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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q
(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the Quarterly Period Ended March 31, 2001

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from _________ to _________

Commission File No. 0-20111

ARONEX PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)

Delaware 76-0196535

(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

8707 Technology Forest Place, The Woodlands, Texas 77381-1191
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: (281) 367-1666

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
--- ---

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

CLASS OUTSTANDING AT MARCH 31, 2001
----------------------------- -----------------------------
Common Stock, $.001 par value 25,973,843 shares

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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
QUARTERLY PERIOD ENDED MARCH 31, 2001

INDEX

PAGE
----

Factors Affecting Forward-Looking Statements................................................................ 3

PART I. FINANCIAL INFORMATION

Item 1 Consolidated Financial Statements.................................................................. 3

Consolidated Balance Sheets - December 31, 2000 and March 31, 2001 (unaudited)..................... 4

Consolidated Statements of Operations:
Three Months Ended March 31, 2000 and March 31, 2001
(unaudited) and for the Period from Inception (June 13, 1986)
through March 31, 2001 (unaudited)............................................................... 5

Consolidated Statements of Comprehensive Income:
Three Months Ended March 31, 2000 and March 31, 2001 (unaudited)................................. 5

Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2000 and March 31, 2001
(unaudited) and for the Period from Inception (June 13, 1986)
through March 31, 2001 (unaudited)............................................................... 6

Notes to Consolidated Financial Statements - March 31, 2001 (unaudited)............................ 7

Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................. 10

Item 3 Qualitative and Quantitative Disclosures about Market Risk......................................... 12

PART II. OTHER INFORMATION

Item 6 Exhibits and Reports on Form 8-K................................................................... 13

SIGNATURES .......................................................................................... 14

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FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). When used in this document, the words "anticipate," "believe," "expect,"
"estimate," "project" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, believed, expected,
estimated or projected. For additional discussion of such risks, uncertainties
and assumptions, see "Item 1. Business -- Manufacturing," "-- Sales and
Marketing," "-- Patents and Proprietary Rights," "-- Government Regulation," "--
Competition" and "-- Additional Business Risks" included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although we believe that the disclosures made herein are adequate
to make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the audited financial statements
for the year ended December 31, 2000 included in our 2000 Annual Report on Form
10-K.

The information presented in the accompanying consolidated financial
statements is unaudited, but in the opinion of management, reflects all
adjustments (which include only normal recurring adjustments) necessary to
present fairly such information.

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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

MARCH 31,
DECEMBER 31, 2001
2000 (UNAUDITED)
--------------- -------------

Current assets:
Cash and cash equivalents................................................. $ 8,254 $ 4,485
Prepaid expenses and other assets......................................... 116 246
--------------- -------------
Total current assets................................................. 8,370 4,731

Long-term investments........................................................ 821 773
Furniture, equipment and leasehold improvements, net of accumulated
depreciation of $3,914 and $4,020, respectively........................... 1,851 1,679
--------------- -------------
Total assets......................................................... $ 11,042 $ 7,183
=============== =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses..................................... $ 2,789 $ 2,011
Accrued payroll........................................................... 313 505
Current portion of notes payable.......................................... 459 424
Current portion of deferred revenue....................................... 1,196 1,196
--------------- -------------
Total current liabilities............................................ 4,757 4,136

Long-term liabilities:
Notes payable, net of current portion..................................... 3,154 3,071
Deferred revenue, net of current portion.................................. 466 374
--------------- -------------
Total long-term liabilities.......................................... 3,620 3,445

Commitments and contingencies

Stockholders' equity (deficit):
Preferred stock $.001 par value, 5,000,000 shares authorized,
none issued and outstanding.......................................... -- --
Common stock $.001 par value, 40,000,000 shares authorized,
25,973,674 and 25,973,843 shares issued and outstanding,
respectively......................................................... 26 26
Additional paid-in capital................................................ 118,697 118,697
Common Stock warrants..................................................... 3,439 3,439
Treasury stock............................................................ (11) (11)
Deficit accumulated during development stage.............................. (119,486) (122,549)
--------------- -------------
Total stockholders' equity (deficit)................................. 2,665 (398)
--------------- -------------
Total liabilities and stockholders' equity (deficit)...................... $ 11,042 $ 7,183
=============== =============

