan where co-development rights exist and (4) pay
us royalties on future sales of ERBITUX in its territory, if any.

This agreement may be terminated by Merck KGaA in various instances,
including (1) at its discretion on any date on which a milestone is achieved (in
which case no milestone payment will be made), or (2) for a one-year period
after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck
KGaA's reasonable determination that the product is economically unfeasible (in
which case Merck KGaA is entitled to receive back 50% of up-front fees and
cash-based milestone payments then paid to date, but only out of revenues
received, if any, based upon a royalty rate applied to the gross profit from
ERBITUX sales or a percentage of ERBITUX fees and royalties from a sublicensee
on account of the sale of ERBITUX in the United States and Canada).

In August 2001, the Company and Merck KGaA amended this agreement to
provide, among other things, that Merck KGaA may manufacture ERBITUX for supply
in its territory and may utilize a third party to do so upon the Company's
reasonable acceptance. The amendment further released Merck KGaA from its
obligations under the agreement relating to providing a guaranty under a
$30,000,000 credit facility relating to the build-out of the product launch
manufacturing facility. In addition, the amendment provides that the companies
have co-exclusive rights to ERBITUX in Japan, including the right to sublicense
and Merck KGaA waived its right of first offer in the case of a proposed
sublicense by the Company of ERBITUX in the Company's territory. In
consideration for the amendment, the Company agreed to a reduction in royalties
payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory.

Through December 31, 2001, ImClone Systems has received the $30,000,000
in up-front fees and cash-based milestone payments as well as, $5,000,000 of the
equity-based milestone payments. Of the cash-based milestone payments received
through December 31, 2001, $2,000,000 was received and recognized as revenue in
the year ended December 31, 2001. A total of $28,000,000 was received prior to
January 1, 2001 and originally recorded as fees potentially refundable to
corporate partner and not as revenue due to the fact that they were refundable
to Merck KGaA in the event a condition relating to obtaining certain collateral
license agreements was not satisfied by us. In March 2001, this condition was
satisfied and $24,000,000 in milestone payments was recognized as revenue by the
Company during the three months ended March 31, 2001. The remaining $4,000,000
represents the up-front payment associated with the agreement and has been
recorded as deferred revenue. This revenue is being recognized ratably over the
anticipated life of the agreement. The Company recognized approximately $222,000
of the up-front payment as revenue during the year ended December 31, 2001. In
August 2001, the Company received its first equity-based milestone payment
totaling $5,000,000 and accordingly issued to Merck KGaA 63,027 shares of its
common stock. The number of shares issued for this milestone payment was
determined using a price of $79.33 per share. During the year ended December 31,
2001, the Company recognized revenue of approximately $1,760,000 representing
the excess of the amount paid by Merck KGaA for these shares over the fair value
of the Company's common stock.

39

We have also granted Merck KGaA a license, with the right to sublicense,
to make, have made, use, sell, or have sold BEC2 and gp75 outside North America.
The agreement also grants Merck KGaA a license, without the right to sublicense,
to use, sell, or have sold, but not to make BEC2 within North America in
conjunction with ImClone Systems. Pursuant to the terms of the agreement we have
retained the rights, (1) without the right to sublicense, to make, have made,
use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and
(2) with the right to sublicense, to make, have made, use, sell, or have sold
gp75 in North America. In return, Merck KGaA has made research support payments
to us totaling $4,700,000 and is required to make milestone payments to us of up
to $22,500,000, of which $4,000,000 has been received through December 31, 2001.
In addition, Merck KGaA is required to make royalty payments to us on any sales
of BEC2 or gp75 outside North America, with a portion of the milestone and
research support payments received under the agreement being creditable against
the amount of royalties due.

On September 19, 2001, we entered into an acquisition agreement (the
"Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics Company, a
Delaware corporation ("BMS Biologics") which is a wholly-owned subsidiary of
BMS, providing for the tender offer by BMS Biologics to purchase up to
14,392,003 shares of our common stock for $70.00 per share, net to the seller in
cash. The tender offer by BMS Biologics, available to all shareholders, allowed
for our present or former employees and directors who held exercisable options
to purchase shares of our common stock having exercise prices less than $70.00
per share to conditionally exercise any or all of those options and tender the
underlying shares in the tender offer. In connection with the Acquisition
Agreement, we entered into a stockholder agreement with BMS and BMS Biologics,
dated as of September 19, 2001 (the "Stockholder Agreement"), pursuant to which
all parties agreed to various arrangements regarding the respective rights and
obligations of the each party with respect to, among other things, the ownership
of shares of our common stock by BMS and BMS Biologics. Concurrently with the
execution of the Acquisition Agreement and the Stockholder Agreement, we entered
into the Commercial Agreement with BMS and E.R. Squibb, relating to ERBITUX,
pursuant to which, among other things, we are co-developing and co-promoting
ERBITUX in the United States and Canada, and co-developing ERBITUX (together
with Merck KGaA) in Japan.

On March 5, 2002, we amended the Commercial Agreement with E.R. Squibb
and BMS. The amendment changed certain economics of the Commercial Agreement and
has expanded the clinical and strategic role of BMS in the ERBITUX development
program. One of the principal economic changes to the Commercial Agreement is
that we received $140,000,000 on March 7, 2002 and an additional payment of
$60,000,000 is payable on March 5, 2003. Such payments are in lieu of the
$300,000,000 payment we would have received on acceptance by the FDA of the
ERBITUX BLA under the original terms of the Commercial Agreement. In addition,
the Company agreed to resume construction of its second commercial manufacturing
facility as soon as reasonably practicable after the execution of the amendment.
The terms of the Commercial Agreement, as amended on March 5, 2002, are set
forth in more detail in the business section above.

On October 29, 2001, pursuant to the Acquisition Agreement, BMS
Biologics accepted for payment pursuant to the tender offer 14,392,003 shares
our common stock on a pro rata basis from all tendering shareholders and those
conditionally exercising stock options. The terms of the Acquisition Agreement
are set forth in more detail in the business section above.

The Stockholder Agreement, among other things, described in greater
detail in the business section above, gave BMS the right to nominate two initial
directors and also set forth BMS' (i) limitation on additional purchases of
shares, (ii) option to purchase shares in the event of dilution and (iii)
restrictions as to transfer of shares.

In exchange for the rights granted to BMS under the amended Commercial
Agreement, we can receive up-front and milestone payments totaling $900,000,000
in the aggregate, of which $200,000,000 was received on September 19, 2001,
$140,000,000 was received on March 7, 2002, $60,000,000 is payable on March 5,
2003, $250,000,000 is payable upon receipt of marketing approval from the FDA
with respect to an initial indication for ERBITUX and $250,000,000 is payable
upon receipt of marketing approval from the FDA with respect to a second
indication for ERBITUX. All such payments are non-refundable and non-
creditable. Except for our expenses incurred pursuant to a co-promotion option,
E.R. Squibb is also

40

responsible for 100% of the distribution, sales and marketing costs in the
United States and Canada, and as between ImClone Systems and E.R. Squibb, each
will be responsible for 50% of the distribution, sales, marketing costs and
other related costs and expenses in Japan. The Commercial Agreement provides
that E.R. Squibb shall pay us distribution fees based on a percentage of annual
sales of ERBITUX by E.R. Squibb in the United States and Canada. The
distribution fee is 39% of net sales in the United States and Canada. The
Commercial Agreement also provides that the distribution fees for the sale of
ERBITUX in Japan by E.R. Squibb or us shall be equal to 50% of operating profit
or loss with respect to such sales for any calendar month. In the event of an
operating profit, E.R. Squibb will pay us the amount of such distribution fee,
and in the event of an operating loss, we will credit E.R. Squibb the amount of
such distribution fee. The Commercial Agreement provides that we will be
responsible for the manufacture and supply of all requirements of ERBITUX in
bulk form for clinical and commercial use in the United States, Canada and Japan
and that E.R. Squibb will purchase all of its requirements of ERBITUX in bulk
form for commercial use from us. We will supply ERBITUX for clinical use at our
fully burdened manufacturing cost, and will supply ERBITUX for commercial use at
our fully burdened manufacturing cost plus a mark-up of 10%. In addition to the
up-front and milestone payments, the distribution fees for the United States,
Canada and Japan and the 10% mark-up on the commercial supply of ERBITUX, E.R.
Squibb is also responsible for 100% of the cost of all clinical studies other
than those studies undertaken post-launch which are not pursuant to an
Investigational New Drug Application ("INDA") (e.g. phase IV studies), the cost
of which will be shared equally between E.R. Squibb and ImClone Systems. As
between E.R. Squibb and ImClone Systems, each will each be responsible for 50%
of the cost of all clinical studies in Japan.

Unless earlier terminated pursuant to the termination rights discussed
below, the Commercial Agreement expires with regard to the Product in each
country in the Territory on the later of September 19, 2018 and the date on
which the sale of the Product ceases to be covered by a validly issued or
pending patent in such country. The Commercial Agreement may also be terminated
prior to such expiration as follows:

- by either party, in the event that the other party materially breaches
any of its material obligations under the Commercial Agreement and has
not cured such breach within 60 days after notice;

- by E.R. Squibb, if the JEC determines that there exists a significant
concern regarding a regulatory or patient safety issue that would
seriously impact the long-term viability of all products; or

- by either party, in the event that the JEC does not approve additional
clinical studies that are required by the FDA in connection with the
submission of the initial regulatory filing with the FDA within 90
days of receiving the formal recommendation of the PDC concerning such
additional clinical studies.

The Company incurred approximately $16,055,000 in advisor fees
associated with consummating the Acquisition Agreement, the Stockholder
Agreement and the Commercial Agreement with BMS and its affiliates through
December 31, 2001. These costs have been expensed during the year ended December
31, 2001 and included as a separate line item in operating expenses in the
consolidated statement of operations.

At December 31, 2001, research and development and marketing costs
associated with ERBITUX that are reimbursable by E.R. Squibb totaled $6,714,000
and are included in amounts due from corporate partners in the consolidated
balance sheets. These amounts have been recorded as a reduction to research and
development and marketing, general and administrative expenses in the
consolidated statements of operations in the year ended December 31, 2001.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2001 AND 2000.

Revenues.

Revenues for the years ended December 31, 2001 and 2000 were $33,219,000
and $1,413,000, respectively, an increase of $31,806,000 in 2001. Revenues for
the year ended December 31, 2001 primarily included $27,760,000 in milestone
revenues from our development and license agreement with Merck KGaA
41

for ERBITUX. Pursuant to this agreement, we received a $2,000,000 cash milestone
payment in June 2001, which was recognized as revenue and a $5,000,000
equity-based milestone payment in August 2001, of which $1,760,000, the excess
of the amount paid by Merck KGaA for the shares over the fair value, was
recognized as revenue. The remaining $24,000,000 of these milestone payments
were received in prior periods and originally recorded as fees potentially
refundable to corporate partner because they were refundable in the event a
condition relating to obtaining certain collateral license agreements was not
satisfied. This condition was satisfied in March 2001. In addition, we
recognized $222,000 of the $4,000,000 up-front payment received upon entering
into this agreement. This revenue is being recognized ratably over the
anticipated life of the agreement. Under this agreement, an additional
$25,000,000 in equity-based milestones may be received upon the achievement of
additional milestones. Revenues for the year ended December 31, 2001 also
included (1) $1,480,000 in royalty revenue from our strategic corporate alliance
with Abbott Laboratories ("Abbott") in diagnostics, (2) $1,000,000 in milestone
revenues, and $162,000 in license fee revenues from our strategic corporate
alliance with Merck KGaA for our principal cancer vaccine product candidate,
BEC2, and (3) $2,553,000 from our ERBITUX Commercial Agreement with BMS and its
wholly-owned subsidiary, E.R. Squibb. Revenues from payments under this
agreement (of which $200,000,000 were received in 2001) are being recognized
over the clinical and regulatory development life of ERBITUX. An additional
$140,000,000 was received on March 7, 2002, $60,000,000 is payable on March 5,
2003, $250,000,000 is payable upon receipt of marketing approval from the FDA
with respect to an initial indication for ERBITUX and $250,000,000 is payable
upon receipt of marketing approval from the FDA with respect to a second
indication for ERBITUX. All such payments are non-refundable and non-creditable.
Revenues for the year ended December 31, 2000 primarily consisted of (1)
$250,000 in milestone revenue and $961,000 in royalty revenue from our strategic
corporate alliance with Abbott in diagnostics and (2) $162,000 in license fee
revenue from our strategic corporate alliance with Merck KGaA for our principal
cancer vaccine product candidate, BEC2. The license fee revenue related to the
BEC2 agreement has been recognized as a direct result of a change in accounting
policy with respect to revenue recognition. (see notes 2(g) and 9 to the
accompanying consolidated financial statements).

OPERATING EXPENSES

Total operating expenses for the years ended December 31, 2001 and 2000
were $135,212,000 and $74,035,000, respectively, an increase of $61,177,000, or
83% in 2001. Operating expenses for the year ended December 31, 2001 included
$16,055,000 in advisor fees associated with consummating each of the Acquisition
Agreement, Stockholder Agreement and Commercial Agreement (the "BMS agreements")
with BMS and its affiliates.

Operating Expenses: Research and Development.

Research and development expenses for the years ended December 31, 2001
and 2000 were $96,085,000 and $57,384,000, respectively, an increase of
$38,701,000 or 67% in 2001. Research and development expenses for the years
ended December 31, 2001 and 2000 as a percentage of total operating expenses,
excluding the advisor fees associated with consummating the BMS agreements in
the year ended December 31, 2001 were 81% and 78%, respectively. Research and
development expenses include costs associated with our in-house and
collaborative research programs, product and process development expenses, costs
to manufacture our product candidates, particularly ERBITUX, prior to any
approval that we may obtain of a product candidate for commercial sale or
obligations of our corporate partners to acquire product from us, quality
assurance and quality control costs, and costs to conduct our clinical trials
and associated regulatory activities. Research and development expenses for the
years ended December 31, 2001 and 2000 have been reduced by $14,894,000 and
$4,817,000, respectively, for clinical, regulatory and contract manufacturing
costs that are reimbursable by BMS and Merck KGaA. The increase in research and
development expenses for the year ended December 31, 2001 was primarily
attributable to (1) the costs associated with newly initiated and ongoing
clinical trials of ERBITUX, (2) costs related to the manufacturing services
agreements with Lonza, (3) expenditures in the functional areas of product
development, manufacturing, clinical and regulatory affairs associated with
ERBITUX and (4) increased expenditures associated with discovery research. We
expect research and development costs to increase in future periods as
42

we continue to manufacture ERBITUX prior to any approval of the product that we
may obtain for commercial use or obligations of our corporate partners. Such
increase will be mitigated to the extent that certain research and development
costs relating to ERBITUX will be borne by E.R. Squibb pursuant to the terms of
the Commercial Agreement. In the event of such approval or obligations from our
corporate partner, the subsequent costs associated with manufacturing ERBITUX
for supply to E.R. Squibb for commercial use will be included in inventory and
expensed as cost of goods sold when sold. We expect research and development
costs associated with discovery research and product development also to
continue to increase in future periods.

Operating Expenses: Marketing, General and Administrative.

Marketing, general and administrative expenses include marketing and
administrative personnel costs, including related occupancy costs, additional
costs to develop internal marketing and sales capabilities, costs to pursue
arrangements with strategic corporate partners and technology licensors, and
expenses associated with applying for patent protection for our technology and
products. Such expenses for the years ended December 31, 2001 and 2000 were
$23,072,000 and $16,651,000, respectively, an increase of $6,421,000, or 39% in
2001. Marketing, general and administrative expenses for the year ended December
31, 2001 have been reduced by $1,887,000, for marketing costs that are
reimbursable by BMS (such marketing costs have subsequently been paid by BMS).
The increase in marketing, general and administrative expenses primarily
reflected (1) costs associated with our marketing efforts, (2) additional
administrative staffing required to support our commercialization efforts for
ERBITUX and (3) expenses associated with general corporate activities. We expect
marketing, general and administrative expenses to increase in future periods to
support our continued commercialization efforts for ERBITUX.

Interest Income, Interest Expense and Other (Income) Expense

Interest income was $14,990,000 for the year ended December 31, 2001
compared with $20,819,000 for the year ended December 31, 2000, a decrease of
$5,829,000, or 28%. The decrease was primarily attributable to (1) a decrease in
interest rates associated with our portfolio of debt securities as well as (2) a
lower average portfolio balance during the year ended December 31, 2001 when
compared with the year ended December 31, 2000. Interest expense was $13,585,000
and $12,085,000 for the years ended December 31, 2001 and 2000, respectively, an
increase of $1,500,000 or 12% in 2001. The increase was primarily attributable
to the interest on our 5 1/2% convertible subordinated notes due March 1, 2005
(the "Convertible Subordinated Notes") issued in February 2001. Interest expense
for the years ended December 31, 2001 and 2000 was offset by the capitalization
of interest costs of $1,656,000 and $846,000, respectively, during the
construction period of our product launch manufacturing facility and a second
commercial manufacturing facility for which design, engineering, and
pre-construction costs have been incurred. Interest expense for both periods
included (1) interest on the convertible subordinated notes, (2) interest on an
outstanding Industrial Development Revenue Bond issued in 1990 (the "1990 IDA
Bond") with a principal amount of $2,200,000 and (3) interest recorded on
various capital lease obligations under a 1996 financing agreement and a 1998
financing agreement with Finova Technology Finance, Inc. ("Finova"). We recorded
losses on securities and investments of $1,641,000 and $3,867,000 for the years
ended December 31, 2001 and 2000, respectively. The net losses on securities and
investments for the year ended December 31, 2001 included $4,375,000 in write-
downs of our investment in ValiGen N.V. and a $1,000,000 write-off of our
convertible promissory note from A.C.T. Group, Inc. These losses were offset by
gains in our portfolio of debt securities of $3,734,000 during the year ended
December 31, 2001. The net losses on securities available for sale for the year
ended December 31, 2000 included a $5,125,000 write-down of our investment in
ValiGen N.V., which was partially offset by gains associated with our investment
portfolio.

