UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

Form 10-Q

(Mark One)
	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2003
		OR
	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from. . . . . . to. . . . . .

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004
OR


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-22147

ILEX ONCOLOGY, INC.

(Exact name of registrant as specified in its charter)

Delaware		74-2699185
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
4545 Horizon Hill Blvd
San Antonio, Texas		78229
(Address of principal executive offices)		(Zip Code)


4545 Horizon Hill Blvd.
San Antonio, Texas		78229
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (210) 949-8200

~~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 o.~~

Indicate by check mark whether the registrant is(1) has anfiled ~~accelerated~~all ~~filer (as~~reports ~~defined~~required into ~~Rule~~be filed by Section ~~12b-2~~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 xþ No o.

~~The~~Indicate ~~number~~by ofcheck ~~shares~~mark ~~outstanding~~whether of the ~~Registrant’s~~registrant ~~common~~is ~~stock~~an asaccelerated offiler (as ~~November~~defined in Rule 3,12b-2 ~~2003~~of isthe ~~38,998,621~~Exchange Act) Yes þ No o.

~~TABLE~~ The OFnumber ~~CONTENTS~~of shares outstanding of the Registrant’s common stock as of October 26, 2004 is 39,292,054.

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
EX-11.1 Computation of Net Loss per Share
EX-31.1 Certification of President and CEO - 302
EX-31.2 Certification of Senior VP and CFO - 302
EX-32.1 Certification Pursuant to Section 906
EX-32.2 Certification Pursuant to Section 906

ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2004 - QUARTERLY REPORT ON FORM 10-Q

SEPTEMBER 30, 2003 – QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	~~Item 1. Financial Statements~~
		Consolidated Balance Sheets — September 30, 2003 and December 31, 2002		3
Consolidated Balance Sheets – September 30, 2004 and December 31, 2003			3
		Consolidated Statements of Operations — Three and Nine Month Periods Ended September 30, 2003 and 2002		5
Consolidated Statements of Operations – Three and Nine Month Periods Ended September 30, 2004 and 2003			5
		Consolidated Statements of Cash Flows — Nine Month Periods Ended September 30, 2003 and 2002		6
Consolidated Statements of Cash Flows — Nine Month Periods Ended September 30, 2004 and 2003			6
Notes to Consolidated Financial Statements		~~Notes to Consolidated Financial Statements~~	7	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~		10	10
Item 3. Quantitative and Qualitative Disclosures about Market Risk	~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~		17	16
Item 4. Controls and Procedures	~~Item 4. Controls and Procedures~~		18	16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	~~Item 1. Legal Proceedings~~		19	16
	Item 6. Exhibits and Reports on Form 8-K			17
Item 6. Exhibits			19
SIGNATURES			20	18
Computation of Net Loss Per Share
Certification of President and CEO - Section 302
Certification of Senior VP and CFO - Section 302
Certification of President and CEO - Section 906
Certification of Senior VP and CFO - Section 906

ILEX ONCOLOGY, INC. SEPTEMBER 30, ~~2003~~2004 –- QUARTERLY REPORT ON FORM 10-Q

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (in thousands~~, except share and per share amounts~~)

ASSETS

	September 30,		~~September 30,~~	December 31,		~~December 31,~~
			2003			2002
	2004			2003
	(unaudited)		~~(unaudited)~~
CURRENT ASSETS:
Cash and cash equivalents	~~Cash and cash equivalents~~$	68,926	$	~~119,212~~$	63,154	$	~~29,679~~
Investments in marketable securities	~~Investments in marketable securities~~	58,819		~~86,537~~	75,791		~~123,591~~
Restricted investments	~~Restricted investments~~	604		~~815~~	816		~~976~~
	Accounts receivable, net of allowance for doubtful accounts of $15 and $30 in 2003 and 2002, respectively			319			871
Accounts receivable, net of allowance for doubtful accounts of $5 in 2004 and 2003		258			166
	Accounts receivable — Schering AG			9,266			4,701
Accounts receivable from Schering AG		10,306			8,363
Other receivables	~~Other receivables~~	2,484		~~1,699~~	2,152		~~3,654~~
Prepaid expenses and other	~~Prepaid expenses and other~~	2,547		~~2,896~~	2,433		~~2,273~~
		Total current assets		220,744			165,745
Assets held for sale		197			—
NON-CURRENT ASSETS:
Total current assets		144,141			152,875
Investments in marketable securities	~~Investments in marketable securities~~	1,050		~~19,974~~	56,209		~~34,737~~
Restricted investments	~~Restricted investments~~	1,691		~~2,017~~	1,691		~~2,017~~
	Completed technology asset, net of accumulated amortization of $8,100 and $4,629 in 2003 and 2002, respectively			56,700			60,171
Completed technology asset, net of accumulated amortization of $12,729 and $9,257 in 2004 and 2003, respectively		52,071			55,543
	Other intangible assets, net of accumulated amortization of $428 and $200 in 2003 and 2002, respectively			4,372			2,600
Other intangible assets, net of accumulated amortization of $784 and $517 in 2004 and 2003, respectively		4,016			4,283
	Goodwill			—			213
Other assets		1,581			689
	Other assets			748			283
Property and equipment, at cost, net of accumulated depreciation of $9,145 and $10,302 in 2004 and 2003, respectively		2,450			3,805
		Total non-current assets		83,811			100,021
TOTAL ASSETS	$	207,000		$	275,095
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of $9,649 and $7,950 in 2003 and 2002, respectively				4,266			5,140
		Total assets	$	308,821		$	270,906

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

ILEX ONCOLOGY, INC. SEPTEMBER 30, ~~2003~~2004 –- QUARTERLY REPORT ON FORM 10-Q

CONSOLIDATED BALANCE SHEETS (in thousands, except ~~share~~shares and per share amounts)

LIABILITIES AND STOCKHOLDERS’ EQUITY

		September 30,			~~September~~December 3031,			~~December 31,~~
					2003			2002
		2004			2003
		(unaudited)			~~(unaudited)~~
CURRENT LIABILITIES:
	Accounts payable-
Accounts payable		$	7,768		$	11,477
		Related parties			$	—		$	136
Accrued liabilities-
		Other				9,931			8,214
Related parties			531			564
	Accrued liabilities-
Other			5,493			6,646
		Related parties				470			455
Deferred revenue			592			385
		Other				5,709			6,378
Note payable			19,709			38,390
	Deferred revenue					391			879
Total current liabilities			34,093			57,462
	Advances from Schering AG					—			2,577
Deferred revenue			833			1,077
	Note payable					38,979			38,099
Other non-current liabilities			729			742
			Total current liabilities			55,480			56,738
TOTAL LIABILITIES			35,655			59,281
NON-CURRENT LIABILITIES:
COMMITMENTS AND CONTINGENCIES (see Note 9)
	Deferred revenue					1,165			—
STOCKHOLDERS’ EQUITY:
	Note payable					18,561			36,155
Convertible preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued or outstanding			—			—
	Other non-current liabilities					742			771
Common stock, $0.01 par value; 100,000,000 shares authorized; 39,240,575 and 39,046,917 issued and outstanding in 2004 and 2003, respectively			392			390
			Total non-current liabilities			20,468			36,926
Additional paid-in capital			562,722			560,632
			Total liabilities			75,948			93,664
Deferred compensation			(166	)		(359	)
COMMITMENTS AND CONTINGENCIES (see Note 8)
Accumulated deficit			(392,290	)		(345,544	)
STOCKHOLDERS’ EQUITY:
Accumulated other comprehensive income			687			695
	Convertible preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued or outstanding					—			—
Total stockholders’ equity			171,345			215,814
	Common stock, $0.01 par value; 100,000,000 shares authorized; 38,983,013 and 32,529,282 shares issued and outstanding in 2003 and 2002, respectively					390			326
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	207,000		$	275,095
	Additional paid-in capital					560,166			460,014
	Deferred compensation					(467	)		—
	Accumulated deficit					(327,767	)		(283,430	)
	Accumulated other comprehensive income					551			332
			Total stockholders’ equity			232,873			177,242
			Total liabilities and stockholders’ equity		$	308,821		$	270,906

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

ILEX ONCOLOGY, INC. SEPTEMBER 30, ~~2003~~2004 –- QUARTERLY REPORT ON FORM 10-Q

CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)

		Three Months Ended		~~Three Months Ended~~						Nine Months Ended		~~Nine Months Ended~~
		September 30,		~~September 30,~~						September 30,		~~September 30,~~
				2003				2002				2003				2002
		2004				2003				2004				2003
REVENUE:
Product profit and royalty	~~Product profit and royalty~~	$	5,973	$	~~4,513~~	$	4,513	$	~~3,157~~	$	17,015	$	~~17,572~~	$	17,572	$	~~8,277~~
	Outlicensing revenue				2,581				—				2,685				634
Product development			779				985				4,768				5,196
	Product development				985				2,378				5,196				6,362
Contract research services			173				403				785				1,497
	Contract research services				403				2,216				1,497				8,142
Outlicensing revenue			87				2,581				1,762				2,685
Other	~~Other~~		259		~~244~~		244		~~168~~		1,053		~~587~~		587		~~203~~
Total revenue		~~Total revenue~~	7,271		~~8,726~~		8,726		~~7,919~~		25,383		~~27,537~~		27,537		~~23,618~~
OPERATING EXPENSES:
Research and development costs	~~Research and development costs~~		13,299		~~12,125~~		12,125		~~11,339~~		44,894		~~34,656~~		34,656		~~34,361~~
Licensing costs	~~Licensing costs~~		561		~~2,133~~		2,133		~~240~~		5,134		~~4,144~~		4,144		~~5,374~~
Selling, general and administrative	~~Selling, general and administrative~~		4,246		~~2,789~~		2,789		~~2,905~~		16,632		~~9,663~~		9,663		~~8,742~~
Direct cost of research services	~~Direct cost of research services~~		205		~~370~~		370		~~1,639~~		586		~~1,119~~		1,119		~~5,355~~
Depreciation and amortization	~~Depreciation and amortization~~		1,646		~~1,857~~		1,857		~~1,834~~		5,216		~~5,713~~		5,713		~~5,513~~
Impairment charge	~~Impairment charge~~		—		~~213~~		213		—		—		~~213~~		213		—
Settlement charge	~~Settlement charge~~		—		—		—		—		—		~~16,500~~		16,500		—
Total operating expenses		~~Total operating expenses~~	19,957		~~19,487~~		19,487		~~17,957~~		72,462		~~72,008~~		72,008		~~59,345~~
OPERATING LOSS			(12,686	)	~~(10,761~~	)	(10,761	)	~~(10,038~~	)	(47,079	)	~~(44,471~~	)	(44,471	)	~~(35,727~~	)
OTHER INCOME (EXPENSE):
Interest income and other, net	~~Interest income and other, net~~		477		~~1,077~~		1,077		~~1,403~~		1,683		~~3,440~~		3,440		~~6,082~~
Interest expense	~~Interest expense~~		(292	)	~~(997~~	)	(997	)	~~(1,411~~	)	(1,319	)	~~(3,286~~	)	(3,286	)	~~(4,990~~	)
LOSS BEFORE INCOME TAXES			(12,501	)	~~(10,681~~	)	(10,681	)	~~(10,046~~	)	(46,715	)	~~(44,317~~	)	(44,317	)	~~(34,635~~	)
	Benefit/(provision) for foreign income taxes				57				(359	)			(20	)			(378	)
(Provision) benefit for foreign income taxes			(16	)			57				(31	)			(20	)
NET LOSS		$	(12,517	$)	~~(10,624~~	)$	(10,624	$)	~~(10,405~~	)$	(46,746	$)	~~(44,337~~	)$	(44,337	$)	~~(35,013~~	)
BASIC AND DILUTED NET LOSS PER SHARE		$	(0.32	$)	~~(0.29~~	)$	(0.29	$)	~~(0.32~~	)$	(1.20	$)	~~(1.31~~	)$	(1.31	$)	~~(1.08~~	)
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING			39,161		~~36,617~~		36,617		~~32,528~~		39,090		~~33,862~~		33,862		~~32,458~~

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

ILEX ONCOLOGY, INC. SEPTEMBER 30, ~~2003~~2004 –- QUARTERLY REPORT ON FORM 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