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

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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
(UNAUDITED)

PERIOD FROM
INCEPTION
(JUNE 13,
THREE MONTHS ENDED 1986)
MARCH 31, THROUGH
-------------------------------- MARCH 31,
2000 2001 2001
------------ ------------ -------------

Revenues:
Research and development grants and contracts ............. $ 1,451 $ 92 $ 26,150
------------ ------------ ------------
Total revenues ....................................... 1,451 92 26,150
------------ ------------ ------------
Expenses:
Research and development .................................. 5,800 2,090 116,123
Purchase of in-process research and development ........... -- -- 11,625
General and administrative ................................ 699 1,009 26,060
------------ ------------ ------------
Total expenses ....................................... 6,499 3,099 153,808
------------ ------------ ------------
Operating loss ............................................... (5,048) (3,007) (127,658)
------------ ------------ ------------
Other income (expense):
Interest income ........................................... 221 106 9,208
Gain on sale of investments ............................... 2,653 -- 2,653
Interest expense and other ................................ (127) (162) (2,297)
------------ ------------ ------------
Other income (expense), net .................................. 2,747 (56) 9,564
Net loss before cumulative effect of change in accounting
principle .................................................... (2,301) (3,063) (118,094)
Cumulative effect of change in accounting principle ....... (4,455) -- (4,455)
------------ ------------ ------------
Net loss ..................................................... $ (6,756) $ (3,063) $ (122,549)
============ ============ ============

Net loss per share before cumulative effect of change in
accounting principle ......................................... $ (0.10) $ (0.12)
Cumulative effect of change in accounting principle ....... (0.19) --
------------ ------------
Basic and diluted loss per share ............................. $ (0.29) $ (0.12)
============ ============
Weighted average shares used in computing basic and
diluted loss per share .................................... 22,881 25,974

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
-------------------------------
2000 2001
------------ ------------

Comprehensive income:
Net loss ...................... $ (6,756) $ (3,063)
Unrealized gain ............... 2,147 --
Realized gain ................. (2,653) --
------------ ------------
Comprehensive income ..... $ (7,262) $ (3,063)
============ ============

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

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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)

PERIOD FROM
INCEPTION
THREE MONTHS ENDED (JUNE 13, 1986)
MARCH 31, THROUGH
----------------------- MARCH 31,
2000 2001 2001
--------- --------- -------------

Cash flows from operating activities:
Net loss ....................................................................... $ (6,756) $ (3,063) $ (122,549)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization ............................................. 149 132 6,160
Loss on disposal of assets ................................................ -- 40 240
Compensation expense related to stock and stock options ................... 171 -- 5,179
Technology purchased through acquisition .................................. 0 -- 11,547
Unrealized gain (loss) on investment ...................................... (2,147) -- 2,653
Realized gain on sale of investments ...................................... (2,653) -- (2,653)
Acquisition costs, net of cash received ................................... -- -- (270)
Accrued interest payable converted to stock ............................... -- -- 97
Loss in affiliate ......................................................... -- -- 500
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and other assets, net ............. 49 (130) (61)
Increase (decrease) in accounts payable and accrued expenses .............. (942) (586) 2,443
(Increase) decrease in deferred revenue ................................... 3,304 (92) 1,217
--------- --------- -------------
Net cash used in operating activities ........................... (8,825) (3,699) (95,497)

Cash flows from investing activities:
Purchases of investments ....................................................... -- -- (262,928)
Sales of investments ........................................................... 10,461 48 267,890
Purchase of furniture, equipment and leasehold improvements .................... (68) -- (6,857)
Proceeds from sale of assets ................................................... -- -- 72
Investment in affiliate ........................................................ -- -- (500)
--------- --------- -------------
Net cash provided by (used in) investing activities ............. (10,393) 48 (2,323)