Net Losses.

We had a net loss to common stockholders of $102,229,000 or $1.47 per
share for the year ended December 31, 2001, compared with a net loss of
$77,124,000 or $1.22 per share for the year ended December 31, 2000. Included in
the net loss for the year ended December 31, 2001 was $16,055,000 in advisor

43

fees associated with consummating the BMS agreements. Excluding these expenses,
the net loss to common stockholders for the year ended December 31, 2001 would
have been $86,174,000 or $1.24 per share. Included in the loss for the year
ended December 31, 2000 was a non-cash charge of $2,596,000 related to the
cumulative effect of a change in accounting policy (see notes 2(g) and 9 to the
accompanying consolidated financial statements). Excluding the effect of this
change in accounting policy, the net loss to common stockholders for the year
ended December 31, 2000 would have been $74,528,000 or $1.18 per share. The
increase in the net losses and per share net loss to common stockholders was due
to the factors noted above offset by the $6,773,000 premium associated with the
redemption of and dividends on the series A preferred stock in 2000.

YEARS ENDED DECEMBER 31, 2000 AND 1999.

Revenues.

Revenues for the years ended December 31, 2000 and 1999 were $1,413,000
and $2,143,000, respectively, a decrease of $730,000, or 34% in 2000. Revenues
for the year ended December 31, 2000 primarily consisted of (1) $250,000 in
milestone revenue and $961,000 in royalty revenue from our strategic corporate
alliance with Abbott in diagnostics and (2) $162,000 in license fee revenue from
our strategic corporate alliance with Merck KGaA for our principal cancer
vaccine product candidate, BEC2. The license fee revenue related to the BEC2
agreement has been recognized as a direct result of a change in accounting
policy with respect to revenue recognition (see notes 2(g) and 9 to the
accompanying consolidated financial statements). Effective January 1, 2000, a
portion of the previously recognized revenue from upfront payments received
under the BEC2 research and license agreement was deferred and is now being
recognized over the term of the agreement. Revenues for the year ended December
31, 1999 primarily consisted of (1) $500,000 in milestone revenue and $225,000
in research support from our strategic corporate alliance with Wyeth (formerly
known as American Home Products Corporation) in infectious disease vaccines, (2)
$533,000 in research and support payments from our strategic corporate alliance
with Merck KGaA for BEC2, (3) $500,000 in milestone revenue and $305,000 in
royalty revenue from our strategic corporate alliance with Abbott in
diagnostics, and (4) $75,000 in license fees from our cross-licensing agreement
with Immunex Corp. for novel hematopoietic growth factors. The decrease in
revenues for the year ended December 31, 2000 was primarily attributable to the
decrease in research and support revenue as a result of the completion of all
research and support payments due from our research and license agreement with
Merck KGaA for BEC2 and our strategic corporate alliance with Wyeth in
infectious disease vaccines. The decrease was partially offset by the increase
in royalties from our strategic corporate alliance with Abbott in diagnostics.

OPERATING EXPENSES:

Total operating expenses for the years ended December 31, 2000 and 1999
were $74,035,000 and $39,381,000, respectively, an increase of $34,654,000, or
88% in 2000.

Operating Expenses: Research and Development.

Research and development expenses for the years ended December 31, 2000
and 1999 were $57,384,000 and $30,027,000, respectively, an increase of
$27,357,000 or 91% in 2000. Such amounts for the years ended December 31, 2000
and 1999 represented 78% and 76%, respectively, of total operating expenses.
Research and development expenses include costs associated with our in-house and
collaborative research programs, product and process development expenses, costs
to manufacture our product candidates, particularly ERBITUX, prior to any
approval that we may obtain of a product candidate for commercial sale or
obligations of our corporate partners to acquire product from us, quality
assurance and quality control costs, and costs to conduct our clinical trials
and associated regulatory activities. Research and development expenses for the
years ended December 31, 2000 and 1999 have been reduced by $4,817,000 and
$6,473,000, respectively, for clinical trial and contract manufacturing costs
that are reimbursable by Merck KGaA. The increase in research and development
expenses for the year ended December 31, 2000 was primarily attributable to (1)
the costs associated with newly initiated and ongoing clinical trials of
ERBITUX, (2) costs related to the manufacturing services agreements with Lonza,
(3) expenditures in the functional areas of

44

product development, manufacturing, clinical and regulatory affairs associated
with ERBITUX, (4) non-cash expenses recognized in connection with the issuance
of options granted to scientific consultants and (5) increased expenditures
associated with discovery research.

Operating Expenses: Marketing, General and Administrative.

Marketing, general and administrative expenses include marketing and
administrative personnel costs, including related occupancy costs, additional
costs to develop internal marketing and sales capabilities, costs to pursue
arrangements with strategic corporate partners and technology licensors, and
expenses associated with applying for patent protection for our technology and
products. Such expenses for the years ended December 31, 2000 and 1999 were
$16,651,000 and $9,354,000, respectively, an increase of $7,297,000, or 78% in
2000. The increase in marketing, general and administrative expenses primarily
reflected (1) costs associated with our marketing efforts, (2) additional
administrative staffing required to support our expanding research, development,
clinical, marketing and manufacturing efforts, particularly with respect to
ERBITUX, and (3) expenses associated with the pursuit of strategic corporate
alliances and other corporate development efforts.

Interest Income, Interest Expense and Other (Income) Expense.

Interest income was $20,819,000 for the year ended December 31, 2000
compared with $2,842,000 for the year ended December 31, 1999, an increase of
$17,977,000. The increase was primarily attributable to the increase in our
investment portfolio as a result of the November 1999 public common stock
offering and the February 2000 private placement of convertible subordinated
notes. Interest expense was $12,085,000 and $292,000 for the years ended
December 31, 2000 and 1999, respectively, an increase of $11,793,000 in 2000
which was primarily attributable to the convertible subordinated notes. Interest
expense for both periods also included (1) interest on the 1990 IDA Bond with a
principal amount of $2,200,000 and (2) interest recorded on various capital
lease obligations under a 1996 financing agreement and a 1998 financing
agreement with Finova. Interest expense for the years ended December 31, 2000
and 1999 were offset by the capitalization of interest costs of $846,000 and
$204,000, respectively, during the construction period of the Company's product
launch manufacturing facility. We recorded losses on securities available for
sale for the year ended December 31, 2000 in the amount of $3,867,000 as
compared with gains of $77,000 for the year ended December 31, 1999. The net
losses on securities available for sale for the year ended December 31, 2000
included a $5,125,000 write-down of our investment in ValiGen N.V., which was
partially offset by gains associated with our investment portfolio. The net gain
for the year ended December 31, 1999 included an $828,000 write-down of our
investment in CombiChem Inc. ("CombiChem") as a result of an other than
temporary impairment. In November 1999, we disposed of our investment in
CombiChem resulting in a net gain of $109,000 for the year ended December 31,
1999.

Net Losses.

We had a net loss to common stockholders of $77,124,000 or $1.22 per
share for the year ended December 31, 2000 compared with $38,324,000 or $0.75
per share for the year ended December 31, 1999. Included in the net loss for the
year ended December 31, 2000 was a non-cash charge of $2,596,000 related to the
cumulative effect of a change in accounting policy (see notes 2(g) and 9 to the
accompanying consolidated financial statements). Excluding the effect of this
change in accounting policy, the net loss to common stockholders for the year
ended December 31, 2000 would have been $74,528,000 or $1.18 per share. The
increase in the net losses and per share net loss to common stockholders was due
to the premium associated with the redemption of the series A preferred stock
and the factors noted above.

45

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, our principal sources of liquidity consisted of
cash and cash equivalents and securities available for sale of approximately
$334,000,000. From our inception on April 26, 1984 through December 31, 2001, we
have financed our operations primarily through the following means:

- Public and private sales of equity securities and convertible notes in
financing transactions have raised approximately $492,652,000 in net
proceeds;

- We have earned approximately $67,034,000 from license fees, contract
research and development fees and royalties from collaborative
partners. Additionally, we have approximately $203,496,000 in deferred
revenue related to up-front payments received from our ERBITUX
Commercial Agreement with BMS and E.R. Squibb, our ERBITUX development
and license agreement with Merck KGaA and our BEC2 development and
commercialization agreement with Merck KGaA. These amounts are being
recognized as revenue over the expected lives of the respective
agreements (see Notes 9 and 10 to the consolidated financial
statements);

- We have earned approximately $47,114,000 in interest income;

- The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an
aggregate of $6,300,000, the proceeds of which have been used for the
acquisition, construction and installation of our research and
development facility in New York City, and of which $2,200,000 is
outstanding.

We may, from time to time, consider a number of strategic alternatives
designed to increase shareholder value, which could include joint ventures,
acquisitions and other forms of alliances, as well as the sale of all or part of
the Company.

Until September 19, 2006, or earlier upon the occurrence of certain
specified events, we may not take any action that constitutes a prohibited
action under our Stockholder Agreement with BMS and BMS Biologics without the
consent of the BMS directors. Such prohibited actions include (i) issuing
additional shares or securities convertible into shares in excess of 21,473,002
shares of our common stock in the aggregate, subject to certain exceptions; (ii)
incurring additional indebtedness if the total of the principal amount of such
indebtedness incurred since September 19, 2001 and then-outstanding, and the net
proceeds from the issuance of any redeemable preferred stock then-outstanding,
would exceed the amount of indebtedness outstanding as of September 19, 2001 by
more than $500 million; (iii) acquiring any business if the aggregate
consideration for such acquisition, when taken together with the aggregate
consideration for all other acquisitions consummated during the previous twelve
months, is in excess of 25% of the aggregate value of the Company at the time we
enter into the binding agreement relating to such acquisition; (iv) disposing of
all or any substantial portion of our non-cash assets; (v) issuing capital stock
with more than one vote per share.

In September 2001, we entered into a Commercial Agreement with BMS and
its wholly-owned subsidiary, E.R. Squibb, relating to ERBITUX, pursuant to
which, among other things, together with E.R. Squibb we are (a) co-developing
and co-promoting ERBITUX in the United States and Canada, and (b) co-developing
ERBITUX (together with Merck KGaA) in Japan. The Commercial Agreement was
amended on March 5, 2002 to change certain economics of the agreement and has
expanded the clinical and strategic role of BMS in the ERBITUX development
program. Pursuant to the amended Commercial Agreement, we can receive up-front
and milestone payments totaling $900,000,000 in the aggregate, of which
$200,000,000 was received upon the signing of the agreement. The remaining
$700,000,000 in payments is comprised of $140,000,000 paid on March 7, 2002,
$60,000,000 payable on March 5, 2003, $250,000,000 payable upon receipt of
marketing approval from the FDA with respect to an initial indication for
ERBITUX and $250,000,000 payable upon receipt of marketing approval from the FDA
with respect to a second indication for ERBITUX. All such payments are
non-refundable and non-creditable. Except for our expenses incurred pursuant to
the co-promotion option, E.R. Squibb is responsible for 100% of the
distribution, sales and marketing costs in the United States and Canada, and as
between ImClone Systems and E.R. Squibb, each will be responsible for 50% of the
distribution, sales, marketing costs and other related costs and expenses in
Japan. The Commercial Agreement provides that E.R. Squibb shall pay us
distribution fees based on a
46

percentage of annual sales of ERBITUX by E.R. Squibb in the United States and
Canada. The distribution fee is 39% of net sales in the United States and
Canada. The Commercial Agreement also provides that the distribution fees for
the sale of ERBITUX in Japan by E.R. Squibb or us shall be equal to 50% of
operating profit or loss with respect to such sales for any calendar month. In
the event of an operating profit, E.R. Squibb will pay us the amount of such
distribution fee, and in the event of an operating loss, we will credit E.R.
Squibb the amount of such distribution fee. The Commercial Agreement provides
that we will be responsible for the manufacture and supply of all requirements
of ERBITUX in bulk form for clinical and commercial use in the United States,
Canada and Japan and that E.R. Squibb will purchase all of its requirements of
ERBITUX in bulk form for commercial use from us. We will supply ERBITUX for
clinical use at our fully burdened manufacturing cost, and will supply ERBITUX
for commercial use at our fully burdened manufacturing cost plus a mark-up of
10%. In addition to the up-front and milestone payments, the distribution fees
for the United States, Canada and Japan and the 10% mark-up on the commercial
supply of ERBITUX, E.R. Squibb is also responsible for 100% of the cost of all
clinical studies other than those studies undertaken post-launch which are not
pursuant to an INDA (e.g. phase IV studies), the cost of which will be shared
equally between E.R. Squibb and ImClone Systems. As between E.R. Squibb and
ImClone Systems, each will each be responsible for 50% of the cost of all
clinical studies in Japan.

In February 2000, we completed a private placement of $240,000,000 in
5 1/2% convertible subordinated notes due March 1, 2005. We received net
proceeds of approximately $231,500,000, after deducting expenses associated with
the offering. Accrued interest on the notes was approximately $4,400,000 at
December 31, 2001. A holder may convert all or a portion of a note into common
stock at any time on or before March 1, 2005 at a conversion price of $55.09 per
share, subject to adjustment under certain circumstances. We may redeem some or
all of the notes prior to March 6, 2003 if specified common stock price
thresholds are met. On or after March 6, 2003, we may redeem some or all of the
notes at specified redemption prices.

In December 1999, we entered into a development and manufacturing
services agreement with Lonza. This agreement was amended in April 2001 to
include additional services. Under the agreement, Lonza is responsible for
process development and scale-up to manufacture ERBITUX in bulk form under
current Good Manufacturing Practices ("cGMP") conditions. These steps were taken
to assure that the manufacturing process would produce bulk material that
conforms with our reference material and to support in part, our regulatory
filing with the FDA. As of December 31, 2001, we had incurred approximately
$7,030,000 for services provided under the development and manufacturing
services agreement. In September 2000, we entered into a three-year commercial
manufacturing services agreement with Lonza relating to ERBITUX. This agreement
was amended in June 2001 and again in September 2001 to include additional
services. As of December 31, 2001, we had incurred approximately $10,313,000 for
services provided under the commercial manufacturing services agreement. Under
these two agreements, Lonza is manufacturing ERBITUX at the 5,000 liter scale
under cGMP conditions and is delivering it to us over a term ending no later
than December 2003. The costs associated with both of these agreements are
included in research and development expenses when incurred and will continue to
be so classified until such time as ERBITUX may be approved for sale or until we
obtain obligations from our corporate partners for supply of such product. In
the event of such approval or obligations from our corporate partners, the
subsequent costs associated with manufacturing ERBITUX for commercial sale will
be included in inventory and expensed as cost of goods sold when sold. In the
event we terminate the commercial manufacturing services agreement without
cause, we will be required to pay 85% of the stated costs for each of the first
ten batches cancelled, 65% of the stated costs for each of the next ten batches
cancelled and 40% of the stated costs for each of the next six batches
cancelled. The batch cancellation provisions for the subsequent batches require
us to pay 100% of the stated costs of cancelled batches scheduled within six
months of the cancellation, 85% of the stated costs of cancelled batches
scheduled between six and twelve months following the cancellation and 65% of
the stated costs of cancelled batches scheduled between twelve and eighteen
months following the cancellation. These amounts are subject to mitigation
should Lonza use its manufacturing capacity caused by such termination for
another customer. At December 31, 2001, the estimated remaining future
commitments under the amended commercial manufacturing services agreement are
$42,563,000 in 2002 and $10,175,000 in 2003.

47

In April 1990, we entered into a development and commercialization
agreement with Merck KGaA with respect to BEC2 and the recombinant gp75 antigen.
The agreement has been amended a number of times, most recently in December
1997. The agreement grants Merck KGaA a license, with the right to sublicense,
to make, have made, use, sell, or have sold BEC2 and gp75 outside North America.
The agreement also grants Merck KGaA a license, without the right to sublicense,
to use, sell, or have sold, but not to make BEC2 within North America in
conjunction with ImClone Systems. Pursuant to the terms of the agreement we have
retained the rights, (1) without the right to sublicense, to make, have made,
use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and
(2) with the right to sublicense, to make, have made, use, sell, or have sold
gp75 in North America. In return, we have recognized research support payments
totaling $4,700,000 and are entitled to no further research support payments
under the agreement. Merck KGaA is also required to make payments of up to
$22,500,000, of which $4,000,000 has been recognized, based on milestones
achieved in the licensed products' development. Merck KGaA is also responsible
for worldwide costs of up to DM17,000,000 associated with a multi-site,
multinational phase III clinical trial for BEC2 in limited disease small-cell
lung carcinoma. This expense level was reached during the fourth quarter of 2000
and all expenses incurred from that point forward are being shared 60% by Merck
KGaA and 40% by ImClone Systems. Such cost sharing applies to all expenses
beyond the DM17,000,000 threshold. Merck KGaA is also required to pay royalties
on the eventual sales of BEC2 outside of North America, if any. Revenues from
sales, if any, of BEC2 in North America will be distributed in accordance with
the terms of a co-promotion agreement to be negotiated by the parties.