		Nine Months Ended			~~Nine Months Ended~~
		September 30,			~~September 30,~~
					2003			2002
		2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	~~Net loss~~	$	(46,746	)	$	(44,337	)	$	~~(35,013~~	)
Adjustments to reconcile net loss to net cash used in operating activities:	~~Adjustments to reconcile net loss to net cash used in operating activities:~~
Depreciation and amortization		~~Depreciation and amortization~~	5,216			5,713			~~5,513~~
Interest expense paid in stock		~~Interest expense paid in stock~~	—			929			—
Non-cash compensation expense		~~Non-cash compensation expense~~	193			589			—
Impairment charge		~~Impairment charge~~	—			213			—
		Gain on investments in marketable securities				(52	)		(435	)
Gain on investment in marketable securities			(5	)		(52	)
		Loss on disposal of equipment				40			26
Bad debt provision			—			10
		Bad debt provision (reduction)				10			(57	)
(Gain) loss on disposal of equipment			(11	)		40
Changes in operating assets and liabilities:		~~Changes in operating assets and liabilities:~~
			(Increase) decrease in receivables, net			(2,068	)		2,334
Increase in receivables, net			(2,367	)		(2,068	)
Increase in prepaid expenses and other			~~Increase in prepaid expenses and other~~(114	)		(623	)		~~(182~~	)
			(Increase) decrease in other non-current assets			(465	)		227
Increase in other non-current assets			(892	)		(465	)
Decrease in accounts payable and accrued liabilities			~~Decrease in accounts payable and accrued liabilities~~(4,895	)		(1,613	)		~~(7,618~~	)
			Increase (decrease) in deferred revenue			677			(1,924	)
(Decrease) increase in deferred revenue			(37	)		677
			Increase in interest on note payable			1,428			4,990
(Decrease) increase in interest on note payable			(1,337	)		1,428
Decrease in other non-current liabilities			~~Decrease in other non-current liabilities~~(13	)		(29	)		~~(3,462~~	)
Net cash used in operating activities			(51,008	~~Net cash used in operating activities~~)		(39,588	)		~~(35,601~~	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net activity of marketable securities’ transactions	~~Net activity of marketable securities’ transactions~~		72,136			51,869			~~20,894~~
Net activity in restricted investments	~~Net activity in restricted investments~~		212			161			~~294~~
	Increase in intangible assets					(2,000	)		—
Increase in intangible asset			—			(2,000	)
Purchase of property and equipment	~~Purchase of property and equipment~~		(317	)		(1,200	)		~~(1,405~~	)
Proceeds from sale of property and equipment	~~Proceeds from sale of property and equipment~~		15			11			27
Net cash provided by investing activities			72,046	~~Net cash provided by investing activities~~		48,841			~~19,810~~
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash, net of issuance costs	~~Issuance of common stock for cash, net of issuance costs~~		—			87,476			—
	Exercise of stock options and warrants					1,685			1,566
Exercise of stock options			2,091			1,685
	Principal payment on note payable					(9,071	)		—
Principal payments for note payable			(17,344	)		(9,071	)
Principal payments for capital lease obligations	~~Principal payments for capital lease obligations~~		—			(37	)		~~(59~~	)
				Net cash provided by financing activities		80,053			1,507
Net cash (used in) provided by financing activities			(15,253	)		80,053
Effect of Exchange Rate Changes on Cash and Cash Equivalents			(13	)		227			~~347~~
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						89,533			(13,937	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			5,772			89,533
CASH AND CASH EQUIVALENTS, beginning of period			63,154			29,679			~~84,518~~
CASH AND CASH EQUIVALENTS, end of period		$	68,926		$	119,212		$	~~70,581~~

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

ILEX ONCOLOGY, INC. SEPTEMBER 30, ~~2003~~2004 –- QUARTERLY REPORT ON FORM 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share information, per share information or as otherwise indicated) (unaudited)

~~(amounts~~1. inSUMMARY ~~thousands,~~OF ~~except~~SIGNIFICANT ~~share~~ACCOUNTING ~~information, per share information or as~~POLICIES ~~otherwise indicated) (unaudited)~~

1.Principles ~~SUMMARY~~of OFconsolidation ~~SIGNIFICANT~~and ~~ACCOUNTING~~basis ~~POLICIES~~of presentation

~~Principles~~The accompanying interim Consolidated Financial Statements presented herein include the accounts of ILEX Oncology, Inc. and its subsidiaries (“we” or “ILEX”). All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by us, without audit, pursuant to the rules and ~~basis~~regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, all adjustments, which consist of only normal, recurring adjustments that are necessary for a fair presentation of financial position and results of operations have been made. Certain prior year amounts have been reclassified to conform to the 2004 presentation.

~~The~~It ~~accompanying~~is ~~interim~~recommended ~~Consolidated~~that ~~Financial~~these Statements presented herein include the accounts of ILEX Oncology, Inc. and its subsidiaries (“we,” “our,”“us” or “ILEX”). All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements ~~have~~be ~~been~~read in ~~prepared~~conjunction bywith ~~us, without audit, pursuant to~~ the ~~rules~~financial ~~and regulations~~statements ~~of the Securities~~ and ~~Exchange~~notes ~~Commission.~~thereto ~~Certain information and footnote disclosures normally~~ included in ~~financial statements prepared in~~our ~~accordance~~Annual ~~with~~Report ~~generally~~on ~~accepted~~Form ~~accounting~~10-K, ~~principles~~as ~~have~~amended ~~been~~by ~~condensed~~our ~~or omitted~~Annual ~~pursuant~~Report toon ~~such~~Form ~~rules~~10-K/A ~~and~~for the ~~regulations.~~year Inended ~~management’s opinion~~December 31, ~~all adjustments,~~2003. ~~which~~The ~~consist~~results of ~~only~~operations ~~normal,~~for ~~recurring~~any ~~adjustments,~~interim period ~~that~~ are ~~necessary~~ ~~for~~not anecessarily ~~fair~~indicative ~~presentation~~ of ~~financial~~the ~~position and~~ results of operations ~~have~~for ~~been made. Certain prior year amounts have been reclassified~~the toentire ~~conform to the 2003 presentation~~year.

ItBusiness isSegments. ~~recommended~~SFAS ~~that~~No. 131, ~~these~~“Disclosure ~~interim~~about ~~consolidated~~Segments ~~financial~~of ~~statements~~an ~~be read~~Enterprise inand ~~conjunction~~Related ~~with~~Information,” establishes standards for the way publicly traded business enterprises report information about operating segments in annual financial statements. SFAS No. 131 also establishes standards for related disclosures about products, services, geographic areas and ~~notes~~major ~~thereto~~customers. ~~included~~In February 2001, inwe announced our intent to transition out of the fee-for-service ~~Annual~~CRO ~~Report~~business, onoperated ~~Form~~by 10ILEX Services, and focus our in-Khouse ~~for~~drug development ~~the~~capabilities ~~year~~on ~~ended~~our ~~December 31~~own proprietary products, ~~2002.~~including ~~The~~those ~~results~~being ofjointly ~~operations~~developed ~~for~~with ~~any~~partners. ~~interim~~As ~~period~~a ~~are~~result ~~not~~of ~~necessarily~~our ~~indicative~~transition out of the ~~results~~fee-for-service CRO business, and subsequent transition of ~~operations~~certain ~~for~~ILEX Services’ ~~the~~employees ~~entire~~to ~~year~~our own products, we no longer operate in two distinct segments.

~~Outlicensing~~Stock-based ~~Revenue~~compensation

~~Outlicensing~~We ~~revenue~~use ~~is earned and recognized based on~~ the ~~performance requirements~~intrinsic ofvalue ~~the~~method ~~respective~~in ~~outlicensing~~accounting ~~agreements. Non-refundable license fees~~ for ~~which~~our nostock ~~further performance~~compensation ~~obligations~~plans. ~~exist,~~Had ~~and~~compensation nocost ~~continuing~~for ~~involvement~~our bystock uscompensation isplans ~~required,~~been ~~are~~determined ~~recognized~~based onupon ~~the~~a ~~earlier~~fair ofvalue ~~when~~method ~~the~~consistent ~~payments~~with ~~are~~Statement ~~received~~of ~~or when collection~~Financial isAccounting ~~assured~~Standard (SFAS) No. 123 ~~Revenue~~our ~~from~~net ~~non-refundable~~loss ~~upfront~~and ~~license~~loss ~~fees~~per ~~where~~share ~~we continue~~would ~~involvement through development collaboration or~~ have been anincreased ~~obligation~~ to ~~supply~~ ~~product is recognized ratably over~~ the ~~applicable~~pro ~~development~~forma ~~period~~amounts ~~or patent~~indicated ~~life.~~below:

Revenue associated with performance milestones is recognized based upon the achievement of the milestones, as defined in the respective agreements. Revenue under research and development cost reimbursement contracts is recognized as the related costs are incurred. Advance payments received in excess of amounts earned are classified as deferred revenue until earned.


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2004			2003			2004			2003
Net loss	As reported	$	(12,517	)	$	(10,624	)	$	(46,746	)	$	(44,337	)
	Stock grant
	compensation cost
	included in
	reported loss		49			110			193			589
	Fair value cost		(2,425	)		(2,088	)		(7,984	)		(5,544	)

	Pro forma	$	(14,893	)	$	(12,602	)	$	(54,537	)	$	(49,292	)

Loss per share, basic and diluted	As reported	$	(0.32	)	$	(0.29	)	$	(1.20	)	$	(1.31	)
	Stock grant
	compensation cost
	included in
	reported loss		—			—			—			0.02
	Fair value cost		(0.06	)		(0.05	)		(0.20	)		(0.17	)

	Pro forma	$	(0.38	)	$	(0.34	)	$	(1.40	)	$	(1.46	)

~~Stock-based compensation~~7

WeTable use the intrinsic value method in accounting for its stock compensation plans. Had compensation cost for our stock compensation plans been determined based upon a fair value method consistent with Statement of Financial Accounting Standard (SFAS) No. 123 our net loss and loss per share would have been increased to the pro forma amounts indicated below: Contents

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2003			2002			2003			2002
Net loss	As reported	$	(10,624	)	$	(10,405	)	$	(44,337	)	$	(35,013	)
	Stock grant compensation cost included in reported loss		110			—			589			—
	Fair value cost		(2,088	)		(2,934	)		(5,544	)		(8,438	)
	Pro forma	$	(12,602	)	$	(13,339	)	$	(49,292	)	$	(43,451	)

ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2004 - QUARTERLY REPORT ON FORM 10-Q

7Intangible assets

~~Table~~In December 2001, Genentech, Inc. announced that it was granted a patent relating to fundamental methods and compositions for the production of monoclonal ~~Contents~~antibodies using anti-recombinant DNA technology. This proceeding entitled Genentech to priority over the patent held by the Celltech Group PLC, who had first received the patent in 1989. In March 2003, we finalized a license from Genentech covering the production of our CAMPATH 1-H monoclonal antibody against the CD52 target. Accordingly, as of March 31, 2003, we recorded an intangible asset of $2.0 million associated with the license grant fee paid to Genentech in April 2003, which is being amortized under the straight-line method over approximately 13 years. We also pay royalties based upon net U.S. sales levels. We recorded amortization expense of approximately $39.0 for the quarter ended September 30, 2004 and $116.9 for the nine months ended September 30, 2004. As of September 30, 2004, we recorded accumulated amortization of $233.8 related to this intangible asset.

In connection with our December 31, 2001 acquisition of Millennium ~~SEPTEMBER~~Pharmaceuticals, 30Inc.’s (Millennium’s) interest in ILEX Pharmaceuticals, ~~2003~~L.P., formerly –known ~~QUARTERLY~~as ~~REPORT~~Millennium ON& ~~FORM~~ILEX, 10L.P. (the Partnership), we have recorded intangible assets classified as completed technology and a trademark in the amounts of $64.8 million and $2.8 million, respectively. These intangible assets are currently being amortized under the straight-Qline method over 14 years. We recorded amortization expense of approximately $1.2 million for the quarter ended September 30, 2004 and $3.6 million for the nine months ended September 30, 2004. As of September 30, 2004, we recorded accumulated amortization of $13.3 million related to these assets.

Loss per share basic and diluted	As reported	$	(0.29	)	$	(0.32	)	$	(1.31	)	$	(1.08	)
	Stock grant compensation cost included in reported loss		—			—			0.02			—
	Fair value cost		(0.05	)		(0.09	)		(0.17	)		(0.26	)
	Pro forma	$	(0.34	)	$	(0.41	)	$	(1.46	)	$	(1.34	)

2. MERGER AGREEMENT

~~Intangible~~On ~~assets~~February 26, 2004, we entered into a definitive merger agreement with Genzyme Corporation (Genzyme). Under the terms of the merger agreement, each outstanding share of ILEX common stock, $0.01 par value per share, will be converted into the right to receive a fraction of a share (the “Exchange Ratio”) of Genzyme common stock. The Exchange Ratio will be calculated by dividing $26.00 by the average per share closing price of Genzyme common stock (the “Genzyme Share Price”) as reported by the NASDAQ National Market over the twenty trading days ending on the fifth trading day prior to the closing date of the transaction, except that if the Genzyme Share Price is greater than $59.88, the Exchange Ratio will be 0.4342, and ~~goodwill~~if the Genzyme Share Price is less than $46.58, the Exchange Ratio will be 0.5582. In addition, each outstanding option to purchase ILEX common stock will be converted into an option to purchase the number of shares of Genzyme common stock equal to the number of shares of ILEX common stock subject to such option multiplied by the Exchange Ratio, and the associated exercise price will be adjusted accordingly. Until the closing date, which is anticipated to occur in the fourth quarter of 2004, we will continue to operate independently of Genzyme, subject to certain restrictions contained in the merger agreement. On July 1, 2004, the holders of a majority of the outstanding shares of our common stock voted to approve the proposed transaction. The closing of the transaction remains subject to clearance by the U.S. Federal Trade Commission and other customary closing conditions. If the transaction is not completed, we may be subject to payment of a $32.5 million termination fee under certain circumstances and payment of a maximum of $2.5 million in Genzyme’s costs related to the transaction, such as financial, advisory, legal and accounting fees. As of September 30, 2004, we have recorded $4.7 million in transaction-related costs and these costs have been included in selling, general and administrative expenses in our consolidated statement of operations.

In December 2001, Genentech announced that it was granted a patent relating to fundamental methods and compositions for the production of monoclonal antibodies using recombinant DNA technology, as a result of a favorable decision in a patent interference proceeding3. ~~This~~LOSS ~~proceeding~~PER ~~entitled~~SHARE ~~Genentech to priority over the patent held by the Celltech Group PLC, who had~~ first received the patent in 1989. In March 2003, we finalized a license from Genentech covering the production of its CAMPATH 1-H monoclonal antibody against the CD52 target. Accordingly, we have recorded an intangible asset of $2.0 million associated with the license grant fee paid to Genentech in April 2003, which is being amortized over the remaining CAMPATH patent life. We will also pay milestones and royalties based upon net U.S. sales levels (see Note 8). As of September 30, 2003, we have recorded accumulated amortization of $78.0 related to this asset.