Cash flows from financing activities:
Proceeds from notes payable .................................................... 12 12 7,162
Repayment of notes payable and principal payments under capital
lease obligations ............................................................ (72) (130) (3,668)
Purchase of treasury stock ..................................................... -- -- (11)
Proceeds from issuance of stock ................................................ 122 -- 98,822
--------- --------- -------------
Net cash provided by (used in) financing activities ............. 62 (118) 102,305
--------- --------- -------------

Net increase (decrease) in cash and cash equivalents .............................. 1,630 (3,769) 4,485
Cash and cash equivalents at beginning of period .................................. 11,528 8,254 --
--------- --------- -------------

Cash and cash equivalents at end of period ........................................ $ 13,158 $ 4,485 $ 4,485
========= ========= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ....................................... $ 177 $ 155 $ 1,685
Supplemental schedule of noncash financing activities:
Conversion of notes payable and accrued interest to common stock ............... $ -- $ -- $ 3,043

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

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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)

1. ORGANIZATION

Aronex Pharmaceuticals, Inc. ("the Company", "Aronex Pharmaceuticals",
"we", "us" or "our") was incorporated in Delaware on June 13, 1986 and merged
with Triplex Pharmaceutical Corporation ("Triplex") and API Acquisition Company,
Inc. ("API"), formerly Oncologix, Inc. effective September 11, 1995. In 1998, we
formed a subsidiary, Aronex Europe Limited.

In order to address our lack of capital, among other things, we entered
into an agreement and plan of merger dated as of April 23, 2001 (the "Merger")
with Antigenics Inc. ("Antigenics") and Nasa Merger Corp., a newly-formed,
wholly-owned subsidiary of Antigenics. The proposed Merger is subject to
approval of our stockholders. The Merger is expected to be completed in the
third quarter of 2001. Upon closing of the Merger, we will become a wholly-owned
subsidiary of Antigenics.

Aronex Pharmaceuticals is a development stage company that has devoted
substantially all of its efforts to research and product development and has not
yet generated any significant revenues, nor is there any assurance of future
revenues. In addition, we expect to continue to incur losses for the foreseeable
future, and there can be no assurance that we will successfully complete the
transition from a development-stage company to successful operations. The
development activities we engage in involve a high degree of risk and
uncertainty. Our ability to successfully develop, manufacture and market our
proprietary products is dependent upon many factors. These factors include, but
are not limited to, our ability to consummate the Merger, the need for
additional financing in the event the Merger is not completed on a timely basis
or at all, attracting and retaining key personnel and consultants, and
successfully developing manufacturing, sales and marketing operations. Our
ability to develop these operations may be immensely impacted by uncertainties
related to patents and proprietary technologies, technological change and
obsolescence, product development, competition, government regulations and
approvals, health care reform, third-party reimbursement and product liability
exposure. Further, during the period required to develop these products, we will
require additional funds which may not be available to us.

We have operated as a development stage enterprise since our inception
by devoting substantially all of our efforts to raising capital and performing
research and development. In order to complete the development and other
activities necessary to commercialize our products, additional financing will be
required. If we are not able to consummate the Merger, such financing may not be
available.

The majority of our clinical trials have reached the stage where we
have completed patient enrollment in their current phase. At the current time,
we are gathering clinical trial data for analysis. We anticipate reporting the
data at appropriate scientific meetings. Before we initiate any new clinical
trials, we will analyze each product's likelihood for approval, the cost of the
proposed clinical trial, cash available at such time and the inherent risk
profile. We anticipate these steps will assist us in maximizing shareholder
value.

In January 2001, we received a non-approval letter from the United
States Food and Drug Administration (FDA) for our New Drug Application (NDA)
amendment for ATRAGEN(R) for acute promyelocytic leukemia (APL). Following this
event, we reduced expenditures in our research and development plans and
activities. Additionally, we reduced the number of full-time employees in
January 2001 from 77 to 29.