In December 1998, we entered into a development and license agreement
with Merck KGaA with respect to our interventional therapeutic product candidate
for cancer, ERBITUX. In exchange for granting Merck KGaA exclusive rights to
market ERBITUX outside of the United States and Canada and co-development rights
in Japan, we received through December 31, 2001, $30,000,000 in up-front fees
and early cash-based milestone payments based on the achievement of defined
milestones. An additional $30,000,000 can be received, of which $5,000,000 has
been received as of December 31, 2001, assuming the achievement of further
milestones for which Merck KGaA will receive equity in ImClone Systems. The
equity underlying these milestone payments will be priced at varying premiums to
the then-market price of the common stock depending upon the timing of the
achievement of the respective milestones. If issuing shares of common stock to
Merck KGaA would result in Merck KGaA owning greater than 19.9% of our common
stock, the milestone shares will be a non-voting preferred stock, or other
non-voting stock convertible into our common stock. These convertible securities
will not have voting rights. They will be convertible at a price determined in
the same manner as the purchase price for shares of our common stock if shares
of common stock were to be issued. They will not be convertible into common
stock if, as a result of the conversion, Merck KGaA would own greater than 19.9%
of our common stock. This 19.9% limitation is in place through December 2002.
Merck KGaA will pay us a royalty on future sales of ERBITUX outside of the
United States and Canada, if any. This agreement may be terminated by Merck KGaA
in various instances, including (1) at its discretion on any date on which a
milestone is achieved (in which case no milestone payment will be made), or (2)
for a one-year period after first commercial sale of ERBITUX in Merck KGaA's
territory, upon Merck KGaA's reasonable determination that the product is
economically unfeasible (in which case Merck KGaA is entitled to receive back
50% of the cash-based up front fess and milestone payments then paid to date,
but only out of revenues received, if any, based upon a royalty rate applied to
the gross profit from ERBITUX sales or a percentage of ERBITUX fees and
royalties from a sublicensee on account of the sale of ERBITUX in the United
States and Canada). In August 2001, ImClone Systems and Merck KGaA amended this
agreement to provide, among other things, that Merck KGaA may manufacture
ERBITUX for supply in its territory and may utilize a third party to do so upon
ImClone System's reasonable acceptance. The amendment further released Merck
KGaA from its obligations under the agreement relating to providing a guaranty
under a $30,000,000 credit facility relating to the build-out of the product
launch manufacturing facility. In addition, the amendment provides that the
companies have co-exclusive rights to ERBITUX in Japan, including the right to
sublicense and Merck KGaA waived its right of first offer in the case of a
proposed sublicense by ImClone System of ERBITUX in ImClone System's territory.
In consideration for the amendment, we agreed to a reduction in royalties
payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory.

48

In December 2001, we entered into an agreement with Lonza to manufacture
ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA. We
had incurred approximately $2,483,000 for services provided under this
agreement, of which $1,779,000 was received from Merck KGaA. The remaining
$704,000 that is due from Merck KGaA is included in the amounts due from
corporate partners, in the consolidated balance sheet at December 31, 2001.

On January 2, 2002 we executed a letter of intent with Lonza to enter
into a long term supply agreement. The long term supply agreement would apply to
a large scale manufacturing facility that Lonza is constructing. We expect such
facility would be able to produce ERBITUX in 20,000 liter batches. We paid Lonza
$3,250,000 for the exclusive rights to reserve and negotiate a long term supply
agreement for a portion of the new facility's overall capacity. Under certain
conditions, such payment shall be refunded to us. If we enter into a long term
supply agreement, such payment will be creditable to us against the 20,000 liter
batch price, such credit to be spread evenly over the batches manufactured each
year of the initial term of the long term supply agreement.

We cannot be certain that we will be able to enter into agreements for
commercial supply with third party manufacturers on terms acceptable to us. Even
if we are able to enter into such agreements, we cannot be certain that we will
be able to produce or obtain sufficient quantities for commercial sale of our
products. Any delays in producing or obtaining commercial quantities of our
products could have a material effect on our business, financial condition and
results of operations.

We have obligations under various capital leases for certain laboratory,
office and computer equipment and also certain building improvements, primarily
under 1996 and 1998 financing agreements with Finova. These agreements allowed
us to finance the lease of equipment and make certain building and leasehold
improvements to existing facilities. Each lease has a fair market value purchase
option at the expiration of its 42- or 48-month term. We have entered into
twelve individual leases under the financing agreements with an aggregate cost
of $3,695,000. These financing arrangements are now expired.

We rent our current New York corporate headquarters and research
facility under an operating lease that expires in December 2004. In 2000 we
completed renovations of the facility to better suit our needs, at a cost of
approximately $2,800,000.

In October 2001, we entered into a sublease for a four story building in
downtown New York to serve as our future corporate headquarters and research
facility. The space, to be designed and improved in the future, includes between
75,000 and 100,000 square feet of usable space, depending on design, and
includes possible additional expansion space. The sublease has a term of 22
years, followed by two five-year renewal option periods. The future minimum
lease payments are approximately $51,025,000 over the term of the sublease. In
order to induce the sublandlord to enter into the sublease, we made a loan to
and accepted from the sublandlord a $10,000,000 note receivable. The note is
secured by a leasehold mortgage on the prime lease as well as a collateral
assignment of rents by the sublandlord. The note receivable is payable by the
sublandlord over 20 years and bears interest at 5 1/2% in years one through
five, 6 1/2% in years six through ten, 7 1/2% in years eleven through fifteen
and 8 1/2% in years sixteen through twenty. In addition, we paid the owner a
consent fee in the amount of $500,000.

On May 1, 2001, we entered into a lease for an approximately 4,000
square foot portion of a 15,000 square foot building known as 710 Parkside
Avenue, Brooklyn, New York and we have leased an adjacent 6,250 square foot
building know as 313-315 Clarkson Avenue, Brooklyn, New York, (collectively "the
premises") to serve as our new chemistry and high throughput screening facility.
The term of the lease is for five years with five successive one-year
extensions. For the year ended December 31, 2001, we have incurred approximately
$662,000 for the retrofit of this facility to better fit our needs. The total
cost for the retrofit will be approximately $4,000,000.

We built a new 80,000 square foot product launch manufacturing facility
adjacent to the pilot facility in Somerville, New Jersey. The product launch
manufacturing facility was built on a 5.7 acre parcel of land we purchased in
December 1999 for approximately $700,000. The product launch manufacturing
facility contains three 10,000 liter (working volume) fermenters and is
dedicated to the clinical and commercial production of

49

ERBITUX. The cost of the facility was approximately $53,000,000, excluding
capitalized interest of approximately $1,966,000. The cost for the facility has
come from our cash reserves, which were primarily obtained through the issuance
of debt and equity securities. The product launch manufacturing facility was
ready for its intended use and put in operation in July 2001 and we commenced
depreciation at that time.

We have completed conceptual design and preliminary engineering plans
and are currently reviewing detailed design plans for, and proceeding with
construction of, the second commercial manufacturing facility. The second
commercial manufacturing facility will be a multi-use facility of approximately
250,000 square feet and will contain up to 10 fermenters with a total capacity
of up to 110,000 liters (working volume). The facility will be built on a 7.12
acre parcel of land that we purchased in July 2000 for approximately $950,000.
The cost of this facility, for two completely fitted out suites and a third
suite with utilities only, is expected to be approximately $225,000,000,
excluding capitalized interest. The actual amount may change depending upon
various factors. We have incurred approximately $29,674,000, excluding
capitalized interest of approximately $740,000, in conceptual design,
engineering and construction costs through December 31, 2001.

On January 31, 2002 we purchased a 7.5 acre parcel of land located at
1181 Route 202, which is the parcel immediately to the north of 36 Chubb Way and
immediately to the east of 50 Chubb Way. The parcel includes a 50,000 square
foot building, 40,000 square feet of which is warehouse space and 10,000 square
feet of which is office space. The purchase price for the property and
improvements was approximately $7,000,000. We intend to use this property for
warehousing and logistics for our Somerville campus.

Total capital expenditures made during the year ended December 31, 2001
were $60,218,000 and primarily included $2,734,000 related to the purchase of
equipment for and leasehold improvement costs associated with our corporate
office and research laboratories in our New York facility, $20,784,000 related
to engineering, construction and capitalized interest costs of the product
launch manufacturing facility, $28,746,000 related to the conceptual design,
preliminary engineering plans and construction costs for a second commercial
manufacturing facility, $3,746,000 related to improving and equipping our pilot
manufacturing facility, $3,576,000 in computer hardware, software and design and
configuration costs related to the implementation of an enterprise resource
planning system and $612,000 related to the purchase of land adjacent to the
existing pilot manufacturing facility.

We believe that our existing cash on hand and amounts to which we are
entitled should enable us to maintain our current and planned operations through
at least 2003. We are also entitled to reimbursement for certain marketing and
research and development expenditures and certain other payments, some of which
are payable upon the achievement of research and development milestones. Such
amounts include $700,000,000 in cash-based payments under our Commercial
Agreement with BMS and E.R. Squibb of which $140,000,000 was received on March
7, 2002 and $60,000,000 is payable on March 5, 2003, as well as up to
$25,000,000 in equity-based milestone payments under our ERBITUX development and
license agreement with Merck KGaA and up to $18,500,000 in cash-based milestone
payments under our BEC2 development agreement with Merck KGaA. There can be no
assurance that we will achieve these milestones. Our future working capital and
capital requirements will depend upon numerous factors, including, but not
limited to:

- progress and cost of our research and development programs,
pre-clinical testing and clinical trials;

- our corporate partners fulfilling their obligations to us;

- timing and cost of seeking and obtaining regulatory approvals;

- timing and cost of manufacturing scale-up and effective
commercialization activities and arrangements;

- level of resources that we devote to the development of marketing and
sales capabilities;

- costs involved in filing, prosecuting and enforcing patent claims;

- technological advances;

- status of competitors;
50

- our ability to maintain existing corporate collaborations and
establish new collaborative arrangements with other companies to
provide funding to support these activities.

In order to fund our capital needs after 2003, we will require
significant levels of additional capital and we intend to raise the capital
through additional arrangements with corporate partners, equity or debt
financings, or from other sources, including the proceeds of product sales, if
any. There is no assurance that we will be successful in consummating any such
arrangements. If adequate funds are not available, we may be required to
significantly curtail our planned operations.

Below is a table which presents our contractual obligations and
commercial commitments as of December 31, 2001:

At December 31, 2001, we had net operating loss carryforwards for United
States federal income tax purposes of approximately $437,189,000, which expire
at various dates from 2002 through 2021. At December 31, 2001 we had research
credit carryforwards of approximately $19,415,000, which expire at various dates
from 2008 through 2021. Under Section 382 of the Internal Revenue Code of 1986,
as amended, a corporation's ability to use net operating loss and research
credit carryforwards may be limited if the corporation experiences a change in
ownership of more than 50 percentage points within a three-year period. Since
1986, we have experienced two such ownership changes. As a result, we are only
permitted to use in any one year approximately $5,159,000 of our available net
operating loss carryforwards that occurred prior to February 1996. Similarly, we
are limited in using our research credit carryforwards. We have determined that
our November 1999 public stock offering, our February 2000 private placement of
convertible subordinated notes, our August 2001 issuance of common stock to
Merck KGaA associated with an equity milestone payment under the ERBITUX
development and license agreement and our September 2001 Acquisition Agreement
with BMS did not cause an additional ownership change that would further limit
the use of our net operating losses and research credit carryforwards. Of our
$437,189,000 in net operating loss carry forwards, we have approximately
$395,245,000 available to use in 2002, approximately $5,159,000 available to use
in each year from 2003 through 2010 and approximately $672,000 available to use
in 2011. Any of the aforementioned net operating loss carryforwards which are
not utilized are available for utilization in future years, subject to the
statutory expiration dates of such net operating loss carryforwards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our holdings of financial instruments comprise a mix of securities that
may include U.S. corporate debt, foreign corporate debt, U.S. government debt,
foreign government/agency guaranteed debt and commercial paper. All such
instruments are classified as securities available for sale. Generally, we do
not invest in portfolio equity securities or commodities or use financial
derivatives for trading purposes. Our debt security portfolio represents funds
held temporarily pending use in our business and operations. We manage these
funds accordingly. We seek reasonable assuredness of the safety of principal and
market liquidity by investing in investment grade fixed income securities while
at the same time seeking to achieve a favorable rate of return. Our market risk
exposure consists principally of exposure to changes in interest rates. Our
holdings are also exposed to the risks of changes in the credit quality of
issuers. We invest in securities that

51

have a range of maturity dates. Typically, those with a short-term maturity are
fixed-rate, highly liquid, debt instruments and those with longer-term
maturities are highly liquid debt instruments with fixed interest rates or with
periodic interest rate adjustments. We also have certain foreign exchange
currency risk. See note 2 of the consolidated financial statements. The table
below presents the principal amounts and related weighted average interest rates
by year of maturity for our investment portfolio as of December 31, 2001.

- ---------------
(1) These holdings consist of U.S. corporate and foreign corporate floating rate
notes. Interest on the securities is adjusted monthly, quarterly or
semi-annually, depending on the instrument, using prevailing interest rates.
These holdings are highly liquid and we consider the potential for loss of
principal to be minimal.

Our 5 1/2% convertible subordinated notes in the principal amount of
$240,000,000 due March 1, 2005 and other long-term debt have fixed interest
rates. The subordinated notes are convertible into our common stock at a
conversion price of $55.09 per share. The fair value of fixed interest rate
instruments are affected by changes in interest rates and in the case of the
convertible notes by changes in the price of our common stock. The fair value of
the 5 1/2% convertible subordinated notes (which have a carrying value of
$240,000,000) was approximately $210,600,000 at March 22, 2002, and $255,000,000
at December 31, 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted as a separate section of this
report commencing on Page F-1.

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

Not applicable.

52

PART III

The information required 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" is incorporated
into Part III of this Annual Report on Form 10-K by reference to our Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held on May 23,
2002.

PART IV

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

(a)(1) and (2) The response to this portion of Item 14. is submitted as a
separate section of this report commencing on page F-1.
(a)(3) Exhibits (numbered in accordance with Item 601 of Regulation
S-K).

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

(A) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-43064.

(B) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-43064. Confidential
treatment was granted for a portion of this exhibit.

(C) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-48240. Confidential
treatment was granted for a portion of this exhibit.

(D) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, filed June 26, 1992.

(E) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992. Confidential treatment was granted for a portion of this Exhibit.

(F) Previously filed with the Commission; incorporated by reference to Amendment
No. 1 to Registration Statement on to Form S-1, File No. 33-61234.

(G) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993. Confidential Treatment was granted for a portion of this Exhibit.

(H) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.

(I) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994.

(J) Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-2, File No. 33-98676.

(K) Previously filed with the Commission, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.

(L) Previously filed with the Commission, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.

(M) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, as amended. Confidential treatment was granted for a portion of this
Exhibit.

(N) Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated January 21, 1998.

(O) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(P) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted for a portion of this Exhibit.

59

(Q) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.

(R) Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-3, File No. 333-67335.
Confidential treatment was granted for a portion of this Exhibit.

(S) Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-8, File No. 333-64827.

(T) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.

(U) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

(V) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
Confidential Treatment has been granted for a portion of this exhibit.

(W) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.

(X) Previously filed with the Commission; incorporated by reference to the
Company's Registration Statement on Form S-8; File No. 333-30172.

(Y) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000.

(Z) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000.

(AA) Previously filed with the Commission; incorporated by reference to the
Company's Annual Report on Form 10-K, for the year ended December 31, 2000.

(AB) Previously filed with the Commission; incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended June 30,
2001.

(AC) Previously filed with the Commission; incorporated by reference to the
Company's Schedule 14D-9 filed on September 28, 2001.

(AD) Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated February 19, 2002.

(AE) Previously filed with the Commission; incorporated by reference to the
Company's Current Report on Form 8-K dated March 6, 2002.

(AF) Filed herewith.

(AG) Filed herewith and Confidential Treatment has been requested for a portion
of this exhibit.

(b) Reports on Form 8-K

None.

60

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

IMCLONE SYSTEMS INCORPORATED
March 29, 2002
By /s/ SAMUEL D. WAKSAL
------------------------------------
SAMUEL D. WAKSAL
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.

61

PART II

INDEX TO FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
IMCLONE SYSTEMS INCORPORATED:

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

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ImClone
Systems Incorporated and subsidiary as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Notes 2(g) and 9 to the consolidated financial
statements, the Company changed its method of revenue recognition for certain
upfront non-refundable fees in 2000.

KPMG LLP

Princeton, New Jersey
March 22, 2002

F-2

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

See accompanying notes to consolidated financial statements

F-3

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements
F-4

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements

F-5

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See accompanying notes to consolidated financial statements

F-6

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BUSINESS OVERVIEW AND BASIS OF PREPARATION

ImClone Systems Incorporated (the "Company") is a biopharmaceutical
company advancing oncology care by developing a portfolio of targeted biologic
treatments, which address the unmet medical needs of patients with a variety of
cancers. The Company's three programs include growth factor blockers, cancer
vaccines and anti-angiogenesis therapeutics. A substantial portion of the
Company's efforts and resources is devoted to research and development conducted
on its own behalf and through collaborations with corporate partners and
academic research and clinical institutions. The Company has not derived any
commercial revenue from product sales. The Company is operated as one business
and is comprehensively managed by a single management team that reports to the
Chief Operating Officer. The Company does not operate separate lines of business
or separate business entities with respect to any of its product candidates. In
addition, the Company does not conduct any of its operations outside of the
United States. Accordingly, the Company does not prepare discrete financial
information with respect to separate product areas or by location and does not
have separately reportable segments. The Company employs accounting policies
that are in accordance with accounting principles generally accepted in the
United States of America.

The biopharmaceutical industry is subject to rapid and significant
technological change. The Company has numerous competitors, including major
pharmaceutical companies, specialized biotechnology firms, universities and
other research institutions. These competitors may succeed in developing
technologies and products that are more effective than any that are being
developed by the Company or that would render the Company's technology and
products obsolete and non-competitive. Many of these competitors have access to
substantially greater financial and technical resources and production and
marketing capabilities than the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in
pre-clinical testing and human clinical trials of new or improved pharmaceutical
products. The Company is aware of various products under development or
manufactured by competitors that are used for the prevention, diagnosis or
treatment of certain diseases the Company has targeted for product development,
some of which use therapeutic approaches that compete directly with certain of
the Company's product candidates. The Company has limited experience in
conducting and managing pre-clinical testing necessary to enter clinical trials
required to obtain government approvals and has limited experience in conducting
clinical trials. Accordingly, the Company's competitors may succeed in obtaining
Food and Drug Administration ("FDA") approval for products more rapidly than the
Company, which could adversely affect the Company's ability to further develop
and market its products. If the Company commences significant commercial sales
of its products, it will also be competing with respect to manufacturing
efficiency and marketing capabilities, areas in which the Company has limited
experience.