InDiluted ~~connection~~net ~~with~~loss ~~our~~per ~~December 31,~~share ~~2001~~is ~~acquisition~~equal ofto ~~Millennium Pharmaceuticals,~~basic ~~Inc.’s~~net ~~(Millennium’s)~~loss ~~interest~~per ~~in ILEX Pharmaceuticals~~share, ~~L.P., formerly known~~ as ~~Millennium & ILEX, L.P. (~~the ~~Partnership), we have recorded~~effect ~~a completed technology asset and a trademark which are classified as intangible assets in our consolidated balance sheets in the amounts~~ of ~~$64.8 million~~all ~~and $2.8 million,~~common ~~respectively.~~stock ~~These~~equivalents ~~intangible~~is ~~assets are being amortized under the straight-line method over 14 years~~antidilutive. ~~As of September 30,~~ ~~2003, we have recorded accumulated amortization of $8.5 million related to~~ ~~these assets.~~

~~We acquired Symphar S~~4.A. onSTATEMENTS ~~February 13,~~OF ~~2001.~~CASH ~~SFAS No. 141 required that we~~FLOWS ~~recognize our assembled workforce as goodwill rather than an intangible asset~~ as it did not meet the specified criteria for recognition apart from goodwill. We reviewed such goodwill as of September 30, 2003 and determined that it had been impaired due to recent research focus changes and personnel changes. We recorded an impairment charge of $213.0 in the third quarter of 2003.

2.Non-cash ~~LOSS~~investing ~~PER~~and ~~SHARE~~financing activities for the nine months ended September 30, 2004 and 2003, include the following:

Diluted net loss per share is equal to basic net loss per share, as the effect of all common stock equivalents is antidilutive.


	2004		2003
Payment of principal portion of our note payable in shares of our common stock	$	—	$	9,071

~~3. STATEMENTS OF CASH FLOWS~~8

Non-cashTable investingof and financing activities for the nine months ended September 30, 2003 and 2002, include the following: Contents

	2003			2002
Deferred compensation — stock grant		(467	)		—
Payment of principal portion of note payable in shares of our common stock		(9,071	)		—

ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2004 - QUARTERLY REPORT ON FORM 10-Q

8Supplemental disclosures of cash flow information for the nine months ended September 30, 2004 and 2003 include the following:


	2004		2003
Cash paid for interest	$	2,656	$	930

~~SEPTEMBER~~5. ~~30,~~SETTLEMENT ~~2003 – QUARTERLY REPORT ON FORM 10-Q~~CHARGE

~~Supplemental~~In ~~disclosures~~April 2003, our subsidiary, ILEX Oncology Services, Inc, (ILEX Services) settled a dispute with a former contract research organization (CRO) customer. As a result of ~~cash~~this ~~flow~~settlement, ~~information~~ILEX ~~for~~Services paid the ~~nine~~former ~~months~~CRO ~~ended~~customer ~~September~~$20.0 ~~30,~~million in the second quarter of 2003. ~~and~~We ~~2002~~recorded ~~include~~a settlement charge in the ~~following:~~first quarter of 2003 of $16.5 million, which is net of insurance reimbursement of $3.5 million, related to the settlement of this dispute.

		2003				2002
Cash paid for interest		$	930			$	8

6. COMPREHENSIVE LOSS

4Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. ~~SETTLEMENT~~The following ~~CHARGE~~table presents the components of our comprehensive loss:

In April 2003, our subsidiary, ILEX Oncology Services, Inc, (ILEX Services) settled a dispute with a former contract research organization (CRO) customer. As a result of this settlement, ILEX Services paid the former CRO customer $20.0 million in June of 2003. We recorded a settlement charge in the first quarter of 2003 of $16.5 million, which is net of insurance reimbursement of $3.5 million, related to the settlement of this dispute.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Net loss	$	(12,517	)	$	(10,624	)	$	(46,746	)	$	(44,337	)
Other comprehensive income:
Foreign currency translation adjustments		—			127			(8	)		219

Comprehensive loss	$	(12,517	)	$	(10,497	)	$	(46,754	)	$	(44,118	)

57. ~~COMPREHENSIVE~~DEVELOPMENT ~~LOSS~~AND DISTRIBUTION AGREEMENT

~~Comprehensive~~In ~~loss~~January 2003, isSchering ~~defined~~AG asobtained ~~the~~exclusive ~~change~~rights to develop, sell and distribute CAMPATH in ~~equity~~Japan ~~during~~and the Asian Pacific Basin. We received a ~~period~~payment and ~~from~~incurred an associated fee of 50% of such payment, both of which are being ~~transactions~~recognized ~~and~~over ~~other~~the ~~events~~life ~~and~~of ~~circumstances~~the ~~from~~patent ~~non-owner~~in ~~sources~~that region. ~~The~~We may also receive ~~following~~payments ~~table~~upon ~~presents~~completion ~~the~~of ~~components~~certain milestones and a royalty based on net sales of ~~our~~CAMPATH ~~comprehensive~~in ~~loss:~~Japan and the Asian Pacific Basin.

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2003			2002			2003			2002
Net loss		$	(10,624	)	$	(10,405	)	$	(44,337	)	$	(35,013	)
Other comprehensive income:
	Foreign currency translation adjustments		127			72			219			390
Comprehensive loss		$	(10,497	)	$	(10,333	)	$	(44,118	)	$	(34,623	)

8. LICENSING AGREEMENTS

6In December 2003, we signed an amendment to our co-development agreement with Bioenvision, Inc. ~~DEVELOPMENT~~(Bioenvision) ~~AND~~whereby ~~DISTRIBUTION~~we ~~AGREEMENT~~obtained the exclusive U.S. and Canadian sublicense for clofarabine in oncology for $3.5 million. Under the terms of the agreement, an additional $4.0 million milestone became due in two equal payments upon completion of the submission of the New Drug Application (NDA) in March 2004. We paid Bioenvision $2.0 million of the $4.0 million in April 2004 and the remaining $2.0 million in the third quarter of 2004.

In ~~January~~May 2003, ~~Schering~~the AGCompany ~~obtained~~signed ~~from~~an usagreement ~~the~~with ~~exclusive~~QuatRx ~~development~~Pharmaceuticals, Co. ~~marketing~~(QuatRx), ~~and~~granting ~~distribution~~QuatRx ~~rights~~an exclusive, worldwide license to ~~CAMPATH~~certain cardiovascular inresearch ~~Japan,~~platforms. ~~China~~In ~~and~~connection ~~other~~therewith ~~Asian~~we received a ~~countries~~payment of $2.5 million, Wewhich ~~received~~was anrecognized ~~upfront~~as ~~payment~~revenue ~~and~~in ~~incurred~~September 2003 anas the associated ~~fee~~technology ~~of 50%~~transfer ofwas ~~such~~completed ~~payment~~during tosuch ~~the~~period. ~~licensor~~In June 2004, ~~both~~we ofreceived ~~which~~$1.5 million ~~are~~from ~~being~~QuatRx ~~recognized~~as ~~over the~~a ~~life~~result of the ~~patent~~acceptance inof their ~~that~~Investigational ~~region~~New Drug application filing. We ~~may~~are also eligible to receive payments ~~upon completion~~if of certain additional milestones ~~and~~are acompleted ~~royalty~~and royalties based on net sales, if any, of ~~CAMPATH~~a ~~in those~~product ~~areas~~developed from these research platforms.

79. ~~LICENSING~~COMMITMENTS ~~AGREEMENTS~~AND CONTINGENCIES

InWe ~~May 2003,~~are wesubject ~~signed~~to anvarious ~~agreement~~claims ~~with~~and ~~QuatRx~~assessments ~~Pharmaceuticals~~arising ~~Co.~~out ~~(QuatRx),~~of the ordinary ~~granting~~course ~~QuatRx~~of anbusiness. ~~exclusive,~~We ~~worldwide~~believe ~~license~~it tois ~~certain~~unlikely ~~lipid-focused research~~that ~~platforms.~~the Infinal ~~connection~~outcome ~~therewith,~~of weany ~~received~~of the anclaims ~~upfront~~or ~~payment~~proceedings ~~of $2.5 million,~~to which ~~was~~we ~~recognized~~are asa ~~revenue~~party inwill ~~September 2003,~~have asa ~~the~~material adverse ~~associated~~effect ~~technology~~on ~~transfer~~our ~~was~~financial ~~completed~~position ~~during~~or ~~such~~results ~~period~~of operations. WeHowever, ~~may~~due ~~also~~to the ~~receive~~inherent ~~payments~~uncertainty ~~upon~~of ~~the~~litigation, ~~completion~~there ofcan ~~certain~~be ~~milestones~~no ~~and~~assurance ~~royalties~~that ~~based~~the onresolution ~~net~~of ~~sales~~any ofparticular aclaim ~~product~~or ~~developed~~proceeding ~~from~~would ~~these~~not ~~research~~have ~~platforms.~~a

~~In March 2001, we obtained the co-development rights to clofarabine in the U.S.~~9 and Canada from Bioenvision, Inc. (Bioenvision). Under the co-development agreement, we have the opportunity to obtain, after the satisfaction of certain conditions, the exclusive commercialization rights to clofarabine in the U.S. and Canada and an economic interest in the drug in Europe. We also share in clinical development costs for European development.

8.Table COMMITMENTSof AND CONTINGENCIESContents

WeILEX ~~are~~ONCOLOGY, ~~subject to various claims and assessments arising out of the ordinary course of business~~INC. ~~We believe it is unlikely that the final outcome of any of~~ ~~the~~SEPTEMBER ~~claims or proceedings to which we are a party will have a material adverse effect on our financial position or results of operations. However~~30, ~~due~~2004 to- ~~the inherent~~QUARTERLY ~~uncertainty~~REPORT ofON ~~litigation,~~FORM ~~there can be no assurance that the~~10-Q ~~resolution of any particular claim or proceeding would not have a material adverse effect on our results of operations for the period in which such resolution occurred.~~

Onmaterial ~~September 12,~~adverse ~~2003,~~effect ~~certain~~on ~~former~~our ~~shareholders~~results of ~~Convergence Pharmaceuticals,~~operations ~~Inc. (Convergence) delivered to us a demand~~ for ~~arbitration under~~ the ~~Plan~~period ~~of Merger and Acquisition Agreement executed~~ in ~~connection~~which such ~~with~~resolution occurred.

9In September 2003, certain former shareholders of Convergence Pharmaceuticals, Inc. (Convergence) delivered to us a demand for arbitration under the Plan of Merger and Acquisition Agreement executed in connection with our acquisition of Convergence in July 1999. The demand for arbitration alleges that we breached an obligation of good faith and fair dealing by intentionally delaying Phase II trials of NM-3. In September 2004, we reached a cash settlement with these certain former Convergence shareholders. The amount of this settlement was immaterial in relation to our financial position and results of operations.

~~Table~~Upon closing of ~~Contents~~the proposed merger agreement with Genzyme (see Note 2), we would become obligated to pay approximately $8.4 million in investment banker transaction fees.

During 1998, we guaranteed a line of credit for Clinical Research Group, Inc. ~~SEPTEMBER~~(CRG) If the guarantee comes to redemption, we will obtain an ownership interest in CRG after foreclosure of the collateral. Under the terms of the agreement, we have maintained $280.1 in the form of a cash deposit as collateral for the guarantee as of September 30, ~~2003~~2004. –As ~~QUARTERLY~~of ~~REPORT~~September 30, 2004 ONwe ~~FORM~~had ~~10-Q~~yet to fund the guarantee, however it has been reserved for in prior financial statements.

~~our acquisition of Convergence in July 1999~~10. ~~The~~ASSETS ~~demand~~HELD ~~for~~FOR ~~arbitration~~SALE ~~alleges that ILEX breached its obligation of good faith and fair dealing by~~ intentionally delaying Phase II trials of NM-3 in order to avoid making a milestone payment of 500,000 shares of our Common Stock that would have become due pursuant to the Plan of Merger and Acquisition Agreement if Phase II trials were initiated by December 31, 2002. The demand for arbitration was filed by former shareholders of Convergence whose pro rata share of the 500,000 share milestone payment is 210,000 shares. The parties are in the discovery phase of the arbitration proceedings. We believe that the claims made against us are without merit and we intend to defend the action vigorously. However, the arbitration process is inherently uncertain and unpredictable, and accordingly there can be no assurance as to the ultimate outcome of the arbitration. If ILEX is required to deliver the 210,000 shares subject to the current demand, then we may be required to deliver the remaining 290,000 shares to the other former Convergence shareholders in order to avoid additional disputes with other former Convergence shareholders.

InDuring ~~connection~~the ~~with~~third ~~the~~quarter ~~license~~of ~~grant~~2004, ~~fee~~we ~~paid~~committed to ~~Genentech~~sell incertain ~~April 2003, we~~laboratory ~~will~~equipment ~~also~~and ~~pay~~other ~~milestones~~assets ~~and~~with ~~royalties~~a ~~based~~carrying ~~upon~~value ~~net~~of U$197.S.0 ~~sales~~at ~~levels~~our offacility in ~~CAMPATH~~Geneva, Switzerland. We ~~anticipate~~determined ~~achievement~~that there was no impairment of ~~all~~these assets ~~sales~~as ~~milestones~~their incarrying ~~2003~~value ~~and~~did ~~have expensed~~not ~~approximately~~exceed ~~$2.4 million~~their fair value less associated selling ~~with~~costs. The carrying value of these ~~sales~~assets ~~milestones~~is aspresented separately in ofthe “Assets Held for Sale” caption in our consolidated balance sheet as of September 30, ~~2003~~2004. These assets were sold in October 2004 resulting in a gain which will be recorded in our consolidated statement of operations in the fourth quarter of 2004.