The Company's lead product candidate, ERBITUX (Cetuximab), formerly
known as IMC,-C225, is a therapeutic monoclonal antibody that inhibits
stimulation of Epidermal Growth Factor ("EGF") receptor upon which certain solid
tumors depend in order to grow. The United States Food and Drug Administration
("FDA") has designated as Fast Track our development program for ERBITUX for the
treatment of irinotecan-refractory (patients previously failed regimen
containing irinotecan) colorectal cancer.

Upon the receipt of regulatory approval, the Company intends to market
ERBITUX in the United States and Canada together with its development, promotion
and distribution partner Bristol-Myers Squibb Company ("BMS") through its
wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R. Squibb"). The Company
has granted its development and marketing partner, Merck KGaA, rights to market
ERBITUX outside the United States and Canada. In Japan, the Company and E.R.
Squibb will share the development and marketing of ERBITUX with Merck KGaA. The
Company is manufacturing ERBITUX for clinical trials and eventual commercial
sales worldwide.

On December 28, 2001, the FDA issued a refusal to file letter with
respect to the Company's rolling Biologics License Application ("BLA") for
ERBITUX. The BLA was submitted for marketing approval to

F-7

treat irinotecan-refractory colorectal cancer. On February 26, 2002, the
Company, along with representatives from its strategic partners BMS and Merck
KGaA, met with the FDA to discuss the FDA's letter refusing to file the BLA for
ERBITUX and to seek guidance on how to proceed. The February 26, 2002 meeting
with the FDA provided the Company with direction on an approach and process for
resubmitting the ERBITUX BLA. Based on concerns raised by the FDA regarding the
BLA, the Company discussed providing the FDA with data from a European clinical
trial in irinotecan-refractory colorectal cancer currently being enrolled by
Merck KGaA in conjunction with reanalyzed clinical data from the Company's U.S.
Phase II clinical trials. The Company believes that ERBITUX will be an important
drug in the oncology field and will continue to focus its efforts on gaining
approval for this product.

On October 16, 2000, the Company effected a 2-for-1 stock split in the
form of a stock dividend. Accordingly, shareholders of record as of September
29, 2000 of the Company's approximately 32.4 million shares of common stock
outstanding each received one additional share of common stock for each share of
common stock they owned on the record date. The stock split was recorded in the
December 31, 2000 consolidated balance sheet as a transfer of $32,000 from
additional paid-in capital to common stock. All references to number of shares,
per share amounts, weighted average shares, option and warrant shares and
related exercise prices for all periods presented in the accompanying
consolidated statements of operations, and notes to the consolidated financial
statements have been retroactively adjusted to give effect to the stock split.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements
of ImClone Systems Incorporated and its wholly-owned subsidiary, EndoClone
Incorporated. All significant intercompany balances and transactions have been
eliminated in consolidation.

(b) CASH EQUIVALENTS

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

(c) INVESTMENTS IN SECURITIES

The Company classifies its investments in debt and marketable equity
securities as available-for-sale.

Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of accumulated comprehensive income (loss) until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis.

A decline in the market value of any available-for-sale security below
cost that is deemed to be other than temporary results in a reduction in
carrying amount to fair value. The impairment is charged to earnings and a new
cost basis for the security is established. Dividend and interest income are
recognized when earned.

The Company accounts for its investments in non-marketable equity
securities using the cost method of accounting for investments where the
Company's ownership is less than 20% and the equity method of accounting for
investments where the Company's ownership is between 20% and 50%. The Company
utilizes these methods of accounting for its investments in non-marketable
equity securities unless there is an other than temporary impairment at which
point the Company writes the investment down to its estimated net realizable
value.

F-8

(d) LONG-LIVED ASSETS

Property and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments. Depreciation of
fixed assets is provided by straight-line methods over estimated useful lives of
three to twenty years, and leasehold improvements are being amortized over the
related lease term or the service lives of the improvements, whichever is
shorter.

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

The Company reviews long-lived assets for impairment when events or
changes in business conditions indicate that their full carrying value may not
be recovered. Assets are considered to be impaired and are written down to fair
value if expected associated undiscounted cash flows are less than the carrying
amounts. Fair value is generally the present value of the expected associated
cash flows.

(e) DEFERRED FINANCING COSTS

Costs incurred in issuing the 5 1/2% Convertible Subordinated Notes and
in obtaining the Industrial Development Revenue Bond (see Note 7) are amortized
using the straight-line method over the terms of the related instrument.

(f) COMPUTER SOFTWARE COSTS

The Company records the costs of internal-use computer software in
accordance with AICPA Statement of Position 98-1, "Accounting for the Costs of
Computer Software Development or Obtained for Internal Use" ("SOP 98-1"). SOP
98-1 requires that certain internal-use computer software costs be capitalized
and amortized over the useful life of the asset. Total costs capitalized under
this policy are included in property and equipment.

(g) REVENUE RECOGNITION

The Company adopted Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") in the fourth quarter of its
fiscal year ended December 31, 2000. Accordingly, the Company implemented a
change in accounting policy effective January 1, 2000 with respect to revenue
recognition associated with non-refundable fees received upon entering into
research and licensing arrangements in accordance with the guidance provided in
SAB 101. Beginning January 1, 2000, non-refundable fees received upon entering
into license and other collaborative agreements where the Company has continuing
involvement are recorded as deferred revenue and recognized over the estimated
service period. Payments received under the development, promotion, distribution
and supply agreement (the "Commercial Agreement") dated September 19, 2001 with
BMS and E.R. Squibb are being deferred and recognized as revenue based on the
percentage of actual product research and development costs incurred to date by
both BMS and the Company to the estimated total of such costs to be incurred
over the term of the agreement. In previous years, prior to SAB 101,
non-refundable upfront fees from licensing and other collaborative agreements
were recognized as revenue when received, provided all contractual obligations
of the Company relating to such fees had been fulfilled.

Non-refundable milestone payments, which represent the achievement of a
significant step in the research and development process, pursuant to
collaborative agreements, other than the BMS agreement, are recognized as
revenue upon the achievement of the specified milestone.

Research and development funding revenue is derived from collaborative
agreements and is recognized in accordance with the terms of the respective
contracts.

Royalty revenue is recognized when earned and collection is probable.
Royalty revenue is derived from sales of products by corporate partners using
licensed Company technology.

Revenue recognized in the accompanying consolidated statements of
operations is not subject to repayment. Amounts received that are subject to
repayment if certain specified goals are not met are classified

F-9

as fees potentially refundable to corporate partner; revenue recognition of such
amounts will commence upon the achievement of such specified goals. Payments
received that are related to future performance are classified as deferred
revenue and recognized when the revenue is earned.

(h) FOREIGN CURRENCY TRANSACTIONS

Gains and losses from foreign currency transactions, such as those
resulting from the translation and settlement of receivables and payables
denominated in foreign currencies, are included in the consolidated statements
of operations. The Company does not currently use derivative financial
instruments to manage the risks associated with foreign currency fluctuations.
The Company recorded losses on foreign currency transactions of approximately
$35,000 for the year ended December 31, 2001, gains on foreign currency
transactions of approximately $25,000 for the year ended December 31, 2000 and
losses on foreign currency transactions of approximately $7,000 for the year
ended December 31, 1999. Gains and losses from foreign currency transactions are
included as a component of operating expenses.

(i) STOCK-BASED COMPENSATION PLANS

The Company has two types of stock-based compensation plans; stock
option plans and a stock purchase plan. The Company accounts for its stock-based
compensation plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations including the Statement of Financial Accounting
Standards Board Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation -- An Interpretation of APB Opinion No. 25"
("Interpretation No. 44"). Accordingly, compensation expense would be recorded
on the date of grant of an option to an employee or member of the Board of
Directors only if the market price of the underlying stock on the date of grant
exceeded the exercise price. The Company provides the pro forma net income and
pro forma earnings per share disclosures for employee and director stock option
grants made in 1995 and thereafter as if the fair-value-based method defined in
Statement of Financial Accounting Standards ("SFAS") No. 123 had been applied.

(j) RESEARCH AND DEVELOPMENT

Research and development expenses are comprised of the following types
of costs incurred in performing research and development activities: salaries
and benefits, allocated overhead and occupancy costs, clinical trial and related
clinical manufacturing costs, contract services and other outside costs.
Research and development expenses also include costs related to activities
performed on behalf of corporate partners that are not subject to reimbursement.
Research and development costs are expensed as incurred. The Company is
currently producing clinical and commercial grade ERBITUX in its product launch
manufacturing facility and under a third-party manufacturing arrangement. The
cost associated with these manufacturing activities is being recognized as
research and development expense and will continue to be until regulatory
approval for commercial use is received or until the Company receives purchase
obligations from its corporate partners.

(k) INTEREST

Interest costs are expensed as incurred, except to the extent such
interest is related to construction in progress, in which case interest is
capitalized. Interest costs capitalized for the years ended December 31, 2001,
2000, and 1999, were $1,656,000, $846,000, and $204,000, respectively.

(l) INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or

F-10

settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income or expense in the period that includes the
enactment date of the rate change.

(m) USE OF ESTIMATES

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

(n) NET LOSS PER COMMON SHARE

Basic and diluted loss per common share is based on the net loss for the
relevant period, adjusted for series A convertible preferred stock ("series A
preferred stock") dividends, redemption premiums and the assumed incremental
yield attributable to the beneficial conversion feature aggregating $6,773,000,
and $3,713,000 for the years ended December 31, 2000 and 1999, respectively,
divided by the weighted average number of shares issued and outstanding during
the period. For purposes of the diluted loss per share calculation, the exercise
or conversion of all potential common shares is not included since their effect
would be anti-dilutive for all years presented. As of December 31, 2001, 2000
and 1999, the Company had approximately 15,427,000, 19,143,000 and 19,501,000,
respectively, potential common shares outstanding which represent new shares
which could be issued under convertible preferred stock, convertible debt, stock
options and stock warrants. In December 2000, the Company called for redemption
of the remaining 200,000 shares of series A convertible preferred stock. The
potential common stock outstanding relating to series A preferred stock
conversion for the year ended December 31, 1999 was estimated based on the
closing price of the common stock at December 31, 1999. The Company has filed
with the state of Delaware a Certificate of Elimination with respect to its
series A preferred stock.

(o) COMPREHENSIVE INCOME (LOSS)

SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income (loss) consists of net
income (loss) and net unrealized gains (losses) on securities and is presented
in the consolidated statements of stockholders' equity.

(p) RECLASSIFICATION

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

(q) ACCOUNTING FOR DERIVATIVE AND HEDGING ACTIVITIES

Effective January 1, 2001, the Company adopted the provisions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which establishes new accounting and reporting guidelines for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. SFAS No. 133 was subsequently amended
by SFAS Nos. 137 and 138. SFAS No. 133 generally requires the recognition of all
derivative financial instruments as either assets or liabilities in the
consolidated balance sheet and measurement of those derivatives at fair value.
The adoption of SFAS No. 133 did not have an effect on the results of operations
or the financial position of the Company because the Company did not have any
derivative financial instruments as of January 1, 2001.

F-11

(3) SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for available-for-sale securities by major
security type at December 31, 2001 and 2000 were as follows:

At December 31, 2001:

At December 31, 2000:

Maturities of debt securities classified as available-for-sale were as
follows at December 31, 2001:

Years ended December 31,

Proceeds from the sale of investment securities available-for-sale were
$155,497,000, $110,772,000 and $25,081,000 for the years ended December 31,
2001, 2000 and 1999, respectively. Gross realized gains included in income in
the years ended December 31, 2001, 2000 and 1999 were $3,778,000, $1,280,000 and
$33,000, respectively, and gross realized losses included in income in the years
ended December 31, 2001, 2000 and 1999 were $44,000, $22,000 and $65,000,
respectively.

F-12

(4) PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and consist of the
following:

The Company built a product launch manufacturing facility on its campus
in Somerville, New Jersey. The facility is approximately 80,000 square feet,
contains three 10,000 liter fermenters and is being dedicated to the clinical
and commercial production of ERBITUX. The cost of the facility was approximately
$53,000,000, excluding capitalized interest of approximately $1,966,000. The
product launch manufacturing facility was ready for its intended use and put in
operation in July 2001 and depreciation commenced at that time.

The Company is building a second commercial manufacturing facility
adjacent to its new product launch manufacturing facility in New Jersey. This
new facility will be a multiuse facility with capacity of up to 110,000 liters
(working volume). The 250,000 square foot facility will cost approximately
$225,000,000, and is being built on land purchased in December 2000. The actual
amount may change depending upon various factors. The Company incurred
approximately $29,674,000, excluding capitalized interest of approximately
$740,000, in conceptual design, engineering and pre-construction costs through
December 31, 2001. Through March 22, 2002, committed purchase orders totaling
approximately $39,718,000 have been placed for subcontracts and equipment
related to this project. In addition, $49,471,000 in engineering, procurement,
construction management and validation costs were committed.

The process of preparing consolidated financial statements in accordance
with generally accepted accounting principles requires the Company to evaluate
the carrying values of its long-lived assets. The recoverability of the carrying
values of the Company's product launch manufacturing facilities and its second
commercial manufacturing facility currently in process will depend on (1)
receiving FDA approval of ERBITUX, (2) receiving FDA approval of the
manufacturing facilities and (3) the Company's ability to earn sufficient
returns on ERBITUX. Based on management's current estimates, the Company expects
to recover the carrying value of such assets.

In the year ended December 31, 2001, the Company capitalized $3,211,000
of computer software costs of which $474,000 was amortized as of December 31,
2001.

On January 31, 2002, the Company purchased real estate consisting of a
7.5 acre parcel of land located near the Company's product launch facility and
pilot facility in Somerville, New Jersey, and a 50,000 square foot building,
40,000 square feet of which is warehouse space and 10,000 square feet of which
is office space. The purchase price for the property and improvements was
approximately $7,000,000. The Company intends to use this property for
warehousing and logistics for its Somerville campus.

(5) INVESTMENT IN EQUITY SECURITIES

In May 2000, the Company made an equity investment in ValiGen N.V.
("ValiGen"), a private biotechnology company specializing in therapeutic target
identification and validation using the tools of genomics and gene expression
analysis. The Company purchased 705,882 shares of ValiGen's series A preferred
stock and received a five-year warrant to purchase 388,235 shares of ValiGen's
common stock at an

F-13

exercise price of $12.50 per share. The aggregate purchase price was $7,500,000.
The Company assigned a value of $594,000 to the warrant based on the
Black-Scholes Pricing Model. The ValiGen series A preferred stock contains
voting rights identical to holders of ValiGen's common stock. Each share of
ValiGen series A preferred stock is convertible into one share of ValiGen common
stock. The Company may elect to convert the ValiGen series A preferred stock at
any time; provided, that the ValiGen preferred stock will automatically convert
into ValiGen common stock upon the closing of an initial public offering of
ValiGen's common stock with gross proceeds not less than $20,000,000. The
Company also received certain protective rights and customary registration
rights under this arrangement. The Company recorded this original investment in
ValiGen using the cost method of accounting. During the second quarter of 2001,
the Company purchased 160,000 shares of ValiGen's series B preferred stock for
$2,000,000. The terms of the series B preferred stock are substantially the same
as the series A preferred stock. The investment in ValiGen represents
approximately 7% of ValiGen's outstanding equity. As of June 30, 2001, the
Company had completely written-off its investment in ValiGen. The Company
recorded write-downs of approximately $4,375,000 in the year ended December 31,
2001 and $5,125,000 in the year ended December 31, 2000, determined based on the
modified equity method of accounting. These write-downs are included in loss
(gain) on securities and investments in the accompanying consolidated statements
of operations. In the spring of 2001, the Company also entered into a no-cost
Discovery Agreement with ValiGen to evaluate certain of its technology. The
Company's Chief Executive Officer is a member of ValiGen's Board of Directors.

During the second quarter of 2001, the Company made a $1,000,000 loan to
A.C.T. Group, Inc. ("A.C.T. Group") and received its convertible promissory note
and five-year warrant to purchase its common stock as consideration. A.C.T.
Group is engaged in the research and development of technologies enabling the
genetic manipulation of cells to produce transgenic animals for pharmaceutical
protein production. A.C.T. Group also is developing transgenic cloned cells and
tissues for application in cell and organ transplant therapy. The promissory
note is due November 30, 2001, does not bear interest, and is payable as
follows: (i) if, prior to November 30, 2001, A.C.T. Group sells a stated minimum
amount of its series B convertible preferred stock ("A.C.T. Group series B
stock"), A.C.T. Group will issue to the Company shares of A.C.T. Group series B
stock at a 20% discount to the price at which they are sold; (ii) if, prior to
November 30, 2001, A.C.T. Group has not sold the series B stock but enters into
a binding agreement with respect to a merger or other transaction in which its
stockholders receive securities of another entity with a stated minimum amount
of cash, A.C.T. Group will issue to the Company shares of its common stock
valued at $1.60 per share; and (iii) if neither of the events described in (i)
or (ii) occurs, the note will be payable on November 30, 2001 in cash, or at the
option of A.C.T. Group, common stock valued at $1.60 per share. If common stock
is used to repay the promissory note, the Company will have the right at that
time to purchase up to an additional $1,000,000 worth of A.C.T. Group common
stock at $1.60 per share. The Company is to be repaid the promissory note in
common stock and has opted not to purchase additional shares of common stock.

The warrant to purchase common stock entitles the Company to buy
$1,000,000 worth of A.C.T. Group common stock beginning with the earlier of
November 30, 2001 or the closing of the sale, if any, of the A.C.T. Group series
B stock. The exercise prices are the same as the convertible promissory note
repayment provisions. Due to the uncertainty regarding the ultimate collection
of the note and the absence of a readily determinable market value for A.C.T.
Group's common and preferred stock, the Company recorded a $1,000,000 write-down
of the note during the year ended December 31, 2001. The write-down is included
in loss (gain) on securities and investments in the accompanying consolidated
statement of operations for the year ended December 31, 2001. The Company's
Chief Executive Officer is a member of A.C.T. Group's Board of Directors.

In October 1997, the Company entered into a Collaborative Research and
License Agreement with CombiChem, Inc. ("CombiChem") to discover and develop
novel small molecules for use against selected targets for the treatment of
cancer. The Company provided CombiChem with research funding through October
1999 in the amount of $500,000. Concurrent with the execution of the
Collaborative Research and License Agreement, the Company entered into a Stock
Purchase Agreement pursuant to which the Company purchased 312,500 shares of
common stock of CombiChem, as adjusted, for aggregate consideration of
$2,000,000. This investment was included in Investment in equity securities and
other assets. In 1999, the

F-14

Company disposed of its investment in CombiChem resulting in a net gain of
$109,000 which is included in loss (gain) on securities and investments in the
consolidated statement of operations.

(6) ACCRUED EXPENSES

The following items are included in accrued expenses:

(7) LONG-TERM DEBT

Long-term debt consists of the following:

In February 2000, the Company completed a private placement of
$240,000,000 in convertible subordinated notes due March 1, 2005. The Company
received net proceeds from this offering of approximately $231,500,000, after
deducting costs associated with the offering. Accrued interest on the notes was
approximately $4,400,000 at December 31, 2001 and 2000, respectively. The
holders may convert all or a portion of the notes into common stock at any time
on or before March 1, 2005 at a conversion price of $55.09 per share, subject to
adjustment under certain circumstances. The notes are subordinated to all
existing and future senior indebtedness. The Company may redeem any or all of
the notes at any time prior to March 6, 2003, at a redemption price equal to
100% of the principal amount plus accrued and unpaid interest to the redemption
date if the closing price of the common stock has exceeded 150% of the
conversion price for at least 20 trading days in any consecutive 30-trading day
period, provided the Company makes an additional payment of $152.54 per $1,000
aggregate principal amount of notes, minus the amount of any interest actually
paid thereon prior to the redemption notice date. On or after March 6, 2003, the
Company may redeem any or all of the notes at specified redemption prices, plus
accrued and unpaid interest to the day preceding the redemption date. The
Company was required to file with the SEC and obtain the effectiveness of a
shelf registration statement covering resales of the notes and the common stock.
Such registration statement was declared effective in July 2000. Upon the
occurrence of a "fundamental change" as defined in the agreement, holders of the
notes may require the Company to redeem the notes at a price equal to 100% of
the principal amount to be redeemed.

In August 1990, the NYIDA issued $2,200,000 principal amount of its
11 1/4% Industrial Development Revenue Bond due 2004 (the "1990 Bond"). The
proceeds from the sale of the 1990 Bond were used by the Company for the
acquisition, construction and installation of the Company's research and
development facility in New York City. The Company has granted a security
interest in all equipment located in its New York City facility purchased with
the proceeds from the 1990 bond to secure the obligation of the Company to the
NYIDA relating to the 1990 Bond. Interest expense on the 1990 Bond was
approximately $248,000 for each of the years ended December 31, 2001, 2000 and
1999.

F-15

(8) OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following:

The Company has obligations under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under two financing agreements with Finova Technology Finance, Inc.
("Finova") entered into in 1996 and 1998. The financing agreements allowed the
Company to finance the lease of equipment and make certain building and
leasehold improvements to existing facilities. Each lease has a fair market
value purchase option at the expiration of its 42-month or 48-month term.
Pursuant to the financing agreement entered into in 1996, the Company issued to
Finova a warrant to purchase 46,440 shares of common stock at an exercise price
of $4.85 per share which was exercised in November 1999. The Company recorded a
non-cash debt discount of approximately $125,000 in connection with this
financing. This discount has been amortized over the 42-month term of the first
lease. The Company has entered into twelve individual leases under the financing
agreements aggregating a total cost of $3,695,000. There is no further funding
available under these agreements. During the years ended December 31, 2001 and
2000, the Company elected to exercise the fair market value purchase option at
the expiration of the first six leases under the 1996 and 1998 agreements. There
are no covenants associated with these financing agreements that materially
restrict the Company's activities. See Notes 14 and 16.

At December 31, 2001 and 2000, the amounts of laboratory equipment,
office and computer equipment, building improvements and furniture and fixtures
and the related accumulated amortization recorded under all capital leases were
as follows:

(9) CHANGE IN ACCOUNTING POLICY FOR REVENUE RECOGNITION

The Company adopted SAB 101 in the fourth quarter of 2000 with an
effective date of January 1, 2000, implementing a change in accounting policy
with respect to revenue recognition. See Note 2(g). The adoption of SAB 101
resulted in a $2,596,000 cumulative effect of a change in accounting policy
related to nonrefundable upfront licensing fees received from Merck KGaA in
connection with the development and commercialization agreement with Merck KGaA
with respect to the Company's principal cancer vaccine product candidate, BEC2
and the recombinant gp75 antigen (collectively "BEC2"). The cumulative effect
represents revenue originally recorded upon receipt of such payments that now is
recorded as deferred revenue and recognized over the life of the related
patent(s). During the year ended December 31, 2000, the impact of the change in
accounting policy increased net loss by $2,434,000, or $0.04 per share,
comprising the

F-16

$2,596,000 cumulative effect of the change described above, net of $162,000 of
related deferred revenue that was recognized during the period. Had the change
in accounting policy been applied retroactively, net loss would have been
reduced by $162,000 in the year ended December 31, 1999.

(10) COLLABORATIVE AGREEMENTS

(a) MERCK KGAA

In April 1990, the Company entered into a development and
commercialization agreement with Merck KGaA with respect to BEC2 and the
recombinant gp75 antigen. The agreement has been amended a number of times, most
recently in December 1997. The agreement grants Merck KGaA a license, with the
right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75
outside North America. The agreement also grants Merck KGaA a license, without
the right to sublicense, to use, sell, or have sold, but not to make BEC2 within
North America in conjunction with the Company. Pursuant to the terms of the
agreement the Company has retained the rights, (1) without the right to
sublicense, to make, have made, use, sell, or have sold BEC2 in North America in
conjunction with Merck KGaA and (2) with the right to sublicense, to make, have
made, use, sell, or have sold gp75 in North America. In return, the Company has
recognized research support payments totaling $4,700,000 and is entitled to no
further research support payments under the agreement. The Company recognized
research support revenue relating to this agreement of $533,000 in the year
ended December 31, 1999. Merck KGaA is also required to make payments of up to
$22,500,000, of which $4,000,000 has been recognized, through December 31, 2001,
based on milestones achieved in the licensed products' development. Merck KGaA
is also responsible for worldwide costs of up to DM17,000,000 associated with a
multi-site, multinational phase III clinical trial for BEC2 in limited disease
small-cell lung carcinoma. This expense level was reached during the fourth
quarter of 2000 and all expenses incurred from that point forward are being
shared 60% by Merck KGaA and 40% the Company. The Company incurred approximately
$657,000 and $412,000 associated with this agreement in the years ended December
31, 2001 and 2000, respectively. Such cost sharing applies to all expenses
beyond the DM17,000,000 threshold. Merck KGaA is also required to pay royalties
on the eventual sales of BEC2 outside of North America, if any. Revenues from
sales, if any, of BEC2 in North America will be distributed in accordance with
the terms of a co-promotion agreement to be negotiated by the parties.

In December 1998, the Company entered into a development and license
agreement with Merck KGaA with respect to our interventional therapeutic product
candidate for cancer, ERBITUX. In exchange for granting Merck KGaA exclusive
rights to market ERBITUX outside of the United States and Canada and
co-development rights in Japan, the Company received through December 31, 2001,
$30,000,000 in up-front fees and early cash-based milestone payments based on
the achievement of defined milestones. An additional $30,000,000 can be
received, of which $5,000,000 has been received as of December 31, 2001,
assuming the achievement of further milestones for which Merck KGaA will receive
equity in the Company. In August 2001, the Company received its first
equity-based milestone payment totaling $5,000,000 and accordingly issued to
Merck KGaA 63,027 shares of its common stock. The number of shares issued for
this milestone payment was determined using a price of $79.33 per share. During
the year ended December 31, 2001, the Company recognized revenue of
approximately $1,760,000 representing the excess of the amount paid by Merck
KGaA for these shares over the fair value of the Company's common stock. The
equity underlying these milestone payments will be priced at varying premiums to
the then-market price of the common stock depending upon the timing of the
achievement of the respective milestones. If issuing shares of common stock to
Merck KGaA would result in Merck KGaA owning greater than 19.9% of our common
stock, the milestone shares will be a non-voting preferred stock, or other
non-voting stock convertible into the Company's common stock. These convertible
securities will not have voting rights. They will be convertible at a price
determined in the same manner as the purchase price for shares of the Company's
common stock if shares of common stock were to be issued. They will not be
convertible into common stock if, as a result of the conversion, Merck KGaA
would own greater than 19.9% of the Company's common stock. This 19.9%
limitation is in place through December 2002. Merck KGaA will pay the Company a
royalty on future sales of ERBITUX outside of the United States and Canada, if
any. This agreement may be terminated by Merck KGaA in various instances,
including (1) at its discretion on any date on which a milestone is achieved (in
which case no milestone payment will be made), or (2) for a one-year
F-17

period after first commercial sale of ERBITUX in Merck KGaA's territory, upon
Merck KGaA's reasonable determination that the product is economically
unfeasible (in which case Merck KGaA is entitled to receive back 50% of the
cash-based up front fees and milestone payments then paid to date, but only out
of revenues received, if any, based upon a royalty rate applied to the gross
profit from ERBITUX sales or a percentage of ERBITUX fees and royalties received
from a sublicensee on account of the sale of ERBITUX in the United States and
Canada). In August 2001, the Company and Merck KGaA amended this agreement to
provide, among other things, that Merck KGaA may manufacture ERBITUX for supply
in its territory and may utilize a third party to do so upon the Company's
reasonable acceptance. The amendment further released Merck KGaA from its
obligations under the agreement relating to providing a guaranty under a
$30,000,000 credit facility relating to the build-out of the product launch
manufacturing facility. In addition, the amendment provides that the companies
have co-exclusive rights to ERBITUX in Japan, including the right to sublicense
and Merck KGaA waived its right of first offer in the case of a proposed
sublicense by the Company of ERBITUX in the Company's territory. In
consideration for the amendment, the Company agreed to a limited reduction in
royalties payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory.

In conjunction with Merck KGaA, the Company has expanded the trial of
ERBITUX plus radiotherapy in squamous cell carcinoma of the head and neck into
Europe, South Africa, Israel, Australia and New Zealand. In order to support
these clinical trials, Merck KGaA has agreed to purchase ERBITUX manufactured by
Lonza Biologies PLC ("Lonza") for use in these trials and further agreed to
reimburse the Company for one-half of the outside contract service costs
incurred with respect to the Phase III clinical trial of ERBITUX for the
treatment of head and neck cancer in combination with radiation. Amounts due
from Merck KGaA related to these agreements totaled approximately $1,503,000 and
$2,560,000 at December 31, 2001 and 2000, respectively, and are included in
amounts due from corporate partners in the consolidated balance sheet. The
aforementioned reimbursements from Merck KGaA for manufacturing and clinical
trial costs were recorded as reductions to research and development expenses and
totaled approximately $10,067,000, $4,476,000, and $5,554,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.

(b) BRISTOL-MYERS SQUIBB COMPANY

On September 19, 2001, the Company entered into an acquisition agreement
(the "Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics
Company, a Delaware corporation ("BMS Biologics") which is a wholly-owned
subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase
up to 14,392,003 shares of the Company's common stock for $70.00 per share, net
to the seller in cash. The tender offer by BMS Biologics, available to all
shareholders, allowed for the Company's present or former employees and
directors who held exercisable options to purchase shares of the Company's
common stock having exercise prices less than $70.00 per share to conditionally
exercise any or all of those options and tender the underlying shares in the
tender offer. In connection with the Acquisition Agreement, the Company entered
into a stockholder agreement with BMS and BMS Biologics, dated as of September
19, 2001 (the "Stockholder Agreement"), pursuant to which the Company agreed
with BMS and BMS Biologics to various arrangements regarding each of our
respective rights and obligations with respect to, among other things, the
ownership of shares of our common stock by BMS and BMS Biologics. Concurrently
with the execution of the Acquisition Agreement and the Stockholder Agreement,
the Company entered into the Commercial Agreement with BMS and E.R. Squibb,
pursuant to which, among other things, BMS and E.R. Squibb are (a) co-developing
and co-promoting the biologic pharmaceutical product ERBITUX in the United
States and Canada with us, and (b) co-developing and co-promoting ERBITUX in
Japan with us and Merck KGaA.

On March 5, 2002, the Company amended the Commercial Agreement with E.R.
Squibb and BMS. The amendment changed certain economics of the Commercial
Agreement and has expanded the role of BMS in the ERBITUX development program.
One of the principal economic changes to the Commercial Agreement is that the
Company received $140,000,000 on March 7, 2002 and is entitled to a payment of
$60,000,000 is payable on March 5, 2003. Such payments are in lieu of the
$300,000,000 payment the Company would have received on acceptance by the FDA of
the ERBITUX BLA under the original terms of the Commercial Agreement. In
addition, the Company agreed to resume construction of its second

F-18

commercial manufacturing facility as soon as reasonably practicable after the
execution of the amendment. The terms of the Commercial Agreement, as amended on
March 5, 2002, are set forth in more detail below.

ACQUISITION AGREEMENT

On October 29, 2001 BMS Biologics accepted for payment pursuant to the
tender offer, 14,392,003 shares of the Company's common stock on a pro rata
basis from all tendering shareholders and those conditionally exercising stock
options.

STOCKHOLDER AGREEMENT

Pursuant to the Stockholder Agreement, the Company's Board of Directors
(the "Board") was increased from ten to twelve members. BMS received the right
to nominate two directors to the Company's Board of Directors (each a "BMS
director") so long as its ownership interest in the Company is 12.5% or greater.
If BMS' ownership interest is 5% or greater but less than 12.5%, BMS will have
the right to nominate one BMS director, and if BMS' ownership interest is less
than 5%, BMS will have no right to nominate a BMS director. Based on the number
of shares of common stock acquired pursuant to the tender offer, BMS has the
right to nominate two directors. Currently BMS has designated Peter S. Ringrose,
M.A., Ph.D., BMS's Chief Scientific Officer, and Andrew G. Bodnar, M.D., J.D.,
BMS's Senior Vice President, Medical and External Affairs, as the initial BMS
directors. The nominations of such individuals were approved by the Board on
November 15, 2001.

If the size of the Company's Board is increased to a number greater than
twelve, the number of BMS directors would be increased, subject to rounding,
such that the number of BMS directors is proportionate to the lesser of BMS'
then-current ownership interest and 19.9%. BMS has agreed to waive this right
until the Company's next annual meeting of stockholders to the extent the
Company choose to increase the Board to 13 members.

Notwithstanding the foregoing, BMS will have no right to nominate any
BMS directors if (i) the Company have terminated the Commercial Agreement due to
a material breach by BMS or (ii) BMS' ownership interest were to remain below 5%
for 45 consecutive days.

Voting of Shares. During the period in which BMS has the right to
nominate at least one BMS director, BMS and its affiliates are required to vote
all of their shares in the same proportion as the votes cast by all of the
Company's other stockholders with respect to the election or removal of non-BMS
directors.

Committees of the Board of Directors. During the period in which BMS
has the right to nominate at least one BMS director, BMS also has the right,
subject to certain exceptions and limitations to have one member of each
committee of the Board be a BMS director.

Approval Required for Certain Actions. The Company may not take any
action that constitutes a prohibited action under the Stockholder Agreement
without the consent of the BMS directors, until September 19, 2006 or, if
earlier, the occurrence of any of (i) a reduction in BMS's ownership interest to
below 5% for 45 consecutive days, (ii) a transfer or other disposition of shares
of the Company's common stock by BMS or any of its affiliates such that BMS and
its affiliates own or have control over less than 75% of the maximum number of
shares of the Company's common stock owned by BMS and its affiliates at any time
after September 19, 2001, (iii) an acquisition by a third party of more than 35%
of the outstanding shares of the Company's common stock, (iv) a termination of
the Commercial Agreement by BMS due to significant regulatory or safety concerns
regarding ERBITUX, or (v) a termination of the Commercial Agreement due to a
material breach by BMS. Such prohibited actions include (i) issuing additional
shares or securities convertible into shares in excess of 21,473,002 shares of
the Company's common stock in the aggregate, subject to certain exceptions; (ii)
incurring additional indebtedness if the total of (A) the principal amount of
indebtedness incurred since September 19, 2001 and then-outstanding, and (B) the
net proceeds from the issuance of any redeemable preferred stock
then-outstanding, would exceed the Company's amount of indebtedness for borrowed
money outstanding as of September 19, 2001 by more than $500 million; (iii)
acquiring any business if the aggregate consideration for such acquisition, when
taken together with the

F-19

aggregate consideration for all other acquisitions consummated during the
previous twelve months, is in excess of 25% of the Company's aggregate value at
the time the binding agreement relating to such acquisition was entered into;
(iv) disposing of all or any substantial portion of the Company's non-cash
assets; (v) entering into non-competition agreements that would be binding on
BMS, its affiliates or any BMS director; (vi) taking certain actions that would
have a discriminatory effect on BMS or any of its affiliates as a stockholder;
and (vii) issuing capital stock with more than one vote per share.