~~During~~ITEM ~~1998, we guaranteed a line of credit for Clinical Research Group, Inc~~2. ~~(CRG).~~ ~~The~~MANAGEMENT’S ~~guarantee~~DISCUSSION ~~gave~~AND usANALYSIS ~~access~~OF toFINANCIAL aCONDITION ~~network~~AND ofRESULTS ~~clinical~~OF sites managed by CRG. If the guarantee comes to redemption, we will obtain an ownership interest in CRG in accordance with the guarantee agreement. Under the terms of the agreement, we have maintained $492.0 in the form of securities as collateral for the guarantee as of September 30, 2003. As of September 30, 2003 we had yet to fund the guarantee, however it has been reserved for in prior financial statements. OPERATIONS

9.Forward-Looking ~~STOCKHOLDERS’~~Statements ~~EQUITY~~– Cautionary Statements

OnThis ~~August 4,~~Quarterly ~~2003,~~Report weon ~~completed~~Form an10-Q ~~underwritten~~contains ~~public~~certain ~~offering~~forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to us and our ~~common~~subsidiaries that are based on the ~~stock,~~beliefs ~~pursuant~~of toour ~~which~~management weas ~~sold~~well ~~5.5 million~~as ~~shares~~assumptions made by and information currently available to our management. InWhen ~~addition~~used in this report, the ~~Cancer~~words ~~Therapy~~“anticipate,” “believe,” “estimate,” “expect” and ~~Research~~“intend” ~~Center~~and ~~Endowment,~~words anor phrases ~~ILEX~~of ~~shareholder~~similar import, ~~offered~~as ~~500,000 shares~~they ofrelate to us or our ~~common~~subsidiaries ~~stock~~or our management, are intended to identify forward-looking statements. ~~Proceeds~~Such statements reflect the current risks, ~~net~~uncertainties ofand ~~costs~~assumptions related to certain usfactors including, ~~from~~without ~~this~~limitation: the proposed transaction between ~~offering~~Genzyme ~~were~~and ~~approximately~~ILEX ~~$87.5 million.~~and Wethe ~~anticipate~~time at which the companies expect the transaction to be completed; the possibility that the ~~net~~transaction is not completed; the ~~proceeds~~possibility ~~from~~that ~~this~~the ~~offering~~transaction ~~will~~may not obtain FTC clearance on terms acceptable to the companies or that the companies may be ~~used~~required to ~~fund~~modify aspects of the transaction to achieve regulatory approval; the possibility that other closing conditions of the transaction are not met; risks associated with preclinical and clinical ~~trials~~developments in the biopharmaceutical industry in general and in our compounds under development in particular; the potential failure of our ~~lead~~compounds under development to prove safe and effective for ~~product~~treatment ~~candidates~~of disease; ~~for~~uncertainties inherent in the early stage of our compounds under development; failure to successfully implement or complete clinical ~~and~~trials; ~~preclinical~~failure ~~studies~~to receive market clearance from regulatory agencies for our ~~other~~compounds ~~product~~under development; management’s ability to implement ~~candidates~~strategic initiatives; ~~for~~our ~~potential~~ability ~~licenses~~to predict our future expenses and ~~acquisitions~~capital needs; the development of ~~other~~competing ~~businesses~~products; orour ability to combine our ~~complementary~~disparate ~~products~~research capabilities and ~~technologies~~translate them into clinical drug development programs; uncertainties related to our dependence on and relationships ~~for~~with ~~working~~third ~~capital~~parties and partners; general economic and market conditions; risks inherent in the biopharmaceutical industry; stock price volatility; variability of license, ~~capital~~royalty and other revenue; risks related to ~~expenditures~~the outcome of litigation and claims made against us; risks related to the market acceptance of CAMPATH, or other ~~general~~drugs ~~corporate~~that ~~purposes.~~might be approved; possible adverse affects from changes in governmental regulations including reimbursement or price controls; uncertainties related to protection of our intellectual property; rapid technological change that could render

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~10

Forward-LookingTable Statementsof — Cautionary Statements Contents

~~This~~ILEX Quarterly Report on Form 10-Q contains certain forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to us and our subsidiaries that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this reportONCOLOGY, ~~the~~INC. ~~words~~SEPTEMBER ~~“anticipate~~30,” ~~“believe,”~~2004 ~~“estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to us,our subsidiaries or our management, are intended to identify forward~~-~~looking~~ ~~statements.~~QUARTERLY ~~All statements~~REPORT ~~other~~ON ~~than~~FORM ~~statements of historical fact included in this Quarterly Report on Form~~ 10-Q ~~regarding our financial position, business strategy and~~ plans or objectives for future operations are forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including: risks associated with preclinical and clinical developments in the biopharmaceutical industry in general and in our compounds under development in particular; the potential failure of our compounds under development to prove safe and effective for treatment of disease; uncertainties inherent in the early stage of our compounds under development; failure to successfully implement or complete clinical trials; failure to receive market clearance from regulatory agencies for our compounds under development; management’s ability to implement strategic initiatives; our ability to predict our future expenses and capital needs; the development of competing products; our ability to combine our disparate research capabilities and translate them into clinical drug development programs; uncertainties related to our dependence on and relationships with third parties and partners; general economic and market conditions; risks inherent in the biopharmaceutical industry; stock price volatility; variability of license, royalty and other revenue; risks related to the outcome of litigation and claims made against us; risks related to the market acceptance of CAMPATH; uncertainties related to protection of our intellectual property; failure to satisfy performance obligations in our licenses or other contracts; uncertainty regarding our patents and patent rights (including the risk that we may be forced to engage in costly litigation to protect such patent rights and the material harm to us if there were an unfavorable outcome of any such litigation); rapid technological change could render our technologies obsolete; one-time events and those risks described herein, in our Report on Form 10-K filed March 14, 2003, and in other

our technologies obsolete; acquisitions, divestitures, mergers, restructurings or strategic initiatives that change our structure; business combinations among our competitors and major customers could affect our competitive position; one-time events and those risks described herein, in our Report on Form 10-K filed on March 12, 2004, as amended by our Report on Form 10-K/A filed May 3, 2004, and in other filings made by us with the SEC. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. We do not intend to update these forward-looking statements.

~~Table~~The following discussion describes our financial position and results of operations ~~Contents~~for the three and nine-month periods ended September 30, 2004. The consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.

~~SEPTEMBER~~OUR ~~30, 2003 – QUARTERLY REPORT ON FORM 10-Q~~BUSINESS

~~filings~~We ~~made~~are bya usproduct-driven ~~with~~biopharmaceutical ~~the~~company ~~SEC~~focused on developing and commercializing a portfolio of novel therapeutic treatments primarily in oncology. ~~Based~~We ~~upon~~have ~~changing~~leveraged ~~conditions~~our core competencies in clinical drug development to identify, ~~should~~develop ~~any~~and ~~one~~commercialize our proprietary product candidates. Our orlead ~~more~~product is marketed in the United States as CAMPATH® and in Europe and other countries as MABCAMPATH® for the treatment of ~~these~~patients ~~risks~~with orB-cell chronic ~~uncertainties~~lymphocytic ~~materialize,~~leukemia or(CLL) who ~~should~~have ~~any~~been ~~underlying~~treated with alkylating agents ~~assumptions~~and ~~prove~~who ~~incorrect~~have failed fludarabine therapy. CLL is a type of blood cancer characterized by progressive accumulation of B-lymphocytes, ~~actual~~a ~~results~~type ~~may~~of ~~vary~~immune system ~~materially~~cell ~~from~~formed ~~those~~in the bone marrow. In addition to CAMPATH, we have product ~~described~~candidates ~~herein~~in asclinical ~~anticipated~~trials, ~~believed~~principally addressing oncology, ~~estimated~~as well as several active preclinical and drug discovery programs. Our pipeline comprises product candidates at various stages of preclinical and clinical development, including ~~expected~~monoclonal antibodies, agents that have toxic effects on certain cells (cytotoxic agents) or ~~intended.~~inhibit Wecellular growth (cytostatic agents) with donovel ~~not~~mechanisms ~~intend~~of toaction, ~~update~~agents ~~these~~that ~~forward-looking~~inhibit ~~statements~~the formation of new blood vessels (angiogenesis inhibitors) and agents which block cellular messaging associated with cancer growth and metastasis (signal transduction inhibitors).

~~The~~We ~~following~~have ~~discussion~~incurred ~~describes~~losses ~~our~~since ~~financial~~inception ~~position~~and had an accumulated deficit through September 30, 2004 of $392.3 million. Our losses have resulted primarily from research and ~~results~~product development activities, including licensing of products ~~operations~~and product and corporate acquisitions for ~~the~~which ~~three~~we ~~and~~incur ~~nine~~in-~~month~~process ~~periods~~research and ~~ended~~development ~~September 30,~~charges ~~2003~~and administrative expenses. ~~The~~We plan to continue to ~~consolidated~~invest ~~financial~~in ~~statements~~key research and ~~notes~~development ~~thereto~~activities. ~~contain~~We ~~detailed~~expect to continue to ~~information~~incur ~~that~~operating ~~should~~losses throughout 2004. Our revenue for the foreseeable future will be ~~referred~~limited to inour ~~conjunction~~product ~~with~~profit ~~this~~and ~~discussion~~royalty revenue, product development revenue, interest income and other miscellaneous income.

~~OUR~~In ~~BUSINESS~~February 2001, we announced our intent to focus our in-house drug development capabilities on our own proprietary products, including those being jointly developed with partners. At that time, we began a transition out of the fee-for-service contract research organization (CRO) business. We expect this transition to be completed by the end of the first quarter of 2005.

WeRECENT ~~are a product-driven biopharmaceutical company focused on developing and~~DEVELOPMENTS ~~commercializing a portfolio of novel therapeutic treatments primarily in~~ oncology. We have leveraged our core competencies in clinical drug development to identify, develop and commercialize our proprietary product candidates. Our lead product is marketed in the United States as CAMPATH® and in Europe and other countries as MABCAMPATH® for the treatment of patients with B-cell chronic lymphocytic leukemia (CLL) who have been treated with alkylating agents and who have failed fludarabine therapy. CLL is a type of blood cancer characterized by progressive accumulation of B-lymphocytes, a type of immune system cell formed in the bone marrow. In addition to CAMPATH, we have product candidates in clinical trials, principally addressing oncology, as well as several active preclinical and drug discovery programs. Our pipeline comprises product candidates at various stages of clinical development, including monoclonal antibodies, agents that have toxic effects on certain cells (cytotoxic agents) or inhibit cellular growth (cytostatic agents) with novel mechanisms of action, agents that inhibit the formation of new blood vessels (angiogenesis inhibitors) and agents which block cellular messaging associated with cancer growth and metastasis (signal transduction inhibitors).

WeOn ~~have~~February 26, ~~incurred~~2004, ~~losses~~we ~~since~~entered ~~inception~~into ~~and~~a ~~had~~definitive anmerger ~~accumulated~~agreement ~~deficit through~~with ~~September 30~~Genzyme Corporation (Genzyme). Under the terms of the merger agreement, ~~2003~~each outstanding share of ILEX common stock, $~~327~~0.~~8 million~~01 par value per share, will be converted into the right to receive a fraction of a share (the “Exchange Ratio”) of Genzyme common stock. ~~Our~~The ~~losses~~Exchange ~~have~~Ratio ~~resulted~~will ~~primarily~~be calculated by ~~from~~dividing ~~research~~$26.00 ~~and~~by ~~product~~the ~~development~~average ~~activities,~~per ~~including~~share ~~licensing~~closing price of Genzyme common stock ~~products~~(the ~~and~~“Genzyme ~~product~~Share ~~and~~Price”) ~~corporate~~as ~~acquisitions~~reported ~~for~~by ~~which~~the weNASDAQ ~~incur~~National ~~in-process~~Market over the ~~research~~twenty ~~and~~trading ~~development~~days ~~charges~~ending on the fifth trading day prior to the closing date of the transaction, except that if the Genzyme Share Price is greater than $59.88, the Exchange Ratio will be 0.4342, and ~~administrative~~if ~~expenses~~the Genzyme Share Price is less than $46.58, Wethe ~~plan~~Exchange Ratio will be 0.5582. In addition, each outstanding option to purchase ILEX common stock will be converted into an ~~continue~~option to ~~invest~~purchase inthe ~~key~~number ~~research~~of shares of Genzyme common stock equal to the number of shares of ILEX common stock subject to such option multiplied by the Exchange Ratio, and ~~development~~the ~~activities~~associated exercise price will be adjusted accordingly. Until Wethe ~~expect~~closing date, which is anticipated to occur in the fourth quarter of 2004, we will continue to ~~incur~~operate ~~operating~~independently ~~losses~~of ~~throughout~~Genzyme, ~~2003~~subject to certain restrictions contained in the merger agreement. ~~Our~~On ~~revenue~~July 1, ~~for~~2004, the holders ~~foreseeable~~of ~~future~~a ~~will~~majority beof ~~limited~~the tooutstanding shares of our ~~product~~common ~~profit~~stock ~~and~~voted ~~royalty~~to ~~revenue,~~approve ~~product~~the ~~development~~proposed ~~revenue,~~transaction. ~~interest~~The ~~income~~closing of the transaction remains subject to clearance by the U.S. Federal Trade Commission and other ~~miscellaneous~~customary ~~income~~closing conditions.

~~In February 2001, we announced our intent to focus our in-house drug~~11 development capabilities on our own proprietary products, including those being jointly developed with partners. At that time, we began a transition out of the fee-for-service contract research organization (CRO) business. We expect this transition to be completed by the second quarter of 2004. We will continue to recognize revenue from current client projects, but we do not intend to take on any new fee-for-service contracts.

RECENTTable DEVELOPMENTS of Contents

OnILEX ~~August 4~~ONCOLOGY, ~~2003, we completed an underwritten public offering of our common stock, pursuant to which we sold 5~~INC.~~5 million shares. In addition, the Cancer~~ ~~Therapy~~SEPTEMBER ~~and Research Center Endowment~~30, an2004 ~~ILEX~~- ~~shareholder,~~QUARTERLY ~~offered~~REPORT ~~500,000 shares~~ON ofFORM ~~our common stock. Proceeds, net of costs to us, from this offering~~10-Q were approximately $87.5 million. We anticipate that the net proceeds from this offering will be used to fund clinical trials of our lead product candidates; for clinical and preclinical studies for our other product candidates; for potential licenses and acquisitions of other businesses or complementary products and technologies; and for working capital, capital expenditures and other general corporate purposes.