Limitation on Additional Purchases of Shares and Other Actions. Subject
to the exceptions set forth below, until September 19, 2006 or, if earlier, the
occurrence of any of (i) an acquisition by a third party of more than 35% of the
Company's outstanding shares, (ii) the first anniversary of a reduction in BMS's
ownership interest in us to below 5% for 45 consecutive days, or (iii) the
Company's taking a prohibited action under the Stockholder Agreement without the
consent of the BMS directors, neither BMS nor any of its affiliates will acquire
beneficial ownership of any shares of the Company's common stock or take any of
the following actions: (i) encourage any proposal for a business combination
with the Company or an acquisition of the Company's shares; (ii) participate in
the solicitation of proxies from holders of shares of the Company's common
stock; (iii) form or participate in any "group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934) with respect to shares of the
Company's common stock; (iv) enter into any voting arrangement with respect to
shares of the Company's common stock; or (v) seek any amendment to or waiver of
these restrictions.

The following are exceptions to the standstill restrictions described
above: (i) BMS Biologics may acquire beneficial ownership of shares of the
Company's common stock either in the open market or from us pursuant to the
option described below, so long as, after giving effect to any such acquisition
of shares, BMS's ownership interest would not exceed 19.9%; (ii) BMS may make,
subject to certain conditions, a proposal to the Board to acquire shares of the
Company's common stock if the Company provide material non-public information to
a third party in connection with, or begin active negotiation of, an acquisition
by a third party of more than 35% of the outstanding shares; (iii) BMS may
acquire shares of the Company's common stock if such acquisition has been
approved by a majority of the non-BMS directors; and (iv) BMS may make, subject
to certain conditions, including that an acquisition of shares be at a premium
of at least 25% to the prevailing market price, non-public requests to the Board
to amend or waive any of the standstill restrictions described above. Certain of
the exceptions to the standstill provisions described above will terminate upon
the occurrence of: (i) a reduction in BMS's ownership interest in the Company to
below 5% for 45 consecutive days, (ii) a transfer or other disposition of shares
of the Company's common stock by BMS or any of its affiliates such that BMS and
its affiliates own or have control over less than 75% of the maximum number of
shares owned by BMS and its affiliates at any time after September 19, 2001,
(iii) a termination of the Commercial Agreement by BMS due to significant
regulatory or safety concerns regarding ERBITUX, or (iv) a termination of the
Commercial Agreement by the Company due to a material breach by BMS.

Option to Purchase Shares in the Event of Dilution. BMS Biologics has
the right under certain circumstances to purchase additional shares of common
stock from us at market prices, pursuant to an option granted to BMS by the
Company, in the event that BMS's ownership interest is diluted (other than by
any transfer or other disposition by BMS or any of its affiliates). BMS can
exercise this right (i) once per year, (ii) if the Company issue shares of
common stock in excess of 10% of the then-outstanding shares in one day, and
(iii) if BMS's ownership interest is reduced to below 5% or 12.5%. BMS
Biologics's right to purchase additional shares of common stock from the Company
pursuant to this option will terminate on September 19, 2006 or, if earlier,
upon the occurrence of (i) an acquisition by a third party of more than 35% of
the outstanding shares, or (ii) the first anniversary of a reduction in BMS's
ownership interest in the Company to below 5% for 45 consecutive days.

Transfers of Shares. Until September 19, 2004, neither BMS nor any of
its affiliates may transfer any shares of the Company's common stock or enter
into any arrangement that transfers any of the economic consequences associated
with the ownership of shares. After September 19, 2004, neither BMS nor any of
its affiliates may transfer any shares or enter into any arrangement that
transfers any of the economic consequences associated with the ownership of
shares, except (i) pursuant to registration rights granted to BMS with respect
to the shares, (ii) pursuant to Rule 144 under the Securities Act of 1933, as
amended or

F-20

(iii) for certain hedging transactions. Any such transfer is subject to the
following limitations: (i) the transferee may not acquire beneficial ownership
of more than 5% of the then-outstanding shares of common stock; (ii) no more
than 10% of the total outstanding shares of common stock may be sold in any one
registered underwritten public offering; and (iii) neither BMS nor any of its
affiliates may transfer shares of common stock (except for registered firm
commitment underwritten public offerings pursuant to the registration rights
described below) or enter into hedging transactions in any twelve-month period
that would, individually or in the aggregate, have the effect of reducing the
economic exposure of BMS and its affiliates by the equivalent of more than 10%
of the maximum number of shares of common stock owned by BMS and its affiliates
at any time after September 19, 2001. Notwithstanding the foregoing, BMS
Biologics may transfer all, but not less than all, of the shares of common stock
owned by it to BMS or to E.R. Squibb or another wholly owned subsidiary of BMS.

Registration Rights. We granted BMS customary registration rights with
respect to shares of common stock owned by BMS or any of its affiliates.

COMMERCIAL AGREEMENT

Rights Granted to E.R. Squibb. Pursuant to the Commercial Agreement, as
amended on March 5, 2002, the Company granted to E.R. Squibb (i) the exclusive
right to distribute, and the co-exclusive right to develop and promote (together
with the Company) any prescription pharmaceutical product using the compound
ERBITUX (the "product") in the United States and Canada, (ii) the co-exclusive
right to develop, distribute and promote (together with the Company and Merck
KGaA and its affiliates) the product in Japan, and (iii) the non-exclusive right
to use the Company's registered trademarks for the product in the United States,
Canada and Japan (collectively, the "territory") in connection with the
foregoing. In addition, the Company agreed not to grant any right or license to
any third party, or otherwise permit any third party, to develop ERBITUX for
animal health or any other application outside the human health field without
the prior consent of E.R. Squibb (which consent may not be unreasonably
withheld).

Rights Granted to the Company. Pursuant to the Commercial Agreement,
E.R. Squibb has granted to the Company and the Company's affiliates a license,
without the right to grant sublicenses (other than to Merck KGaA and its
affiliates for use in Japan and to any third party for use outside the
territory), to use solely for the purpose of developing, using, manufacturing,
promoting, distributing and selling ERBITUX or the product, any process,
know-how or other invention developed solely by E.R. Squibb Or Bms that has
general utility in connection with other products or compounds in addition to
ERBITUX or the product ("E.R. Squibb Inventions").

Up-Front and Milestone Payments. The Commercial Agreement provides for
up-front and milestone payments by E.R. Squibb to the Company of $900,000,000 in
the aggregate, of which $200,000,000 was paid on September 19, 2001,
$140,000,000 was paid on March 7, 2002, $60,000,000 is payable on March 5, 2003,
$250,000,000 is payable upon receipt of marketing approval from the FDA with
respect to an initial indication for ERBITUX and $250,000,000 is payable upon
receipt of marketing approval from the FDA with respect to a second indication
for ERBITUX. All such payments are non-refundable and non-creditable. The
upfront payment of $200,000,000, which was received in September 2001, has been
recorded as deferred revenue (see Note 2g) and is being recognized as revenue
over the estimated clinical and regulatory development period for ERBITUX based
on an estimate of completion based on costs incurred. The Company recognized
approximately $2,553,000 of this up-front payment as revenue during the year
ended December 31, 2001.

Distribution Fees. The Commercial Agreement provides that E.R. Squibb
shall pay the Company distribution fees based on a percentage of "annual net
sales" of the product (as defined in the Commercial Agreement) by E.R. Squibb in
the United States and Canada. The distribution fee is 39% of net sales in the
United States and Canada.

The Commercial Agreement also provides that the distribution fees for
the sale of the product in Japan by E.R. Squibb or The Company shall be equal to
50% of operating profit or loss with respect to such

F-21

sales for any calendar month. In the event of an operating profit, E.R. Squibb
shall pay the Company the amount of such distribution fee, and in the event of
an operating loss, the Company shall credit E.R. Squibb the amount of such
distribution fee.

Development of the Product. Responsibilities associated with clinical
and other ongoing studies will be apportioned between the parties as determined
by the product development committee described below. The Commercial Agreement
provides for the establishment of clinical development plans setting forth the
activities to be undertaken by the parties for the purpose of obtaining
marketing approvals, providing market support and developing new indications and
formulations of the product. After transition of responsibilities for certain
clinical and other studies, each party will be primarily responsible for
performing the studies designated to it in the clinical development plans. In
the United States and Canada, E.R. Squibb will be responsible for 100% of the
cost of all clinical studies other than those studies undertaken post-launch
which are not pursuant to an INDA (e.g. phase IV studies), the cost of which
will be shared equally between E.R. Squibb and the Company. As between E.R.
Squibb and the Company, each will be responsible for 50% of the costs of all
studies in Japan. Except as otherwise agreed upon by the parties, the Company
will own all registrations for the product and will be primarily responsible for
the regulatory activities leading to registration in each country. E.R. Squibb
will be primarily responsible for the regulatory activities in each country
after the product has been registered in that country. Pursuant to the terms of
the Commercial Agreement, as amended, Andrew G. Bodnar, M.D., J.D., Senior Vice
President of Medical and External Affairs of BMS, and a member of the Company's
Board of Directors, will oversee the implementation of the clinical and
regulatory plan for ERBITUX.

Distribution and Promotion of the Product. Pursuant to the Commercial
Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to
launch, promote and sell the product in the territory with the objective of
maximizing the sales potential of the product and promoting the therapeutic
profile and benefits of the product in the most commercially beneficial manner.
In connection with its responsibilities for distribution, marketing and sales of
the product in the territory, E.R. Squibb will perform all relevant functions,
including but not limited to the provision of all sales force personnel,
marketing (including all advertising and promotional expenditures), warehousing
and physical distribution of the product. However, the Company have the right,
at the Company's election and sole expense, to co-promote with E.R. Squibb the
product in the territory. Pursuant to this co-promotion option, which the
Company have exercised, the Company will be entitled on and after April 11, 2002
(at the Company's sole expense) to have the Company's sales force and medical
liaison personnel participate in the promotion of the product consistent with
the marketing plan agreed upon by the parties, provided that E.R. Squibb will
retain the exclusive rights to sell and distribute the product. Except for the
Company's expenses incurred pursuant to the co-promotion option, E.R. Squibb
will be responsible for 100% of the distribution, sales and marketing costs in
the United States and Canada, and as between E.R. Squibb and the Company, each
will be responsible for 50% of the distribution, sales, marketing costs and
other related costs and expenses in Japan.

Manufacture and Supply. The Commercial Agreement provides that the
Company will be responsible for the manufacture and supply of all requirements
of ERBITUX in bulk form ("API") for clinical and commercial use in the
territory, and that E.R. Squibb will purchase all of its requirements of API for
commercial use from the Company. The Company will supply API for clinical use at
the Company's fully burdened manufacturing cost, and will supply API for
commercial use at the Company's fully burdened manufacturing cost plus a mark-up
of 10%. The parties intend to negotiate the Company's use of process development
at one of BMS's facilities for the support of a non-commercial supply of API.
Upon the expiration, termination or assignment of any existing agreements
between The Company and third party manufacturers, E.R. Squibb will be
responsible for processing API into the finished form of the product.

Management. The parties have formed the following committees for
purposes of managing their relationship and their respective rights and
obligations under the Commercial Agreement:

- a joint executive committee (the "JEC"), which consists of certain
senior officers of each party. The JEC is co-chaired by a
representative of each of BMS and the Company. The JEC is responsible
for, among other things, managing and overseeing the development and
commercialization of ERBITUX pursuant to the terms of the Commercial
Agreement, approving the annual

F-22

budgets and multi-year expense forecasts, and resolving disputes,
disagreements and deadlocks arising in the other committees;

- a product development committee (the "PDC"), which consists of members
of senior management of each party with expertise in pharmaceutical
drug development and/or marketing. The PDC is chaired by the Company's
representative. The PDC is responsible for, among other things,
managing and overseeing the development and implementation of the
clinical development plans, comparing actual versus budgeted clinical
development and regulatory expenses, and reviewing the progress of the
registrational studies;

- a joint commercialization committee (the "JCC"), which consists of
members of senior management of each party with clinical experience
and expertise in marketing and sales. The JCC is chaired by a
representative of BMS. The JCC is responsible for, among other things,
overseeing the preparation and implementation of the marketing plans,
coordinating the sales efforts of E.R. Squibb and the Company, and
reviewing and approving the marketing and promotional plans for the
product in the territory; and

- a joint manufacturing committee (the "JMC"), which consists of members
of senior management of each party with expertise in manufacturing.
The JMC is chaired by the Company's representative (unless a
determination is made that a long-term inability to supply API exists,
in which case the JMC will be co-chaired by representatives of E.R.
Squibb and the Company). The JMC is responsible for, among other
things, overseeing and coordinating the manufacturing and supply of
API and the product, and formulating and directing the manufacturing
strategy for the product.

Any matter which is the subject of a deadlock (i.e., no consensus
decision) in the PDC, the JCC or the JMC will be referred to the JEC for
resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved
as follows: (i) if the matter was also the subject of a deadlock in the PDC, by
the co-chairperson of the JEC designated by the Company, (ii) if the matter was
also the subject of a deadlock in the JCC, by the co-chairperson of the JEC
designated by BMS, or (iii) if the matter was also the subject of a deadlock in
the JMC, by the co-chairperson of the JEC designated by the Company. All other
deadlocks in the JEC will be resolved by arbitration.

Right of First Offer. E.R. Squibb has a right of first offer with
respect to the Company's IMC-KDR antibodies should the Company decide to enter
into a partnering arrangement with a third party with respect to IMC-KDR
antibodies at any time prior to the earlier to occur of September 19, 2006 and
the first anniversary of the date which is 45 days after any date on which BMS's
ownership interest in The Company is less than 5%. If the Company decide to
enter into a partnering arrangement during such period, the Company must notify
E.R. Squibb. If E.R. Squibb notifies the Company that it is interested in such
an arrangement, the Company will provide the Company's proposed terms to E.R.
Squibb and the parties will negotiate in good faith for 90 days to attempt to
agree on the terms and conditions of such an arrangement. If the parties do not
reach agreement during this period, E.R. Squibb must propose the terms of an
arrangement which it is willing to enter into, and if the Company reject such
terms the Company may enter into an agreement with a third party with respect to
such a partnering arrangement (provided that the terms of any such agreement may
not be more favorable to the third party than the terms proposed by E.R.
Squibb).

Right of First Negotiation. If, at any time during the restricted
period (as defined below), the Company are interested in establishing a
partnering relationship with a third party involving certain compounds or
products not related to ERBITUX, the product or IMC-KDR antibodies, the Company
must notify E.R. Squibb and E.R. Squibb will have 90 days to enter into a
non-binding heads of agreement with the Company with respect to such a
partnering relationship. In the event that E.R. Squibb and the Company do not
enter into a non-binding heads of agreement, the Company is free to negotiate
with third parties without further obligation to E.R. Squibb. The "restricted
period" means the period from September 19, 2001 until the earliest to occur of
(i) September 19, 2006, (ii) a reduction in BMS's ownership interest in the
Company to below 5% for 45 consecutive days, (iii) a transfer or other
disposition of shares of the Company's common stock by BMS or any of its
affiliates such that BMS and its affiliates own or have control over less than
75% of the maximum number of shares of the Company's common stock owned by BMS
and its affiliates at any time

F-23

after September 19, 2001, (iv) an acquisition by a third party of more than 35%
of the outstanding Shares, (v) a termination of the Commercial Agreement by BMS
due to significant regulatory or safety concerns regarding ERBITUX, or (vi) the
Company's termination of the Commercial Agreement due to a material breach by
BMS.

Restriction on Competing Products. During the period from the date of
the Commercial Agreement until September 19, 2008, the parties have agreed not
to, directly or indirectly, develop or commercialize a competing product
(defined as a product that has as its only mechanism of action an antagonism of
the EGF receptor) in any country in the territory. In the event that any party
proposes to commercialize a competing product or purchases or otherwise takes
control of a third party which has developed or commercialized a competing
product, then such party must either divest the competing product within 12
months or offer the other party the right to participate in the
commercialization and development of the competing product on a 50/50 basis
(provided that if the parties cannot reach agreement with respect to such an
agreement, the competing product must be divested within 12 months).

Ownership. The Commercial Agreement provides that the Company will own
all data and information concerning ERBITUX and the product and (except for the
E.R. Squibb Inventions) all processes, know-how and other inventions relating to
the product and developed by either party or jointly by the parties. E.R. Squibb
will, however, have the right to use all such data and information, and all such
processes, know-how or other inventions, in order to fulfill its obligations
under the Commercial Agreement.

Product Recalls. If E.R. Squibb is required by any regulatory authority
to recall the product in any country in the territory (or if the JCC determines
such a recall to be appropriate), then E.R. Squibb and the Company shall bear
the costs and expenses associated with such a recall (i) in the United States
and Canada, in the proportion of 39% for the Company and 61% for E.R. Squibb and
(ii) in Japan, in the proportion for which each party is entitled to receive
operating profit or loss (unless, in the territory, the predominant cause for
such a recall is the fault of either party, in which case all such costs and
expenses shall be borne by such party).

Mandatory Transfer. Each of BMS and E.R. Squibb has agreed under the
Commercial Agreement that in the event it sells or otherwise transfers all or
substantially all of its pharmaceutical business or pharmaceutical oncology
business, it must also transfer to the transferee its rights and obligations
under the Commercial Agreement.

Indemnification. Pursuant to the Commercial Agreement, each party has
agreed to indemnify the other for (i) its negligence, recklessness or wrongful
intentional acts or omissions, (ii) its failure to perform certain of its
obligations under the agreement, and (iii) any breach of its representations and
warranties under the agreement.

Termination. Unless earlier terminated pursuant to the termination
rights discussed below, the Commercial Agreement expires with regard to the
product in each country in the territory on the later of September 19, 2018 and
the date on which the sale of the product ceases to be covered by a validly
issued or pending patent in such country. The Commercial Agreement may be also
be terminated prior to such expiration as follows:

- by either party, in the event that the other party materially breaches
any of its material obligations under the Commercial Agreement and has
not cured such breach within 60 days after notice;

- by E.R. Squibb, if the JEC determines that there exists a significant
concern regarding a regulatory or patient safety issue that would
seriously impact the long-term viability of all products; or

- by either party, in the event that the JEC does not approve additional
clinical studies that are required by the FDA in connection with the
submission of the initial regulatory filing with the FDA within 90
days of receiving the formal recommendation of the PDC concerning such
additional clinical studies.

F-24

The Company incurred approximately $16,055,000 in advisor fees
associated with consummating the acquisition agreement, the stockholder
agreement and the commercial agreement with BMS and its affiliates during the
year ended December 31, 2001. These costs have been expensed during the year
ended December 31, 2001 and included as a separate line item in operating
expenses in the consolidated statement of operations.

At December 31, 2001, research and development and marketing costs
associated with ERBITUX that are reimbursable by E.R. Squibb totaled $6,714,000
and are included in amounts due from corporate partners in the consolidated
balance sheets. These amounts have been recorded as a reduction to research and
development ($4,827,000) and marketing, general and administrative ($1,887,000)
expenses in the consolidated statements of operations in the year ended December
31, 2001.

Revenues for the years ended December 31, 2001, 2000 and 1999 were
$33,219,000, $1,413,000 and $2,143,000, respectively. Revenues for the year
ended December 31, 2001 primarily consisted of $27,982,000 in milestone and
license fee revenues from our development and license agreement with Merck KGaA
for ERBITUX. Pursuant to this agreement, the Company received a $2,000,000 cash
milestone payment in June 2001 which was recognized as revenue and a $5,000,000
equity-based milestone payment in August 2001, of which $1,760,000 was
recognized as revenue. The remaining $24,000,000 of these milestone payments
were received in prior periods and originally recorded as fees potentially
refundable to corporate partner because they were refundable in the event a
condition relating to obtaining certain collateral license agreements was not
satisfied. This condition was satisfied in March 2001. In addition, the Company
recognized $222,000 of the $4,000,000 up-front payment received upon entering
into this agreement. This revenue is being recognized ratably over the
anticipated life of the agreement. Revenues for the year ended December 31, 2001
also included $1,480,000 in royalty revenue from our strategic corporate
alliance with Abbott Laboratories ("Abbott") in diagnostics and $1,000,000 in
milestone revenues and $162,000 in license fee revenues from the Company's
strategic corporate alliance with Merck KGaA for BEC2. Revenues for the year
ended December 31, 2001 also included $2,553,000 from the Company's ERBITUX
commercial agreement with BMS and its wholly-owned subsidiary, E.R. Squibb
related to the recognition of a portion of the up-front fee. Payments received
under the ERBITUX commercial agreement with BMS are being deferred and
recognized as revenue based on the percentage of actual product research and
development costs incurred to date by both BMS and the Company to the estimated
total of such costs to be incurred over the term of the agreement. Payments
received under the Commercial Agreement are being deferred and recognized as
revenue based upon the actual product research and development costs incurred to
date by BMS, E.R. Squibb and ImClone Systems as a percentage of the estimated
total of such costs to be incurred over the term of the agreement. Revenues for
the year ended December 31, 2000 primarily consisted of $250,000 in milestone
revenue and $961,000 in royalty revenue from the Company's strategic corporate
alliance with Abbott in diagnostics and $162,000 in license fee revenue from the
Company's strategic corporate alliance with Merck KGaA for BEC2. Revenues for
the year ended December 31, 1999 primarily included $500,000 in milestone
revenue and $225,000 in research support from the Company's partnership with the
Wyeth (formerly known as American Home Products Corporation) in infectious
disease vaccines, $533,000 in research and support payments from the Company's
strategic corporate alliance with Merck KGaA for BEC2, $500,000 in milestone
revenue and $305,000 in royalty revenue from the Company's strategic corporate
alliance with Abbott in diagnostics.

Revenues were derived from the following geographic areas:

F-25

(11) STOCKHOLDER' EQUITY

(a) COMMON STOCK

In May 2000, the stockholders approved the amendment of the Company's
certificate of incorporation to increase the total number of shares of common
stock the Company is authorized to issue from 60,000,000 shares to 120,000,000
shares.

(b) PREFERRED STOCK

In connection with the December 1997 amendment to the research and
license agreement between them, Merck KGaA purchased from the Company 400,000
shares of the Company's series A preferred stock for total consideration of
$40,000,000. Cumulative annual dividends of $6.00 per share were accrued on the
outstanding series A preferred stock. In 1999, Merck KGaA converted 100,000
shares of series A preferred stock into 1,600,000 shares of common stock at a
conversion price of $6.25 per share. In 2000, Merck KGaA converted another
100,000 shares of the series A preferred stock into 499,220 shares of common
stock at a conversion price of $20.03 per share.

On December 28, 2000, the Company exercised its redemption right for the
remaining 200,000 outstanding shares of series A preferred stock at the stated
redemption price of $120 per share. The above mentioned redemption price and the
accrued dividends on the 100,000 shares of series A preferred stock converted on
December 15, 2000 and the 200,000 shares of series A preferred stock called for
redemption on December 28, 2000 both were paid in January 2001. This amount
totaled approximately $25,764,000 and is included as a component of current
liabilities in the consolidated balance sheet as of December 31, 2000. The
redemption premium of $4,000,000 has been included as preferred dividends in the
year ended December 31, 2000.

In accordance with the terms of the series A preferred stock, the
Company calculated an assumed incremental yield of $5,455,000 at the date of
issuance based on a beneficial conversion feature included in the terms of the
security. Such amount was being amortized as a preferred stock dividend over the
four-year period beginning with the day of issuance. The assumed incremental
yield and related amortization period for the respective period after the
December 2000 and 1999 conversions and the December 2000 redemption of the
series A preferred stock has been adjusted to reflect a decrease in the
aggregate assumed incremental yield of $1,796,000 as a result of the
aforementioned conversions and redemption prior to the period in which the
beneficial conversion feature was available. The assumed incremental yield
associated with the shares of series A preferred stock converted has been
amortized through each respective conversion date and the assumed incremental
yield associated with the shares of series A preferred stock redeemed has been
amortized through the call for redemption date. The Company has recognized a
total incremental yield attributable to the beneficial conversion feature of
$3,659,000 for the period from the date of issuance through December 31, 2000
and there is no remaining unamortized amount. The Company has filed with the
State of Delaware a Certificate of Elimination with respect to its series A
preferred stock.

(c) STOCKHOLDER RIGHTS PLAN

On February 15, 2002, the Company's Board of Directors approved a
Stockholder Rights Plan and declared a dividend of one right for each share of
our common stock outstanding at the close of business on February 19, 2002. In
connection with the Board of Directors approval of the stockholders rights plan
Series B Participating Cumulative Preferred Stock was created. Under certain
conditions, each right entitles the holder to purchase from the Company
one-hundredth of a share of series B Participating Cumulative Preferred Stock at
an initial purchase price of $175 per share. The Stockholder Rights Plan is
designed to enhance the Board's ability to protect stockholders against, among
other things, unsolicited attempts to acquire control of the Company which do
not offer an adequate price to all of the Company's stockholders or are
otherwise not in best interests of the Company and the Company's stockholders.

Subject to certain exceptions, rights become exercisable (i) on the
tenth day after public announcement that any person, entity, or group of persons
or entities has acquired ownership of 15% or more

F-26

of the Company's outstanding common stock, or (ii) 10 business days following
the commencement of a tender offer or exchange offer by any person which would,
if consummated, result in such person acquiring ownership of 15% or more of the
Company's outstanding common stock, (collectively an "Acquiring Person").

In such event, each right holder will have the right to receive the
number of shares of common stock having a then current market value equal to two
times the aggregate exercise price of such rights. If the Company were to enter
into certain business combination or disposition transactions with an Acquiring
Person, each right holder will have the right to receive shares of common stock
of the acquiring company having a value equal to two times the aggregate
exercise price of the rights.

The Company may redeem these rights in whole at a price of $.001 per
right. The rights expire on February 15, 2012.

(d) STOCK OPTIONS AND WARRANTS

STOCK OPTION PLANS:

In February 1986, the Company adopted and the shareholders thereafter
approved an Incentive Stock Option Plan and a Non-Qualified Stock Option Plan
(the "86 Plans"). In February 1996, the Company's Board of Directors adopted and
the shareholders thereafter approved an additional Incentive Stock Option Plan
and Non-Qualified Stock Option Plan (the "96 Plans"). In May 1998, the Company's
Board of Directors adopted an additional Non-Qualified Stock Option Plan (the
"98 Plan"), which shareholders were not required to approve. Combined, the 86
Plans, the 96 Plans, as amended, and the 98 Plan, as amended provide as of
December 31, 2001 for the granting of options to purchase up to 20,000,000
shares of common stock to employees, directors, consultants and advisors of the
Company. Incentive stock options may not be granted at a price less than the
fair market value of the stock at the date of grant and may not be granted to
non-employees. Options under all the plans, unless earlier terminated, expire
ten years from the date of grant. Options granted under these plans generally
vest over one-to-five-year periods. At December 31, 2001, options to purchase
11,061,052 shares of common stock were outstanding and 3,875,768 shares were
available for grant. Options may no longer be granted under the 86 Plans
pursuant to the terms of the 86 Plans. In November 2001, the Board of Directors
approved the amendment of the 96 Plans and the 98 Plan whereby upon the
occurrence of a change in control, as defined in the amended plan documents,
each outstanding option under the 96 Plans and the 98 Plan shall become fully
vested and exercisable. In the event a change in control triggers the
acceleration of vesting of stock option awards, the Company would be required to
recognize compensation expense, in accordance with Interpretation No. 44, for
those options that would have otherwise expired unexercisable pursuant to the
original terms.

F-27

A summary of stock option activity follows:

The following table summarizes information concerning stock options
outstanding at December 31, 2001:

In September 2001, and in connection with the Board of Directors
approval of certain employment agreements, the Company granted options to
purchase, in the aggregate, 2,450,000 shares of its common stock to its
President and Chief Executive Officer, Executive Vice President and Chief
Operating Officer and Senior Vice President, Finance and Chief Financial
Officer. The options have a per-share exercise price equal to $50.01, the last
reported sale price of the common stock preceding the date Board of Director
approval was obtained. The terms of the options granted to the CEO and COO
provide that they vest in their entirety three years from the date of grant, but
may vest earlier as to 33.33% of the shares if certain targets in the Company's
common stock price are achieved. The option granted to the CFO vests equally
over three years. See also Note 14.

The Company's employee stock option plans generally permit option
holders to pay for the exercise price of stock options and any related income
tax withholding with shares of the Company's common stock that have been owned
by the option holders for at least six months. During the year ended December
31, 2001, 138,433 shares of common stock were delivered to the Company in
payment of the aggregate exercise price and related income tax withholding
associated with the exercise of stock options to purchase an aggregate of
240,000 shares of common stock. The 138,433 shares delivered to the Company had
a value of approximately

F-28

$3,608,000 determined by multiplying the closing price of the common stock on
the date of delivery by the number of shares presented for payment. These shares
have been included as treasury stock in the consolidated balance sheet at
December 31, 2001.

In May 1996, the Company granted its then Chief Financial Officer a
non-qualified stock option to purchase 450,000 shares of the Company's common
stock at an exercise price below the market price of the stock on the date of
grant. The Company recorded compensation expense of $150,000 in the year ended
December 31, 1999, as prescribed under APB Opinion No. 25.

In January 1999, the Company granted an option to its Vice President of
Product and Process Development to purchase 120,000 shares of common stock. This
option was not granted under any of the above mentioned Incentive Stock Option
or Non-Qualified Stock Option Plans. The terms of this option are substantially
similar to those granted under the 98 Plan.

During the years ended December 31, 2000 and 1999, the Company granted
options to purchase 95,000 and 168,000 shares, respectively, of its common stock
to certain Scientific Advisory Board members and outside consultants in
consideration for future services. During the years ended December 31, 2001,
2000 and 1999, the Company recognized approximately $957,000, $4,425,000 and
$2,411,000, respectively, in compensation expense relating to the options
granted to Scientific Advisory Board members and outside consultants. At
December 31, 2001, options to purchase 74,500 shares of the Company's common
stock related to these grants were vested and outstanding. The fair value of
these options was subject to remeasurement through the vesting date using the
Black-Scholes option pricing model using assumptions generally comparable to
those disclosed below. During the years ended December 31, 2000 and 1999, the
Company granted options to outside members of its Board of Directors to purchase
approximately 341,474 and 310,000 shares, respectively, of its common stock. No
compensation expense was recorded for these option grants.

In May 1999, the Company's stockholders approved the grant of an option
to the President and Chief Executive Officer and Executive Vice President and
Chief Operating Officer to purchase 2,000,000 and 1,300,000 shares,
respectively, of common stock at a per share exercise price equal to $9.125, the
last reported sale price of the common stock on the date shareholder approval
was obtained. The original terms of the options provided that they vest in their
entirety seven years from the date of grant, but may vest earlier as to 20% of
the shares annually if certain targets in the Company's common stock price are
achieved. In May 2000, the Company's stockholders approved an amendment to these
options to provide that each tranche vests immediately upon achievement of the
relevant target stock price associated with such tranche without regard to the
passage of time, which was a requirement in the original options. The options
became fully vested and exercisable upon the approval of the amendments.

During April 1995, the Company completed the sale of the remaining
one-half of its shares of capital stock of Cadus Pharmaceutical Corporation
("Cadus") for $3.0 million to High River Limited Partnership ("High River"). In
exchange for receiving a now-expired right to repurchase all outstanding shares
of capital stock of Cadus held by High River, the Company granted to High River
two options to purchase shares of common stock. One option is for 300,000 shares
at an exercise price per share equal to $1.00, subject to adjustment under
certain circumstances, and the other option is for 600,000 shares at an exercise
price per share equal to $0.34, subject to adjustment under certain
circumstances. Both options were exercised in March 2000.

WARRANTS

As of December 31, 2001, there were no outstanding warrants. Warrants
have been issued to certain officers, directors and other employees of the
Company, certain Scientific Advisory Board members, certain investors and
certain credit providers and investors.

F-29

A summary of warrant activity follows:

SFAS NO. 123 DISCLOSURES:

The following table summarizes the weighted average fair value of stock
options and warrants granted to employees and directors during the years ended
December 31, 2001, 2000 and 1999:

- ---------------
(1) Does not include 95,000 shares in 2000 and 168,000 shares in 1999 under
options granted to non-employees. The fair value of these non-employee
grants has been recorded as compensation expense as prescribed by SFAS No.
123.

(2) The Company has recorded compensation expense of $72,000 in the years ended
December 31, 2001 and 2000 and $25,000 in the year ended December 31, 1999
in connection with these grants as prescribed under APB Opinion No. 25.

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

F-30

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its options and warrants. Except as previously indicated, no
compensation cost has been recognized for its stock option and warrant grants.
Had compensation cost for the Company's stock option grants been determined
based on the fair value at the grant dates for awards consistent with the method
of SFAS No. 123, the Company's net loss to common stockholders and net loss per
common share would have been increased to the pro forma amounts indicated below:

The pro forma effect on the net loss for the years ended December 31,
2001, 2000 and 1999 is not necessarily indicative of the pro forma effect on
future years' operating results.

(e) EMPLOYEE STOCK PURCHASE PLAN

In April 1998, the Company's Board of Directors adopted the ImClone
Systems Incorporated 1998 Employee Stock Purchase Plan (the "ESPP"), subject to
shareholders' approval, which was received in May 1998. The ESPP, as amended,
allows eligible employees to purchase shares of the Company's common stock
through payroll deductions at the end of quarterly purchase periods. To be
eligible, an individual must be an employee, work more than 20 hours per week
for at least five months per calendar year and not own greater than 5% of the
Company's common stock. Pursuant to the ESPP, the Company has reserved 1,000,000
shares of common stock for issuance. Prior to the first day of each quarterly
purchase period, each eligible employee may elect to participate in the ESPP.
The participant is granted an option to purchase a number of shares of common
stock determined by dividing each participant's contribution accumulated prior
to the last day of the quarterly period by the purchase price. The participant
has the ability to withdraw from the ESPP until the second to last day of the
quarterly purchase period. The purchase price is equal to 85% of the market
price per share on the last day of each quarterly purchase period. An employee
may purchase stock from the accumulation of payroll deductions up to the lesser
of 15% of such employee's compensation or $25,000 in value, per year. As
adjusted for the stock split, participating employees have purchased 18,390
shares of common stock at an aggregate purchase price of $708,000 for the year
ended December 31, 2001, 11,153 shares of common stock at an aggregate purchase
price of $420,000 for the year ended December 31, 2000, and 13,506 shares of
common stock at an aggregate purchase price of $177,000 for the year ended
December 31, 1999. As of December 31, 2001, 948,175 shares were available for
future purchases. No compensation expense has been recorded in connection with
the ESPP. Pro forma compensation expense of $125,000, $74,000 and $31,000
related to the discount given to employees is included in the pro forma
operating results disclosed above in note 11(d) for the years ended December 31,
2001, 2000 and 1999, respectively.