11In December 2003, we signed an amendment to our co-development agreement with Bioenvision, Inc. (Bioenvision) whereby we obtained the exclusive U.S. and Canadian sublicense for clofarabine in oncology for $3.5 million. Under the terms of the agreement, an additional $4.0 million milestone became due in two equal payments upon completion of the submission of the New Drug Application (NDA) in March 2004. We paid Bioenvision $2.0 million of the $4.0 million in April 2004 and the remaining $2.0 million in the third quarter of 2004.

~~Table~~On August 4, 2003, we completed an underwritten public offering of ~~Contents~~our common stock, pursuant to which we sold 5.5 million shares. In addition, the Cancer Therapy and Research Center Endowment, an ILEX shareholder, offered and sold 500,000 shares of our common stock. Proceeds, net of costs to us, from this offering were approximately $87.4 million. The net proceeds from this offering have been and will continue to be used to fund clinical trials of our lead product candidates; for clinical and preclinical studies for our other product candidates; for potential licenses and acquisitions of other businesses or complementary products and technologies; and for working capital, capital expenditures and other general corporate purposes.

In May 2003, the Company signed an agreement with QuatRx Pharmaceuticals, Co. ~~SEPTEMBER~~(QuatRx), 30granting QuatRx an exclusive, worldwide license to certain cardiovascular research platforms. In connection therewith we received a payment of $2.5 million, which was recognized as revenue in September 2003 –as the ~~QUARTERLY~~associated ~~REPORT~~technology ONtransfer ~~FORM~~was ~~10-Q~~completed during such period. In June 2004, we received $1.5 million from QuatRx as a result of the acceptance of their Investigational New Drug application filing. We are also eligible to receive payments if certain additional milestones are completed and royalties based on net sales of a product, if any, developed from these research platforms.

InCRITICAL ~~May 2003,~~ACCOUNTING ~~we signed an agreement with QuatRx Pharmaceuticals Co. (QuatRx),~~POLICIES ~~granting QuatRx an exclusive, worldwide license to certain lipid-focused~~ research platforms. We received an upfront payment of $2.5 million, which was recognized as income in the third quarter of 2003, when all technical information relating to the research platforms was transferred to QuatRx. We may also receive payments upon the completion of certain milestones and royalties based on net sales of a product developed from these research platforms.

InWe ~~April 2003,~~believe that our ~~subsidiary,~~most ~~ILEX~~critical ~~Oncology~~accounting ~~Services,~~issues ~~Inc,~~include ~~(ILEX~~our ~~Services) settled~~policy afor ~~dispute~~the recognition ~~with~~of arevenue ~~former~~from ~~contract~~outlicensing ~~research~~agreements, ~~organization~~the ~~(CRO) customer.~~valuation and Asimpairment areview ~~result~~ of ~~this settlement, ILEX Services paid~~ the ~~former~~intangible ~~CRO~~assets ~~customer $20.0 million~~acquired in ~~June 2003.~~connection Wewith ~~recorded~~the purchase aof ~~settlement~~Millennium’s ~~charge~~interest in the ~~first quarter~~Partnership ofand ~~2003~~the ofprocess ~~$16.5 million, which is net~~ of determining ~~insurance~~the ~~reimbursement~~amount of ~~$3.5 million,~~ ~~related~~in-process toresearch ~~the~~and ~~settlement~~development ofobtained ~~this~~in ~~dispute~~an acquisition.

InOutlicensing ~~March 2003,~~revenue weis ~~finalized~~earned aand ~~non-exclusive~~recognized ~~patent~~based ~~license~~on ~~from~~the ~~Genentech~~performance ~~covering~~requirements of the ~~production~~respective ofoutlicensing ~~CAMPATH~~agreements. ~~The~~Non-refundable license fees ~~grant~~for ~~fee~~which ofno ~~$2.0 million~~further ~~was paid~~performance inobligations ~~the~~exist, ~~second~~and ~~quarter~~no ofcontinuing involvement ~~2003~~by ~~and~~us is ~~currently~~required, ~~being~~are ~~amortized~~recognized ~~over~~on 13the earlier of when the ~~years~~payments are received or when collection is assured. ~~Additionally,~~Revenue asfrom non-refundable oflicense ~~September 30,~~fees ~~2003,~~where we ~~have~~continue ~~accrued~~involvement ~~$2.4 million~~through ofdevelopment ~~sales~~collaboration ~~milestones~~or ~~related~~have an obligation to ~~this~~supply ~~license~~product is recognized ratably over the applicable development period or patent life.

~~CRITICAL~~Revenue ~~ACCOUNTING~~associated ~~POLICIES~~with performance milestones is recognized based upon the achievement of the milestones, as defined in the respective agreements. Revenue under research and development cost reimbursement contracts is recognized as the related costs are incurred. Advance payments received in excess of amounts earned are classified as deferred revenue until earned.

WeThe ~~believe~~amount ~~that~~recorded ~~our~~as ~~most~~completed ~~critical~~technology ~~accounting~~and ~~issues~~the ~~include~~amount recorded as trademark within our ~~policy~~other ~~for~~intangible ~~the~~assets were determined based on an ~~recognition~~independent appraisal of the estimated timing and amount of revenue to be generated from ~~outlicensing~~sales ~~agreements~~of CAMPATH. Additionally, ~~the~~we ~~valuation~~perform ~~and~~a test at least ~~impairment~~annually ~~review~~to ofdetermine that the amounts recorded as intangible assets ~~acquired~~are recoverable. Amounts recorded as in-process ~~connection~~research ~~with~~and ~~the~~development are based ~~purchase~~upon ofassumptions ~~Millennium’s~~and ~~interest~~estimates inregarding the ~~Partnership~~amount and timing of projected revenues and costs as well as the ~~process~~appropriate ofdiscount rates and expected ~~determining~~trends in technology. No assurance can be given, however, that the ~~amount~~underlying assumptions ofused to estimate revenue, development costs or profitability or the events associated with such projects will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process ~~research~~projects involve the projected timing of completion and ~~development~~revenues ~~obtained~~attributable into ~~an acquisition~~each project.

~~Outlicensing~~RESULTS ~~revenue~~OF isOPERATIONS ~~earned~~– ~~and~~NINE ~~recognized~~MONTHS ~~based~~ENDED onSEPTEMBER ~~the performance requirements of the respective outlicensing agreements. Non-refundable license fees for which no further performance obligations exist~~30, ~~and~~2004 noAND ~~continuing involvement by us is required, are~~2003 ~~recognized on the earlier of when the payments are received or when collection~~ ~~is assured. Revenue from non-refundable license fees where we continue~~ ~~involvement through development collaboration or have an obligation to supply~~ ~~product is recognized ratably over the applicable development period or patent life.~~

~~Revenue~~Operating ~~associated with performance milestones is recognized based upon the~~Revenues ~~achievement of the milestones, as defined in the respective agreements. Revenue~~ ~~under research and development cost reimbursement contracts is recognized as~~ ~~the related costs are incurred. Advance payments received in excess of amounts earned are classified as deferred revenue until earned.~~

~~The~~ Product ~~amount~~profit ~~recorded as completed technology~~ and ~~the~~royalty ~~amount~~revenue. ~~recorded~~Product ~~as trademark~~profit ~~within~~and ~~our~~royalty ~~other intangible assets were determined based on an~~revenue, ~~independent~~which ~~appraisal~~is of the ~~estimated~~Company’s ~~timing~~share ~~and amount~~ of ~~revenue~~CAMPATH tonet ~~be generated~~profits ~~from~~on ~~sales of CAMPATH~~U.S. ~~Amounts~~sales ~~recorded~~and asa ~~in-process research and~~royalty ~~development~~on ~~are based upon assumptions and estimates regarding~~ the ~~amount~~rest ~~and timing~~ of ~~projected revenues and costs as well as~~ the ~~appropriate~~world ~~discount rates and expected trends in technology. No assurance can be given~~sales, ~~however, that~~decreased ~~the underlying assumptions used~~ to ~~estimate~~$17.0 million ~~revenue,~~for ~~development costs or profitability or~~ the ~~events~~first ~~associated with such projects will transpire as~~nine ~~estimated.~~months ~~For~~of ~~these~~2004 ~~reasons,~~compared ~~actual~~to ~~results may vary from projected results~~$17. ~~The~~6 million ~~most~~for ~~significant~~the ~~and~~first ~~uncertain~~nine ~~assumptions~~months ~~relating~~of ~~to the in-process~~2003 ~~projects~~primarily ~~involve~~as ~~the~~a ~~projected~~result ~~timing~~ of ~~completion and revenues attributable~~an ~~to each project.~~

~~RESULTS OF OPERATIONS — NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002~~12

OperatingTable Revenues of Contents

~~Total~~ILEX ~~revenue increased to $27.5 million in the first nine months of 2003~~ONCOLOGY, ~~from~~ ~~$23~~INC.~~6 million in the first nine months of 2002, an overall increase of~~ ~~$3.9 million,~~SEPTEMBER ~~or 17%. The increase is attributable to product profit and royalty revenue~~30, ~~which~~2004 is- ~~our~~QUARTERLY ~~share~~REPORT ofON ~~CAMPATH~~FORM ~~net profits on U.S. sales and a~~10-Q royalty on the rest of the world sales and outlicensing revenue. Product profit and royalty revenue increased to $17.6 million in the first nine months of 2003 from $8.3 million in the first nine months of 2002 due to an increase in global net sales of CAMPATH. Global net sales of CAMPATH, recorded by Schering AG and Berlex, were $53.3 million for the first nine months of 2003 as compared to $32.4 million in the same period of 2002. Outlicensing revenues for the first nine months of 2003 consist primarily of a $2.5 million upfront payment received from QuatRx. The payment was

12increase in the marketing expenses incurred by Berlex in addition to certain insurance and selling expenses. Global net sales of CAMPATH, recorded by our marketing and distribution partner Schering AG and Berlex, its U.S. affiliate, increased to $56.5 million in the first nine months of 2004 as compared to $53.3 million in the same period of 2003.

~~Table~~ Product development revenue. Product development revenue, which represents Schering AG’s contribution of ~~Contents~~research and development expenses, decreased to $4.8 million for the first nine months of 2004 from $5.2 million in the first nine months of 2003 primarily as a result of the depletion of the advance balance from Schering AG in the first quarter of 2003.

Contract research services revenue. Revenue from the Company’s contract ~~SEPTEMBER~~research ~~30,~~services (CRO) decreased $0.7 million from the first nine months of 2003 –as ~~QUARTERLY~~a ~~REPORT~~result ONof ~~FORM~~the 10Company’s continued transition out of the fee-Qfor-service CRO business.

~~recognized~~ Outlicensing as revenue ~~in September 2003 as the technology transfer related to the lipid-focused research platform was completed during such period~~. ~~Product development~~Outlicensing revenue decreased to $51.28 million ~~for~~ in the first nine months of ~~2003~~ 2004 from $62.47 million ~~for~~in the ~~same~~first ~~period~~nine inmonths ~~2002, a decrease~~ of ~~$1.2 million or~~ ~~19%~~2003. ~~Product~~Outlicensing ~~development~~ revenue ~~represents~~for ~~Schering~~the ~~AG’s~~first ~~contribution~~nine ~~to research~~months ~~and~~of ~~development~~2003 ~~expenses~~consisted primarily ~~and~~of ~~decreased~~a in$2.5 million ~~the~~payment ~~third~~received ~~quarter~~from ~~primarily because~~QuatRx. ~~the~~The ~~advance~~payment ~~balance~~was recognized ~~from~~as ~~Schering~~revenue AGin ~~was~~September 2003 ~~depleted~~as in the ~~first~~technology ~~quarter of~~transfer ~~2003.~~related ~~Revenue~~to the ~~from~~lipid-focused ~~our~~research ~~CRO~~platform ~~services~~was ~~decreased~~completed ~~$6.6 million,~~during orsuch ~~81%, to $1~~period.5 ~~million~~Outlicensing inrevenue for the first nine months of ~~2003~~2004 ~~from~~consists ~~$8.1 million~~primarily in of the ~~first~~recognition ~~nine months~~ of ~~2002~~$1.5 million ~~This~~received ~~decrease~~from isQuatRx ~~the~~as a result of ~~our~~the acceptance ~~continued~~of ~~transition~~their ~~out~~Investigational ~~of the~~New ~~fee-for-service~~Drug ~~CRO~~application ~~business~~filing.

~~Operating~~ Other ~~Expenses~~revenue. Other revenue increased to $1.1 million in the first nine months of 2004 from $0.6 million for the same period in 2003. Included in other revenue for the first nine months of 2004 is the sale of certain drug products.

~~Research~~Operating ~~and development costs. Research and development costs increased~~Expenses ~~to $34.7 million for the first nine months of 2003, from $34.4 million in 2002.~~ ~~This increase resulted from increased development spending on our product~~ ~~pipeline, specifically CAMPATH and ILX-651, which was partially offset by a decrease in payroll and facility-related research and development costs.~~

~~Licensing~~Research and development costs. ~~Licensing~~Research ~~costs~~and ~~decreased~~development costs increased to $444.19 million ~~for~~in the first nine months of ~~2003~~2004, from $534.47 million in the first nine months of ~~2002~~2003. ~~Licensing~~ ~~costs~~This ~~for~~increase ~~the~~of ~~first~~$10.2 million, ~~nine~~or ~~months~~29%, ofwas ~~2003~~due ~~consisted~~to an ~~primarily~~increase ~~of expense~~in ~~accruals~~spending ~~for~~on ~~the~~our ~~achievement~~product ofpipeline, ~~milestones~~particularly ~~associated~~related ~~with~~to the ~~license~~ ~~grant~~accelerated ~~from~~enrollment ~~Genentech.~~of ~~Licensing~~our ~~costs~~trials infor ~~2002~~CAMPATH ~~consisted~~in ~~primarily~~multiple ofsclerosis aand ~~$4.0~~for ~~million~~our ~~license~~CAMPATH ~~fee~~post-approval ~~expense~~study ~~accrual~~in ~~related~~first-line chronic lymphocytic leukemia (CLL). Also contributing to anthis ~~exclusive~~increase ~~worldwide~~is ~~license from~~additional ~~BASF~~site ~~Pharma~~initiation costs for ~~ILX-651~~our trial of CAMPATH in combination with fludarabine.

~~Selling,~~The ~~general~~following ~~and~~table ~~administrative~~summarizes ~~costs.~~our ~~Selling,~~major ~~general~~research and development ~~administrative~~projects, ~~costs~~including ~~increased~~the tocosts ~~$9.7 million~~incurred for each of the ~~first~~three- and nine-month periods ~~months~~ended of September 30, 2004 and 2003, ~~compared~~costs incurred to ~~$8.7 million~~date ~~for~~and the estimated ~~same~~completion ~~period~~dates for each project in ~~2002~~development. ~~This~~The ~~increase of~~information ~~$1.0 million,~~contained orin ~~11%,~~the column labeled “Estimated Completion Date” is ~~primarily~~our ~~due~~estimate toof the ~~legal~~timing ~~fees~~to ~~associated~~complete ~~with~~only the ~~settlement~~ ~~charge~~current ~~related~~in-process development phases. The actual timing to ~~CRO~~complete ~~operations~~the ~~and~~phases ~~non-cash~~may ~~compensation~~differ ~~charges~~materially from these estimates.

~~Direct cost of research services. Direct cost of research services~~13 ~~decreased to $1.1 million during the first nine months of 2003, from $5.4 million in 2002. This decrease is attributable to our continued transition out of the fee-for-service CRO business.~~

DepreciationTable and amortization. Depreciation and amortization increased to $5.7 million from $5.5 million in 2002, as a result of an increase in intangible assets in 2003, as well as additional purchases of fixed assets. Contents

~~Impairment~~ILEX ~~charge.~~ONCOLOGY, ~~We recorded an impairment charge of $213~~INC.~~0 in the~~ ~~third~~SEPTEMBER ~~quarter of 2003 based upon a review of our goodwill as of September~~ 30, ~~2003.~~ We2004 ~~determined~~- ~~that~~QUARTERLY ~~the~~REPORT ~~goodwill~~ON ~~resulting~~FORM ~~from the purchase of Symphar~~10-Q ~~S.A. in 2001 had been impaired due to recent research focus and personnel changes at our location in Geneva, Switzerland.~~

Settlement charge. We incurred a settlement charge of $16.5 million in the first quarter of 2003. This charge is the result of the settlement of a dispute with a former CRO client.


												Estimated
	Research and				Research and				Research and			completion Date of
	Development Expenses				Development Expenses				Development		Current	our in-process
	for the Three Months				for the Nine Months				Expenses to		Phases of	Phase of
Project	Ended September 30,				Ended September 30,				Date		Development	Development
	2004		2003		2004		2003
	($ in millions)
Direct costs⁽¹⁾ :
CAMPATH⁽²⁾	$	5.4	$	3.8	$	20.6	$	9.6	$	59.2	I - III		2004 - 2007
Clofarabine⁽³⁾		2.4		2.3		7.0		5.8		25.8	I and II		2004 - 2005
ILX-651⁽⁴⁾		0.8		0.8		3.3		1.9		14.6	II		2005-2007
MUC1⁽⁵⁾		0.4		0.4		1.2		1.1		3.9	Preclinical		2005
Other products⁽⁶⁾		0.9		1.7		2.7		4.0		38.0	Preclinical, Phase I and II		2004 - 2005
Other operating costs⁽⁷⁾		3.4		3.1		10.1		12.3		93.1

Total research and development costs		13.3		12.1		44.9		34.7		234.6
Licensing costs		0.6		2.1		5.1		4.1		34.4

Total project costs	$	13.9	$	14.2	$	50.0	$	38.8	$	269.0

Interest Income and Other, Net

(1)		The major components of the direct costs include various clinical expenses, consulting expenses, other third-party costs, salaries and employee benefits, supplies and materials.

(2)		CAMPATH is a humanized monoclonal antibody that binds to a specific target, CD52, on cell surfaces leading the body’s immune system to destroy malignant, or cancerous, cells. CAMPATH is still in the early stages of commercialization. It is approved for use in patients with B-cell chronic lymphocytic leukemia who have been treated with alkylating agents and who have failed fludarabine therapy. We are now conducting a Phase III post-approval study, Phase I/II trials in non-Hodgkin’s lymphoma, Phase II trials in multiple sclerosis and a Phase III study with CAMPATH used in combination with fludarabine. Although we are conducting other CAMPATH studies, the research and development costs included in the table above associated with CAMPATH primarily relate to the aforementioned studies. We estimate our direct costs to complete these in-process clinical development phases and studies in CAMPATH to be approximately $50 to $55 million.

(3)		Clofarabine is a next-generation, purine nucleoside antimetabolite that is currently under investigation in pediatric and adult leukemias and solid tumors. We initiated Phase II trials in 2002 in both children and adults with refractory acute leukemia. We have completed the submission of a New Drug Application with the U.S. Food and Drug Administration for pediatric leukemias based on Phase II data. We have also completed a Phase I trial of clofarabine in combination with the chemotherapy drug ara-C (cytarabine) in adults with a spectrum of hematologic malignancies. We are currently conducting a Phase I trial in adults with advanced solid tumors and a Phase I trial using an oral formulation of clofarabine for adults with advanced solid tumors. We estimate our direct costs to complete the in-process clinical development phases and studies in clofarabine to be approximately $3 to $5 million.

(4)		ILX-651 is a next-generation synthetic pentapeptide analog of the natural substance dolastatin-15 that targets tubulin and has been chemically modified to provide improved pharmacological properties over earlier members of its class. We recently closed a Phase I study in patients with solid tumors. We are currently conducting Phase II trials in recurrent or metastatic melanoma, in locally advanced or metastatic non-small cell lung cancer and in hormone-refractory prostate cancer. We estimate our direct costs to complete the in-process clinical development phases in ILX-651 to be approximately $6 to $8 million.

(5)		MUC1 functions like an oncogene to promote cancer growth and is highly overexpressed on the cell surface of approximately 70% of the 1.2 million tumors diagnosed each year. We are developing monoclonal antibodies and are exploring small molecules to disrupt MUC1 function as well as using small interfering RNA to explore and/or validate molecular targets in the MUC1 oncogenic pathway. An antibody program is being conducted through a research collaboration with Abgenix, Inc. that was initiated in 2002 to develop a fully human monoclonal antibody against MUC1 for the treatment of cancer. We estimate our direct costs to complete our preclinical development work related to MUC1, assuming completion of the current phase of development, to be approximately $3 to $5 million.

~~Interest and other income decreased to $3.4 million for the first nine~~14 months of 2003 from $6.1 million for the first nine months of 2002. This decrease of $2.7 million, or 44%, is attributable to lower cash balances throughout the first nine months of 2003 compared to the same period last year as well as a reduction in the interest rate returns earned on our investments in 2003 compared to interest rate returns earned in 2002.

InterestTable Expense of Contents

~~Interest~~ILEX ~~expense~~ONCOLOGY, ~~decreased to $3~~INC.~~3 million for the first nine months of~~ ~~2003~~SEPTEMBER from $5.0 million for the same period in 2002. Interest expense relates to the imputed interest on the note to Millennium for our purchase of their interest in the Partnership. The decrease of $1.7 million30, or2004 ~~34%,~~- isQUARTERLY aREPORT ~~result of~~ON ~~the~~FORM ~~decrease in the outstanding balance of the note on which interest~~10-Q ~~expense is calculated.~~

(6)		We currently have other products in clinical trials as well as a number of preclinical programs. Other products also includes products that have been discontinued.

(7)		Other operating costs include allocations of various overhead costs.

~~Table~~ Actual future costs to complete each and all of ~~Contents~~the above-mentioned in-process development phases could vary significantly from the estimates provided. We believe that estimates of overall major project completion dates and associated costs to complete such projects would be highly speculative due to the numerous uncertainties inherent in the pharmaceutical industry including the results of preclinical and clinical testing, competition, government regulation and uncertainties related to manufacturing. Delays or discontinuation of any of our projects could adversely impact our future revenues, liquidity and overall financial position. For additional discussion of the risks and uncertainties regarding our product development, see the “Additional Business Risks” section of our Form 10-K for the year ended December 31, 2003 filed on March 12, 2004.

Licensing costs. Licensing costs increased to $5.1 million for the first ~~SEPTEMBER~~nine 30months of 2004 from $4.1 million in the first nine months of 2003, an increase of $1.0 million or 24%. Licensing costs for the first nine months of 2004 include a $4.0 million expense associated with our co-development agreement with Bioenvision. Licensing costs for the first nine months of 2003 included –expense ~~QUARTERLY~~accruals ~~REPORT~~for ONthe ~~FORM~~achievement 10of milestones associated with the license grant from Genentech, a license fee expense accrual related to MUC-Q1, and other filing fees.

~~Net~~ Selling, ~~Loss~~general and administrative costs. Selling, general and administrative costs increased to $16.6 million for the first nine months of 2004, compared to $9.7 million for the first nine months of 2003. This increase of $6.9 million, or 71%, is primarily due to merger-related costs of approximately $4.7 million as well as increased product commercialization expenses.

~~Net~~Direct ~~loss~~cost ~~increased~~of $9research services.~~3 million~~ inDirect ~~the~~cost ~~first nine months~~ of ~~2003~~research ~~to $44.3~~services ~~million,~~decreased ~~from~~to $~~35.~~0.6 million induring the ~~same~~first ~~period~~nine months of ~~2002. Net loss per share increased $0.23 per share for the same period to $1.31 per share in 2003~~2004, from $1.~~08 per share in 2002. Excluding the settlement charge related to our CRO~~1 ~~business of $16.5~~ million ~~for~~during the first nine months ~~ended~~of ~~September 30,~~ 2003~~, non-GAAP net loss was $27~~.~~8 million~~ ~~compared~~This todecrease ~~$35.0 million for the nine months ended September 30, 2002. Our management believes that the aforementioned non-GAAP measure of net loss and net loss per share~~ is ~~useful for~~attributable ~~investors as it excludes the significant, unusual settlement charge.~~to ~~Management also believes that excluding~~ the ~~settlement~~Company’s ~~charge~~continued ~~from~~transition ~~our~~out ~~GAAP net loss provides users~~ of ~~our financial statements an important insight into our net results and~~ the ~~related~~fee-for-service ~~trends,~~CRO ~~which are affecting our core~~ business. ~~Non-GAAP net loss and net loss per share should not be considered in isolation~~ ~~and are not intended to represent an alternative measure of operating or net~~ results or any other measure of performance determined in accordance with GAAP. The following table shows the reconciliation of our GAAP net loss and net loss per share to our non-GAAP net loss and net loss per share for the nine months ended September 30, 2003:

	Net Loss			Net Loss per share
GAAP net loss and loss per share	$	(44,337	)	$	(1.31	)
Settlement charge		16,500			0.49
Non-GAAP net loss and loss per share	$	(27,837	)	$	(0.82	)

Depreciation and amortization. Depreciation and amortization decreased $0.5 million to $5.2 million in the first nine months of 2004 from $5.7 million during the same period in 2003 due to fewer asset purchases throughout 2004 and certain assets becoming fully depreciated.

~~RESULTS~~ Impairment OFcharge. ~~OPERATIONS~~We —recorded ~~THREE~~an ~~MONTHS~~impairment ~~ENDED~~charge ~~SEPTEMBER~~of $213.0 in the third quarter of 2003 based upon a review of our goodwill as of September 30, 2003. ~~AND~~We ~~2002~~determined that the goodwill resulting from the purchase of Symphar S.A. in 2001 had been impaired due to research focus and personnel changes at our location in Geneva, Switzerland.

~~Operating~~ Settlement ~~Revenues~~charge. We incurred a net settlement charge of $16.5 million in the first quarter of 2003. This charge is the result of the settlement of a dispute with a former CRO client.

~~Total~~Interest ~~revenue~~Income ~~increased to $8.7 million in the third quarter of 2003, from $7.9 million in the third quarter of 2002. The overall increase of $0.8 million, or 10%, was due to the increase in our product profit~~ and ~~royalty revenue and outlicensing revenue. Product profit and royalty revenue~~Other, ~~which is~~Net ~~our share of CAMPATH net profits on U.S. sales and a royalty on the rest of the~~ ~~world sales, totaled $4.5 million in the third quarter of 2003 compared to $3.2~~ million in the third quarter of 2002. The increase in product profit and royalty revenue is due to an increase in global net sales of CAMPATH. Global net sales, recorded by Schering AG and Berlex, increased to $16.1 million in the third quarter of 2003 as compared to $10.2 million in the same period of 2002. Additionally, we estimate that approximately $2.0 million in wholesaler inventory was consumed during the third quarter of 2003. Product development revenue decreased to $1.0 million in third quarter of 2003 from $2.4 million in the third quarter of 2002. Product development revenue represents Schering AG’s contribution of research and development expenses and decreased primarily as a result of the advance balance from Schering AG being depleted in the first quarter of 2003. Revenue from our CRO services decreased $1.8 million, or 82%, to $0.4 million in the third quarter of 2003 from $2.2 million in the third quarter of 2002. This decrease is the result of our continued transition out of the fee-for-service CRO business.