F-31

(12) INCOME TAXES

The tax effects of temporary differences that give rise to significant
portions of the gross deferred tax assets and gross deferred tax liabilities at
December 31, 2001, and December 31, 2000, are presented below:

The Company has established a valuation allowance because more likely
than not substantially all of its gross deferred tax assets will not be
realized. The net change in the total valuation allowance for the years ended
December 31, 2001 and 2000 was an increase of $146,823,000 and $76,048,000,
respectively. The valuation allowance includes approximately $146,722,000
pertaining to tax deductions relating to stock option exercises for which any
subsequently recognized tax benefit will be recorded as an increase to
additional paid-in capital. The tax benefit assumed using the federal statutory
tax rate of 34% has been reduced to an actual benefit of zero due principally to
the aforementioned valuation allowance.

At December 31, 2001, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $437,189,000, which expire at
various dates from 2002 through 2021. At December 31, 2001, the Company had
research credit carryforwards of approximately $19,415,000, which expire at
various dates from 2008 through 2021. Under Section 382 of the Internal Revenue
Code of 1986, as amended, a corporation's ability to use net operating loss and
research credit carryforwards may be limited if the corporation experiences a
change in ownership of more than 50 percentage points within a three-year
period. Since 1986, the Company experienced two such ownership changes. As a
result, the Company is only permitted to use in any one year approximately
$5,159,000 of its available net operating loss carryforwards that occurred prior
to February 1996. Similarly, the Company is limited in using its research credit
carryforwards. The Company has determined that its November 1999 public stock
offering, its February 2000 private placement of convertible subordinated notes,
its August 2001 issuance of common stock to Merck KGaA associated with an equity
milestone payment under the ERBITUX development and license agreement and its
September 2001 acquisition agreement with BMS did not cause an additional
ownership change that would further limit the use of its net operating losses
and research credit carryforwards. Of the $437,189,000 in net operating loss
carry forwards, approximately $395,245,000 is available to use in 2002,
approximately $5,159,000 is available to use in each year from 2003 through 2010
and approximately $672,000 is available to use in 2011. Any of the
aforementioned net operating loss carryforwards which are not utilized are
available for utilization in future years, subject to the statutory expiration
dates of such net operating loss carryforwards.

(13) CONTINGENCIES

The Company and certain of its officers and directors are named as
defendents in a number of complaints filed on behalf of purported classes of its
stockholders asserting claims under Section 10(b) of the Securities and Exchange
Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated thereunder and Section
20(a) of the Exchange Act. It is anticipated that a motion will be filed that
would result in the consolidation of these and any subsequently-filed actions
that assert similar claims. The complaints in these actions allege generally
that various public statements made by the Company or its senior officers during
2001

F-32

and early 2002 regarding the prospects for FDA approval of ERBITUX were false or
misleading when made, that various Company insiders were aware of material,
non-public information regarding the actual prospects for ERBITUX at the time
that those insiders engaged in transactions in the Company's common stock and
that members of the purported shareholder class suffered damages when the market
price of the Company's common stock declined following disclosure of the
information that allegedly had not been previously disclosed. On December 28,
2001, the Company disclosed that it had received a "refusal to file" letter from
the FDA relating to its biologics license application for ERBITUX. Thereafter,
various news articles purported to describe the contents of the FDA's "refusal
to file" letter. During this period, the market price of the Company's common
stock declined. The complaints in the various actions seek to proceed on behalf
of a class of the Company's present and former stockholders, other than
defendants or persons affiliated with the defendants, seek monetary damages in
an unspecified amount and seek recovery of plaintiffs' costs and attorneys'
fees.

Beginning on January 13, 2002 and continuing thereafter, six separate
purported stockholders derivative actions have been filed against the members of
its board of directors and the Company, as nominal defendant, making allegations
similar to the allegations in the federal securities class action complaints.
All of these actions assert claims, purportedly on the Company's behalf, for
breach of fiduciary duty by certain members of the board of directors based on
the allegation that certain directors engaged in transactions in the Company's
common stock while in possession of material, non-public information concerning
the regulatory and marketing prospects for ERBITUX. A seventh complaint,
purportedly asserting direct claims on behalf of a class of the Company's
shareholders but in fact asserting derivative claims that are similar to those
asserted in these six cases, was filed in the U.S. District Court for the
Southern District of New York on February 13, 2002, styled Dunlap v. Waksal, et
al., No. 02 Civ. 1154 (RO). The Dunlap complaint asserts claims against the
Board of Directors for breach of fiduciary duty purportedly on behalf of all
persons who purchased shares of the Company's common stock prior to June 28,
2001 and then held those shares through December 6, 2001. It alleges that the
members of the purported class suffered damages as a result of holding their
shares based on allegedly false information about the financial prospects of the
Company that was disseminated during this period.

All of these actions are in their earliest stages. The Company intends
to contest vigorously the claims asserted in these actions.

The Company has received subpoenas and requests for information in
connection with investigations by the Securities and Exchange Commission, the
Subcommittee on Oversight and Investigations of the U.S. House of
Representatives Committee on Energy and Commerce and the U.S. Department of
Justice relating to the circumstances surrounding the disclosure of the FDA
letter dated December 28, 2001 and trading in the Company's securities by
certain Company insiders in 2001. The Company is cooperating with all of these
inquiries and intends to continue to do so.

(14) COMMITMENTS

LEASES

The Company leases office, operating and laboratory space under various
lease agreements. Rent expense was approximately $1,576,000, $838,000 and
$817,000 for the years ended December 31, 2001, 2000, and 1999, respectively.

The Company leases its Research and Development and Corporate
headquarters in New York City, under an operating lease, which expires in
December 2004. See also Note 7.

In May 2001, the Company entered into an operating lease for a 4,000
square foot portion of a 15,000 square foot building and an adjacent 6,250
square foot building (collectively the "premises") in Brooklyn, New York. The
Company has begun to make improvements to the premises in order to relocate its
chemistry and high throughput screening personnel from its Research and
Development and Corporate headquarters in New York City. The term of the lease
is for five years and contains five successive one-year extensions.

F-33

In October 2001, the Company entered into a sublease for a four story
building in downtown New York to serve as its future corporate headquarters and
research facility. The space, to be designed and improved by the Company in the
future, includes between 75,000 and 100,000 square feet of usable space,
depending on design, and includes possible additional expansion space. The
sublease has a term of 22 years, followed by two five year renewal option
periods. In order to induce the sublandlord to enter into the sublease, the
Company made a loan to and accepted from the sublandlord a $10,000,000 note
receivable. The note is secured by a leasehold mortgage on the prime lease as
well as a collateral assignment of rents by the sublandlord. The note is payable
over 20 years and bears interest at 5 1/2% in years one through five, 6 1/2% in
years six through ten, 7 1/2% in years eleven through fifteen and 8 1/2% in
years sixteen through twenty. In addition, the Company paid the owner a consent
fee in the amount of $500,000. The sublease is classified as an operating lease,
and rent expense is recorded on a straight line basis over the term of the
sublease. In addition, the interest payments received on the related note
receivable are being recorded as a reduction to rent expense. The consent fee is
being recognized as rent expense over the term of the lease.

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

EMPLOYMENT AGREEMENTS

In September 2001, and February 2002, the Company entered into
employment agreements with six senior executive officers, including the Chief
Executive Officer and Chief Operating Officer. The September agreements each
have three-year terms and the February agreement has a one-year term. The term
of employment for each of the CEO and COO will be automatically extended for one
additional day each day during the term of employment unless either the Company
or the Executive otherwise gives notice. The employment agreements provide for a
stated base salary, and minimum bonuses and benefits aggregating $3,765,000
annually. The employment agreements also provide for the grant of a total of
2,450,000 options to three of the executives at a per share exercise price of
$50.01. See also Note 11(d).

SUPPORTED RESEARCH

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

CONSULTING AGREEMENTS

The Company has consulting agreements with several of its Scientific
Advisory Board members and other consultants. These agreements generally are for
a term of one year and are terminable at the Company's option. See Note 17.

F-34

CONTRACT SERVICES

In April 1999, the Company signed a definitive agreement with BI Pharma
for the further development, production scale-up and manufacture of ERBITUX for
use in human clinical trials. The total cost under the agreement was
DM11,440,000 or $6,283,000 based on the foreign currency rate on the dates of
payment. All of the material manufactured under this agreement has been provided
to Merck KGaA for use in clinical trials and Merck KGaA has reimbursed the
Company for the costs under this agreement. This reimbursement has been
accounted for as reduction to research and development expense in the third
quarter of 2000 and the fourth quarter of 1999.

In December 1999, the Company entered into a development and
manufacturing services agreement with Lonza. This agreement was amended in April
2001 to include additional services. Under the agreement, Lonza is responsible
for process development and scale-up to manufacture ERBITUX in bulk form under
cGMP conditions. These steps were taken to assure that the manufacturing process
would produce bulk material that conforms with the Company's reference material.
As of December 31, 2001, the Company had incurred approximately $5,353,000 and
$1,677,000 for the years ended December 31, 2001 and 2000, respectively, for
services provided under the development and manufacturing services agreement. In
September 2000, the Company entered into a three-year commercial manufacturing
services agreement with Lonza relating to ERBITUX. This agreement was amended in
June 2001 and again in September 2001 to include additional services. The total
cost for services to be provided under the three-year commercial manufacturing
services agreement is approximately $63,050,000. As of December 31, 2001, the
Company incurred approximately $4,913,000 and $5,400,000 for the years ended
December 31, 2001 and 2000, respectively, for services provided under the
commercial manufacturing services agreement. Under these two agreements, Lonza
is manufacturing ERBITUX at the 5,000 liter scale under cGMP conditions and is
delivering it to the Company over a term ending no later than December 2003. The
costs associated with both of these agreements are included in research and
development expenses when incurred and will continue to be so classified until
such time as ERBITUX may be approved for sale or until the Company obtains
obligations from its corporate partners for supply of such product. In the event
of such approval or obligations from its corporate partners, the subsequent
costs associated with manufacturing ERBITUX for commercial sale will be included
in inventory and expensed when sold. In the event the Company terminates the
commercial manufacturing services agreement without cause, the Company will be
required to pay 85% of the stated costs for each of the first ten batches
cancelled, 65% of the stated costs for each of the next ten batches cancelled
and 40% of the stated costs for each of the next six batches cancelled. The
batch cancellation provisions for the subsequent batches require the company to
pay 100% of the stated costs of cancelled batches scheduled within six months of
the cancellation, 85% of the stated costs of cancelled batches scheduled between
six and twelve months following the cancellation and 65% of the stated costs of
cancelled batches scheduled between twelve and eighteen months following the
cancellation. These amounts are subject to mitigation should Lonza use its
manufacturing capacity caused by such termination for another customer. At
December 31, 2001, the estimated remaining future commitments under the amended
commercial manufacturing services agreement are $42,562,000 in 2002 and
$10,175,000 in 2003.

In December 2001, the Company entered into an agreement with Lonza to
manufacture ERBITUX at the 2,000 liter scale for use in clinical trials by Merck
KGaA. The costs associated with the agreement are reimbursable by Merck KGaA and
accordingly the reimbursements are accounted for as reduction to research and
development expenses. As of December 31, 2001, the Company had incurred and
recorded reimbursements from Merck KGaA for approximately $2,483,000 for
services provided under this agreement. At December 31, 2001, approximately
$133,000 was reimbursable by Merck KGaA and is included in amounts due from
corporate partners in the consolidated balance sheets.

On January 2, 2002 the Company executed a letter of intent with Lonza to
enter into a long-term supply agreement. The long-term supply agreement would
apply to a large scale manufacturing facility that Lonza is constructing. The
Company expects such facility would be able to produce ERBITUX in 20,000 liter
batches. The Company paid Lonza $3,250,000 for the exclusive negotiating right
of a long term supply agreement. Under certain conditions such payment shall be
refunded to the Company. Provided the Company enters into a long-term supply
agreement such payment shall be creditable against the 20,000 liter batch price.
F-35

(15) RETIREMENT PLAN

The Company maintains a 401(k) retirement plan available to all
full-time, eligible employees. Employee contributions are voluntary and are
determined by the individual, limited to the maximum amount allowable under
federal tax regulations. The Company, at its discretion, may make certain
contributions to the plan. The Company contributed approximately $243,000,
$108,000 and $70,000 to the plan for the years ended December 31, 2001, 2000 and
1999, respectively.

(16) SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING
ACTIVITIES

(17) CERTAIN RELATED PARTY TRANSACTIONS

The Company has scientific consulting agreements with two members of the
Board of Directors. Expenses relating to these agreements were $112,000 for each
of the years ended December 31, 2001, 2000 and 1999.

Certain transactions engaged in by Dr. Samuel Waksal in securities of
the Company were deemed to have resulted in "short-swing profits" under Section
16 of the Securities Exchange Act of 1934 (the "Exchange Act"). In accordance
with Section 16(b) of the Exchange Act, Dr. Samuel Waksal has paid the Company
an aggregate amount of approximately $486,000, in March 2002, as disgorgement of
"short-swing profits" he realized.

In December 2001, the Company entered into an agreement to sublease a
1,520 square foot portion of its corporate headquarters and research facility in
New York City to Scientia Health Group Inc ("Scientia"). Base rent under the
sublease is $5,496 per month and is subject to annual escalation. Scientia is
also responsible for additional rent representing its pro-rata share of
operating expenses. The amount charged to Scientia represents a direct pass
through of the Company's cost. The term of the sublease shall continue month to
month until such notice of termination by the Company. During the year ended
December 31, 2001, the Company incurred, and was subsequently reimbursed by
Scientia, for approximately $111,000 in costs associated with preparing the
premises for occupancy. The Company's Chief Executive Officer is the Executive
Chairman of Scientia.

F-36

In July 2001, the Company accepted a promissory note from each of its
President and Chief Executive Officer, Executive Vice President and Chief
Operating Officer and Chairman of the Board, and in August 2001 the Company
accepted a promissory note from a member of its Board of Directors, in payment
of the aggregate exercise price associated with the exercise of stock options
and warrants they held to purchase a total of approximately 4,473,000 shares of
the Company's common stock. The President and Chief Executive Officer's
promissory note was in the amount of $18,178,750; the Executive Vice President
and Chief Operating Officer's promissory note was in the amount of $15,747,550;
the Chairman of the Board's promissory note was in the amount of $1,228,065; and
the other Board member's promissory note was in the amount of $87,000. The
unsecured promissory notes were full-recourse, payable on the earlier of one
year from the date of the notes or on demand by the Company and bore interest at
the prime lending rate plus 1% (7 3/4% on the date of the note). Interest was
payable quarterly and the interest rate adjusted quarterly during the term of
each note to the then current prime lending rate plus 1%. On October 31, 2001,
the Company made demand for repayment by November 23, 2001, of the principal
amount of the notes and accrued interest thereon. As of November 14, 2001, the
principal amount of all of these notes of $35,241,000 and accrued interest of
$879,000 were paid in full.

The Company accepted from its President and Chief Executive Officer, a
full recourse, unsecured promissory note dated as of December 21, 2000 in the
principal amount of $282,200. The note was payable upon the earlier of June 21,
2001 or demand by the Company and bore interest at 10.5% (the prime lending rate
plus 1% on the date of the note) for the period that the loan is outstanding.
The Company extended the term of the note to December 21, 2001. As of November
14, 2001, the principal amount of this note and accrued interest totaling
$310,000 was paid in full.

In January 1999, the Company accepted an unsecured promissory note
totaling $60,000 from its Vice President, Product and Process Development. The
note was payable upon the earlier of the Company's demand or July 28, 1999
including interest at an annual rate of 8 3/4% for the period that the loan was
outstanding. The loan was made in connection with the acceptance of employment
and the corresponding relocation of the officer. In July 1999, the note,
including all interest, was paid in full.

In October 1998, the Company accepted an unsecured promissory note
totaling $100,000 from its Executive Vice President and COO. The note was
payable on demand including interest at the annual rate of 8 1/4% for the period
that the loan was outstanding. In April 1999, the note, including all interest,
was paid in full.

In January 1998, the Company accepted a promissory note totaling
approximately $131,000 from its President and CEO in connection with the
exercise of a warrant to purchase 174,610 shares of the Company's common stock.
The note was due no later than two years from issuance and was full recourse.
Interest was payable on the first anniversary date of the promissory note and on
the stated maturity or any accelerated maturity at the annual rate of 8 1/2%.
The note, including all interest, was paid in full during 2000.

The Company uses Concord Investment Management, a New York-based money
management firm, to manage a substantial portion of the Company's debt security
portfolio tabulated in Note 3. The Company's Chairman of the Board is a limited
partner of Concord International Holdings, LP. Concord International Holdings,
LP is the holding company and controls Concord Investment Management. The
Company paid investment management fees to Concord Investment Management of
approximately $370,000, $412,000 and $60,000 in the years ended December 31,
2001, 2000 and 1999, respectively.

(18) FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2001 and 2000, the following methods and assumptions
were used to estimate the fair value of each class of financial instrument:

CASH AND CASH EQUIVALENTS, OTHER RECEIVABLES, ACCOUNTS PAYABLE, ACCRUED AND
OTHER CURRENT LIABILITIES

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

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LONG-TERM OBLIGATIONS

The fair value of the 5 1/2% convertible subordinated notes was
approximately $210,600,000 at March 22, 2002, and $255,000,000 at December 31,
2001 based on their quoted market price. Discounted cash flow analyses were used
to determine the fair value of other long-term obligations because no quoted
market prices on these instruments were available. The fair value of other
long-term obligations approximated their carrying amount.

(19) QUARTERLY FINANCIAL DATA (UNAUDITED)

The tables below summarize the Company's unaudited quarterly operating
results for 2001 and 2000. The first three quarters of 2000 were restated as a
result of the adoption of SAB 101 in the fourth quarter of 2000, effective as of
the beginning of the year, as described in note 2g.

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The table below reflects the effect of the change in accounting policy
on net loss to common stockholders and basic and diluted net loss per common
share under the Company's historical revenue recognition policy as a result of
the adoption of SAB 101 in the fourth quarter of 2000.

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