~~Operating~~ Interest ~~Expenses~~and other income decreased to $1.7 million during the first nine months of 2004 from $3.4 million during the first nine months of 2003. This decrease of $1.7 million is attributable to a decrease in our investment balances and a decline in interest rate returns throughout 2004.

~~Research~~Interest ~~and Development Costs. Research and development costs increased~~Expense ~~to $12.1 million in the third quarter of 2003, from $11.3 million in 2002. This~~ ~~increase of $0.8 million, or 7%, was due to development spending on our product~~ ~~pipeline, specifically CAMPATH and ILX-651, which was partially offset by a decrease in payroll and facility-related research and development costs.~~

~~Licensing~~Interest ~~Costs.~~expense ~~Licensing~~decreased ~~costs increased~~ to $2.1.3 million induring the ~~third quarter~~first ofnine ~~2003,~~months of 2004 from $03.23 million induring ~~2002~~the first nine months of 2003. ~~This~~Interest ~~increase~~expense relates ~~was~~to ~~due~~the ~~primarily~~imputed interest on the note to ~~expense~~ ~~accruals~~Millennium for our purchase of their interest in the ~~achievement~~Partnership. The decrease of ~~milestones~~$2.0 million ~~associated~~is ~~with~~a ~~the~~result ~~license~~of ~~grant~~the ~~from~~decrease ~~Genentech~~in the outstanding balance on which interest expense is calculated.

~~Selling,~~Net ~~General and Administrative Costs. Selling, general and~~Loss ~~administrative costs decreased approximately $0.1 million to $2.8 million for~~ the third quarter of 2003, compared to $2.9 million in the same quarter in 2002. This slight decrease is primarily the result of lower personnel-related and business management costs, partially offset by increases in professional fees and insurance costs.

~~Direct~~As ~~Costs~~a result of ~~Research~~the ~~Services.~~above, ~~Direct~~our ~~costs~~net ofloss ~~research~~increased ~~services decreased to~~ $02.4 million ~~during~~in the ~~third~~first nine ~~quarter~~months of ~~2003~~2004 to $46.7 million, from $144.63 million in ~~2002~~2003. ~~This~~Net ~~decrease~~loss isper share ~~attributable~~decreased $0.11 per share to ~~our~~$1.20 ~~continued~~per ~~transition~~share ~~out~~in of2004, ~~the~~from ~~CRO business.~~

1415

ILEX ONCOLOGY, INC. SEPTEMBER 30, ~~2003~~2004 –- QUARTERLY REPORT ON FORM 10-Q

~~Depreciation and Amortization. Depreciation and amortization increased to~~ $1.~~9 million~~31 inper ~~the~~share ~~third~~in ~~quarter of~~ 2003 ~~from~~as ~~$1.8 million in 2002. This increase is primarily~~ the ~~result~~weighted ofaverage annumber ~~additional intangible asset~~ of ~~$2.0~~shares outstanding ~~million~~increased ~~and the corresponding increase~~ in ~~amortization~~2004.

~~Impairment~~RESULTS ~~charge.~~OF WeOPERATIONS ~~recorded~~– anTHREE ~~impairment~~MONTHS ~~charge~~ENDED ofSEPTEMBER ~~$213.0 in the third quarter of 2003 based upon a review of our goodwill as of September~~ 30, ~~2003.~~ We2004 ~~determined~~AND ~~that the goodwill resulting from the purchase of Symphar~~2003 ~~S.A. in 2001 had been impaired due to recent research focus and personnel~~ ~~changes at our location in Geneva, Switzerland.~~

~~Interest~~Operating ~~Income and Other, Net~~Revenues

~~Interest~~Product profit and ~~other~~royalty ~~income~~revenue. ~~decreased~~Product profit and royalty revenue, which is the Company’s share of CAMPATH net profits on U.S. sales and a royalty on the rest of the world sales, increased to $16.10 million ~~for~~in the third quarter of ~~2003,~~2004 ~~from~~compared to $1.4.5 million ~~for~~in the ~~same~~third ~~period~~quarter of 2003 primarily as a result of an increase in ~~2002.~~the ~~This~~global ~~decrease~~net sales of $0CAMPATH.3 Global net sales of ~~million~~CAMPATH, orrecorded ~~21%~~by our marketing and distribution partner Schering AG and Berlex, isit ~~attributable~~U.S. toaffiliate, aincreased ~~reduction~~to $18.2 million in the ~~interest~~third ~~rate~~quarter ~~returns~~of ~~earned~~2004 onas ~~our~~compared ~~investments~~to $16.1 million in the same period of 2003.

~~Interest~~ Product ~~Expense~~development revenue. Product development revenue, which represents Schering AG’s contribution of research and development expenses, decreased to $0.8 million in the third quarter of 2004 from $1.0 million in the third quarter of 2003.

~~Interest~~Contract ~~expense~~research ~~decreased~~services ~~to $1~~revenue.~~0 million~~ ~~for~~Revenue from the ~~third~~Company’s ~~quarter~~contract research ofservices ~~2003 from~~(CRO) decreased $10.42 million ~~for~~from the ~~same~~third ~~period in 2002. Interest expense relates to the~~quarter ~~imputed~~of ~~interest~~2003 onas ~~the~~a ~~note~~result ~~to Millennium for our purchase~~ of ~~their interest in~~ the ~~Partnership.~~Company’s ~~The~~continued ~~decrease~~transition ofout ~~$0.4 million, or 29%, is a result~~ of the ~~decrease~~fee-for-service inCRO ~~the outstanding balance on which interest expense is calculated~~business.

~~Net~~ Outlicensing ~~Loss~~revenue. Outlicensing revenue decreased to less than $0.1 million in the third quarter of 2004 from $2.6 million in the third quarter of 2003. Outlicensing revenues for the third quarter of 2003 consisted primarily of a $2.5 million payment received from QuatRx. The payment was recognized as revenue in the third quarter of 2003 as the technology transfer related to the lipid-focused research platform was completed during such period.

~~Net~~Operating ~~loss increased $0.2 million in the third quarter of 2003, or 2%, to~~Expenses ~~$10.6 million, from $10.4 million in 2002. Net loss per share decreased $0.03~~ ~~per share to $0.29 per share in 2003, from $0.32 per share in 2002.~~

~~LIQUIDITY~~ Research ~~AND~~and ~~CAPITAL~~development ~~RESOURCES~~costs. Research and development costs increased to $13.3 million in the third quarter of 2004, from $12.1 million in the third quarter of 2003. This increase of $1.2 million, or 10%, was due to an increase in spending on our product pipeline, particularly related to the accelerated enrollment of our trials for CAMPATH in multiple sclerosis and for our CAMPATH post-approval study in first-line CLL. Also contributing to this increase is additional site initiation costs for our trial of CAMPATH in combination with fludarabine.

WeLicensing ~~have~~costs. ~~historically~~Licensing ~~financed~~costs ~~our~~decreased ~~operations~~to ~~primarily~~$0.6 million ~~through~~for the ~~sale~~third quarter of ~~our~~ ~~common~~2004 ~~stock,~~from ~~through~~$2.1 million ~~development~~in ~~and~~the ~~licensing~~third ~~fee~~quarter ~~revenues~~of ~~provided~~2003, ~~by our~~a ~~partners~~decrease ~~under~~of $1.5 million. ~~our~~Licensing ~~collaborative~~costs ~~agreements and through fee-~~for~~-service~~ ~~or participatory~~the ~~revenues~~third ~~pursuant~~quarter toof ~~contracts~~2003 ~~with~~included ~~our~~expense accruals ~~CRO~~for ~~clients.~~the ~~At September 30,~~achievement ~~2003,~~of wemilestones ~~had~~associated ~~cash,~~with ~~cash~~the ~~equivalents,~~license ~~restricted~~grant from ~~investments~~Genentech and ~~investments~~ inincreased ~~marketable~~patent ~~securities of $228.6 million~~ and ~~working~~filing ~~capital of $165~~fees.~~3 million.~~

~~On August 4~~Selling, ~~2003,~~general weand ~~completed~~administrative ancosts. ~~underwritten~~Selling, ~~public~~general ~~offering of our~~and ~~common~~administrative ~~stock,~~costs ~~pursuant~~increased to ~~which we sold 5~~$4.52 million ~~shares.~~for ~~Additionally,~~ the ~~Cancer~~ ~~Therapy~~third ~~Research~~quarter ~~Center~~of ~~Endowment~~2004, ~~an ILEX shareholder, offered 500,000~~ ~~shares~~compared ~~of our common stock. Proceeds, net of costs~~ to ~~us, from this offering were approximately~~ $872.58 million. Wefor ~~anticipate that~~ the ~~net~~same ~~proceeds~~quarter ~~from this~~in ~~offering~~2003. ~~will~~This beincrease ~~used to fund clinical trials~~ of ~~our lead product~~$1.4 ~~candidates;~~million ~~for~~is ~~clinical~~primarily ~~and~~due ~~preclinical~~to ~~studies~~increased ~~for our other~~ product ~~candidates;~~ ~~for~~commercialization ~~potential licenses~~ and ~~acquisitions of other businesses or~~product ~~complementary~~launch ~~products~~costs ~~and~~as ~~technologies;~~well ~~and~~as ~~for~~merger-related ~~working capital, capital expenditures and other general corporate purposes~~expenses.

OnDirect ~~October 29,~~cost 2001, we announced that we had entered into a definitive agreement to purchase Millennium’s 50% equity interest in the Partnership. The acquisition closed on December 31, 2001. We estimated the purchase price at $127.6 million based on the net present value of ~~the~~research ~~required future cash payments discounted at 6~~services.~~5%,~~ ~~our~~Direct ~~estimated~~cost ~~incremental borrowing rate on the date~~ of ~~purchase.~~research ~~The terms of the agreement required an initial cash payment~~services ofdecreased ~~$20.0 million~~to ~~and an additional~~ $~~120.~~0.2 million induring ~~scheduled payments over~~ the ~~following~~third ~~three~~quarter ~~years. The first~~ of ~~these scheduled payments of $40.0 million in cash was made on December 31, 2002. Additionally, $40.0 million is due in 2003 and~~ 2004, offrom ~~which~~ $~~10.~~0 ~~million in each of those years may be paid with our common stock at our option and subject to certain terms and conditions~~. ~~In 2003 and 2004, $20.0~~4 million ~~of the $40.0 million is due~~ ~~following~~during the calendar quarter in which net U.S. CAMPATH sales exceed a specific level. The first $20.0 million maturity payment, triggered as a result of achieving the specified net U.S. CAMPATH sales level, was made in the third quarter of 2003. WeThis ~~chose~~decrease tois ~~pay~~attributable ~~$10.0 million~~to ~~of such maturity payment in cash and $10.0 million in stock through~~ the ~~issuance of 586,252 shares to~~ ~~Millennium.~~Company’s ~~The~~continued ~~remaining~~transition ~~$20.0 million~~out of the ~~$40.0 million annual debt maturity~~ fee-for-service ~~2003~~CRO ~~will be paid at the end of 2003~~business. ~~In addition, Millennium~~ ~~will be entitled to royalties based upon net U.S. CAMPATH sales above specified~~ ~~levels beginning in 2005.~~

15 Depreciation and amortization. Depreciation and amortization decreased $0.3 million to $1.6 million in the third quarter of 2004 from $1.9 million during the same period in 2003 due to fewer asset purchases in the third quarter of 2004 and certain assets becoming fully depreciated.

~~Table~~Interest ofIncome ~~Contents~~and Other, Net

Interest and other income decreased to $0.5 million during the third ~~SEPTEMBER~~quarter ~~30,~~of 2004 from $1.1 million during the third quarter of 2003. –This decrease ~~QUARTERLY~~is ~~REPORT~~attributable ONto ~~FORM~~a ~~10-Q~~reduction in our investment balances and a decline in interest rate returns during the third quarter of 2004.

~~We plan to continue our policy of investing available funds in government~~16 securities and investment-grade, interest-bearing securities, none of which matures in more than eighteen months. We do not invest in derivative financial instruments, as defined by Statement of Financial Accounting Standards No. 133 and 138.

OurTable future expenditures and capital requirements will depend on numerous factors, including but not limited to: the progress of our research and development programs; the progress of our non-clinical and clinical testing; the magnitude and scope of these activities; the time and costs involved in obtaining regulatory approvals; the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; competing technological and market developments; changes in or termination of existing collaborative arrangements; the ability to establish, maintain and avoid termination of collaborative arrangements and the purchase of capital equipment and acquisitions of compounds, technologies or businesses. At September 30, 2003, we did not have any material commitments for capital expenditures. Contents

~~ITEM~~ILEX 3ONCOLOGY, INC. SEPTEMBER ~~QUANTITATIVE~~30, ~~AND~~2004 ~~QUALITATIVE~~- ~~DISCLOSURES~~QUARTERLY ~~ABOUT~~REPORT ~~MARKET~~ON ~~RISK~~FORM 10-Q

~~Market~~Interest ~~risk represents the risk of loss that may impact our financial position,~~Expense ~~results of operations or cash flows due to adverse changes in financial market~~ ~~prices, including interest rate risk, foreign currency exchange rate risk,~~ ~~commodity price risk and other relevant market rate or price risks.~~

We Interest ~~are~~expense ~~exposed~~decreased to ~~some~~$0.3 million ~~market~~during ~~risk~~the ~~through~~third ~~interest~~quarter ~~rates, related to our investment~~ of ~~cash, cash equivalents, restricted investments and investments in~~ ~~marketable~~2004 ~~securities~~from of $~~228~~1.60 million atduring ~~September 30,~~the ~~2003.~~third ~~These~~quarter ~~funds are generally invested in interest-bearing securities, primarily with maturities~~ of ~~one~~ ~~year or less~~2003. AsInterest ~~such instruments mature and the funds are reinvested, we~~expense ~~are~~relates ~~exposed~~ to ~~changes~~the inimputed ~~market~~ interest ~~rates.~~on ~~This~~the ~~risk~~note ~~is not considered material and we manage such risk by continuing~~ to ~~evaluate~~Millennium ~~the best investment rates available~~ for ~~short-term~~our ~~high~~purchase ~~quality~~of their ~~investments. If market~~ interest ~~rates~~ ~~were~~in tothe ~~increase~~Partnership. orThe decrease ~~immediately~~of ~~and~~$0.7 million ~~uniformly~~is ~~by 50 basis points, we would not expect there to be~~ a ~~material~~result ~~effect on our results~~ of ~~operations~~the ordecrease onin ~~our~~the outstanding balance ~~sheet.~~on Wewhich ~~have~~interest ~~not~~expense ~~used derivative financial~~is ~~instruments in our investment portfolio~~calculated.

~~Our~~Net ~~European operations are denominated in local currency. We have unhedged~~Loss ~~transaction exposures in these currencies, which are not considered material.~~ ~~We have not entered into any forward foreign exchange contracts for~~ ~~speculative, trading or other purposes.~~

~~Item~~ As a result of the above, our net loss increased $1.9 4million in the third quarter of 2004 to $12.5 million, ~~CONTROLS~~from ~~AND~~$10.6 million ~~PROCEDURES~~in 2003. Net loss per share increased $0.03 per share to $0.32 per share in 2004, from $0.29 per share in 2003.

InLIQUIDITY ~~accordance~~AND ~~with~~CAPITAL ~~Exchange Act Rules 13a-15 and 15d-15, we carried out an~~RESOURCES ~~evaluation, under the supervision and with the participation of management,~~ ~~including our Chief Executive Officer and Chief Financial Officer, of the~~ effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2003 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

~~There~~ We ~~has~~have ~~been~~historically nofinanced ~~change in~~ our ~~internal~~operations ~~controls~~primarily ~~over~~through ~~financial~~the ~~reporting~~sale ~~that~~of ~~occurred~~our ~~during~~capital ~~the~~stock, ~~three~~through ~~months~~development ~~ended~~and ~~September 30,~~licensing ~~2003~~fee ~~that~~revenues ~~has~~provided ~~materially~~by ~~affected,~~our orcollaborative ispartners ~~reasonably~~under ~~likely~~our tocollaborative ~~materially affect~~agreements, through our product ~~internal~~profit ~~controls~~and royalty revenues resulting from global sales of CAMPATH and ~~over~~through ~~financial~~revenues ~~reporting~~pursuant to contracts with our CRO clients.

~~PART~~ At IISeptember 30, 2004, we had cash, cash equivalents, restricted investments and investments in marketable securities of $131.1 million ~~OTHER~~and working ~~INFORMATION~~capital of $110.0 million.

~~Item~~ On August 14, 2003, we completed an underwritten public offering of our common stock, pursuant to which we sold 5.5 million ~~Legal~~shares. ~~Proceedings~~In addition, the Cancer Therapy and Research Center Endowment, an ILEX shareholder, offered and sold 500,000 shares of our common stock. Proceeds, net of costs to us, from this offering were approximately $87.4 million. The net proceeds from this offering have been and will continue to be used to fund clinical trials of our lead product candidates; for clinical and preclinical studies for our other product candidates; for potential licenses and acquisitions of other businesses or complementary products and technologies; and for working capital, capital expenditures and other general corporate purposes.

We ~~are~~estimate ~~involved~~our incurrent ~~various~~funds ~~routine~~will ~~legal~~be ~~proceedings~~adequate ~~incidental~~ to ~~our business.~~cover Weall ~~believe it is unlikely that the final outcome~~ of ~~the legal proceedings to which we are a party will have a material adverse effect on~~ our ~~financial~~obligations ~~position~~for orthe ~~results~~next oftwo ~~operations~~years. ~~However,~~Until ~~due~~our tobusiness ~~the~~can ~~inherent~~generate sufficient ~~uncertainty~~levels of ~~the~~cash ~~litigation~~from ~~process~~product sales, ~~there~~we ~~can~~expect beto nocontinue ~~assurance~~to ~~that~~supplement the ~~resolution~~financing of ~~any~~our ~~particular~~operations ~~legal~~through ~~proceeding~~existing ~~will~~cash, ~~not~~revenue ~~have~~from ~~a material adverse~~collaborative ~~effect~~relationships, onand ~~our~~proceeds ~~results~~from ~~of operations for~~ the ~~period~~sale inof ~~which~~equity ~~such resolution occurred~~securities.

In We ~~September 2003,~~plan ~~certain~~to ~~former~~continue ~~shareholders~~our policy of ~~Convergence~~investing ~~Pharmaceuticals, Inc.~~available ~~(Convergence)~~funds ~~delivered~~in togovernment securities, usgovernment aagencies, ~~demand~~government-sponsored ~~for~~enterprises ~~arbitration~~and investment-grade, ~~under~~interest-bearing ~~the~~securities, ~~Plan~~none of which mature in more ~~Merger~~than ~~and~~eighteen ~~Acquisition~~months. ~~Agreement~~We ~~executed~~do not invest in ~~connection~~derivative ~~with~~financial ~~our~~instruments, as defined by Statement of Financial Accounting Standards No. 133 and 138.

16 Our future expenditures and capital requirements will depend on numerous factors, including but not limited to: the progress of our research and development programs; the progress of our non-clinical and clinical testing; the magnitude and scope of these activities; the time and costs involved in obtaining regulatory approvals; the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; competing technological and market developments; changes in or termination of existing collaborative arrangements; the ability to establish, maintain and avoid termination of collaborative arrangements and the purchase of capital equipment and acquisitions of compounds, technologies or businesses. At September 30, 2004, we did not have any material commitments for capital expenditures.

~~Table~~ITEM of3. ~~Contents~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the financial position, ~~SEPTEMBER~~results 30of operations or cash flows of the Company due to adverse changes in financial market prices, ~~2003~~including –interest ~~QUARTERLY~~rate ~~REPORT~~risk, ONforeign ~~FORM~~currency exchange ~~10-Q~~rate risk, commodity price risk and other relevant market rate or price risks.

~~acquisition~~We ofare ~~Convergence~~exposed ~~in July 1999. The demand for arbitration alleges that ILEX breached its obligation of good faith and fair dealing by intentionally delaying Phase II trials of NM-3 in order~~ to ~~avoid~~some ~~making~~market ~~a milestone~~risk ~~payment~~through ofinterest ~~500~~rates,~~000~~ ~~shares~~related ofto our ~~Common Stock that would~~ ~~have~~investment ~~become due pursuant to the Plan~~ of ~~Merger and Acquisition Agreement if Phase II trials were initiated by December 31~~cash, ~~2002.~~cash ~~The demand for arbitration was filed by former shareholders of Convergence whose pro rata share of the 500~~equivalents,~~000~~ ~~share milestone~~restricted ~~payment~~investments isand ~~210,000~~investments ~~shares. The parties are~~ in marketable ~~the~~securities ~~discovery phase~~ of ~~the~~ ~~arbitration proceedings~~$131.1 million Weat ~~believe that the claims made against us are without merit and intends to defend the action vigorously. However~~September 30, ~~the arbitration process is inherently uncertain and unpredictable, and accordingly there can be no assurance as to the ultimate outcome of the arbitration~~2004. IfThese ~~ILEX is required to deliver the 210,000 shares subject to the current demand,~~ ~~then we may be required to deliver the remaining 290,000 shares to the other former Convergence shareholders in order to avoid additional disputes with other former Convergence shareholders.~~

~~Item 6. Exhibits and Reports on Form 8-K~~17

(a)Table Exhibitsof Contents

Exhibit
Number
3.1		Amended and Restated Certificate of Incorporation of ILEX filed May 31, 2000 (Incorporated herein by reference to Exhibit 3.1 of ILEX’s Quarterly Report on Form 10-Q filed August 8, 2000)
3.2		Bylaws of ILEX, as amended (Incorporated herein by reference to Exhibit 3.2 of ILEX’s Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)
11.1*		Computation of Net Loss per Share
31.1*		Certification of President and Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Senior Vice President and Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2004 - QUARTERLY REPORT ON FORM 10-Q

~~(b)~~funds ~~Reports~~are ongenerally ~~Form~~invested 8in interest-K:bearing securities, primarily with maturities of one year or less. As such instruments mature and the funds are reinvested, we are exposed to changes in market interest rates. This risk is not considered material and we manage such risk by continuing to evaluate the best investment rates available for short-term high quality investments. If market interest rates were to increase or decrease immediately and uniformly by 50 basis points, we would not expect there to be a material effect on our results of operations or on our balance sheet. We have not used derivative financial instruments in our investment portfolio.

~~ILEX~~Our ~~has~~European ~~recently~~operations ~~filed~~are ~~the~~denominated ~~following~~in ~~Reports~~local oncurrency. ~~Form~~We ~~8-K~~have unhedged ~~during~~transaction ~~the~~exposures ~~quarter~~in ~~ended~~these ~~September 30~~currencies, ~~2003:~~which are not considered material. We have not entered into any forward foreign exchange contracts for speculative, trading or other purposes.

~~Dated~~Item ~~July 21,~~4. ~~2003,~~CONTROLS toAND ~~disclose issuance of a press release announcing second quarter 2003 results.~~ PROCEDURES

~~Dated~~Disclosure ~~July 29,~~Controls ~~2003, to disclose~~ and ~~underwriting agreement~~Procedures ~~with UBS Securities LLC, Lehman Brothers Inc., CIBC~~ ~~Worldmarkets Corp. and U.S. Bancorp Piper Jaffray Inc.~~

~~Dated~~In ~~August~~accordance with Exchange Act Rules 1413a-15 and 15d-15, ~~2003~~we carried out an evaluation, tounder ~~supplement~~the ~~information~~supervision inand with the participation of management, ~~prospectus~~including ~~contained~~our inChief Executive Officer and Chief Financial Officer, of the effectiveness ~~registration~~of ~~statement~~our ondisclosure ~~Form~~controls and procedures as of the end of the ~~S-3~~period ~~filed~~covered by this report. Based on ~~June~~that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 1230, ~~2003~~2004 ~~(Registration~~to Noprovide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. ~~333-106068).~~

* Filed herewith.18

17 Table of Contents

~~Table~~ILEX ofONCOLOGY, ~~Contents~~INC. SEPTEMBER 30, 2004 - QUARTERLY REPORT ON FORM 10-Q

~~SEPTEMBER~~PART ~~30,~~II. ~~2003~~OTHER ~~– QUARTERLY REPORT ON FORM 10-Q~~INFORMATION

~~Signatures~~ Item 1. Legal Proceedings

~~Pursuant~~We are involved in various routine legal proceedings incidental to our business. We believe it is unlikely that the ~~requirements~~final outcome of the ~~Securities~~legal proceedings ~~Act~~to which we are a party will have a material adverse effect on our financial position or results of ~~1934~~operations. However, ~~the~~due ~~Registrant~~to ~~has~~the inherent ~~duly~~uncertainty ~~caused~~of ~~this~~the ~~report~~litigation toprocess, there can be ~~signed~~no assurance that the resolution of any particular legal proceeding will not have a material adverse effect on ~~its~~our ~~behalf~~results byof operations for the ~~undersigned, thereunto~~period ~~duly~~in ~~authorized~~which such resolution occurred.

~~Date:~~In ~~November~~September 132003, ~~2003~~certain former shareholders of Convergence Pharmaceuticals, Inc. (Convergence) delivered to us a demand for arbitration under the Plan of Merger and Acquisition Agreement executed in connection with our acquisition of Convergence in July 1999. The demand for arbitration alleges that we breached an obligation of good faith and fair dealing by intentionally delaying Phase II trials of NM-3. In September 2004, we reached a cash settlement with these certain former Convergence shareholders. The amount of this settlement was immaterial in relation to our financial position and results of operations.

~~ILEX~~Item ~~ONCOLOGY, INC~~6. By: /s/ Jeffrey H. Buchalter Jeffrey H. Buchalter President and Chief Executive Officer (Principal Executive Officer) By: /s/ Mark P. Mellin Mark P. Mellin Senior Vice President and Chief Financial Officer (Chief Financial and Accounting Officer)Exhibits

18 (a) Exhibits


Exhibit
Number
2.1		Agreement and Plan of Merger dated February 26, 2004 among the Company, Genzyme Corp., GLBC Corp. and GLBC LLC (Incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report Form 8-K filed February 26, 2004)
3.1		Amended and Restated Certificate of Incorporation of the Company filed May 31, 2000 (Incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed August 8, 2000)
3.2		Bylaws of the Company, as amended (Incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)
11.1*		Computation of Net Loss per Share
31.1*		Certification of President and Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Senior Vice President and Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit Index

*		Filed herewith.

**		Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Exhibit
Number		Description
3.1		Amended and Restated Certificate of Incorporation of the Company filed May 31, 2000 (Incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed August 8, 2000)
3.2		Bylaws of the Company, as amended (Incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement No. 333-17769 on Form S-1 filed December 12, 1996, as amended)
11.1*		Computation of Net Loss per Share
31.1*		Certification of President and Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Senior Vice President and Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Table Filedof herewith. Contents

ILEX ONCOLOGY, INC.
SEPTEMBER 30, 2004 - QUARTERLY REPORT ON FORM 10-Q

Signatures

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 9, 2004


	ILEX ONCOLOGY, INC.
	By:	/s/ Jeffrey H. Buchalter
		Jeffrey H. Buchalter
		President and Chief Executive Officer (Principal Executive Officer)


	By:	/s/ Mark P. Mellin
		Mark P. Mellin
		Senior Vice President and Chief Financial Officer (Chief Financial and Accounting Officer)

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