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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

The factors discussed above raise substantial doubt about our ability
to continue as a going concern. If the Merger is not completed, we will have to
pursue other sources of financing. Sources of financing may not be available, or
if available, will be dilutive or may have other adverse effects to the value of
our shares. If we are not able to secure such financing, we may have to close
operations and/or seek legal protection from our creditors. Accordingly, there
can be no assurance of our future success. The accompanying financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern. See
"Business-General" and "Business-Additional Business Risks" in the Company's
Form 10-K for the year ended December 31, 2000.

The consolidated balance sheet at March 31, 2001 and the related
consolidated statements of operations and cash flows for the three month periods
ending March 31, 2001 and 2000 and the period from inception (June 13, 1986)
through March 31, 2001 are unaudited. These interim financial statements should
be read in conjunction with the audited financial statements and related notes
included in our 2000 Form 10-K. The financial statements included in our 2000
Form 10-K have been audited by Andersen LLP, independent public accountants. In
order to complete the development and other activities to commercialize our
products, additional financing will be required. Accordingly, our independent
public accountants' report on the financial statements for the year ended
December 31, 2000 includes an explanatory fourth paragraph expressing
substantial doubt about our ability to continue as a going concern. The
unaudited interim consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods presented and all such adjustments are of a
normal recurring nature. Interim results are not necessarily indicative of
results for a full year.

2. ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Aronex
Pharmaceuticals, Triplex, API and Aronex Europe Limited. All material
intercompany transactions have been eliminated in consolidation.

Cash, Cash Equivalents and Short- and Long-Term Investments

Cash and cash equivalents include money market accounts and investments
with an original maturity of less than three months. Long-term investments at
March 31, 2001 are available for sale securities which are United States
mortgage-backed securities with maturity dates over the next 23 years that have
an amortized cost of $773,000, which approximates fair market value and cost.
Aronex Pharmaceuticals currently has no trading securities.

Revenue Recognition

During 2000, United States Securities and Exchange Commission (SEC)
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101) which requires up-front, non-refundable license fees to be deferred
and recognized over the performance period. We adopted SAB 101 which required
us to recognize payments for services under research and development grants and
contracts that are specifically tied to a separate earnings process as revenue
as the services are performed. In situations where we receive payment in advance
of the performance of services, such amounts are deferred and recognized as
revenue as the related services are performed. Non-refundable fees, including
payments for up-front licensing fees and milestones (collectively,
"Non-refundable Fees"), are recognized as revenue based on the percentage of
costs incurred to date, estimated costs to complete, and total Non-refundable
Fees received. Prior to January 1, 2000, we had recognized revenue from
Non-refundable Fees when we had no obligations to return the fees under any
circumstances, and there were no additional contractual services to be provided
or costs to be incurred by us in connection with the Non-refundable Fees.

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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

The cumulative effect of adopting SAB 101 at January 1, 2000 resulted
in a one-time, non-cash charge of $4.5 million, with a corresponding increase to
deferred revenue that will be recognized in future periods. The $4.5 million
represents portions of 1998 and 1999 Non-refundable Fees received from Abbott
Laboratories in consideration for the exclusive worldwide rights to market and
sell Nyotran(R). For the quarters ended March 31, 2000 and 2001, we recognized
$1.2 million and $92,000, respectively, of research and development grants and
contracts revenue that was included in the cumulative effect adjustment as of
January 1, 2000. The balance of the deferred revenue from this adjustment, $1.6
million, will be recognized in the future as we incur costs relating to
obtaining approval for Nyotran(R) from the FDA.

Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Reclassification

Certain reclassifications have been made to the prior year's financial
statements to be consistent with the presentation in the current year.

3. FEDERAL INCOME TAXES

At December 31, 2000, we had net operating loss ("NOL") carryforwards
for federal income tax purposes of approximately $130.6 million. The Tax Reform
Act of 1986 provided a limitation on the use of NOL and tax credit carryforwards
following certain ownership changes that could limit our ability to utilize
these NOLs and tax credits. Accordingly, our ability to utilize the above NOL
and tax credit carryforwards to reduce future taxable income and tax liabilities
may be limited. As a result of the merger with Triplex and API, a change in
control as defined by federal income tax law occurred, causing the use of these
carryforwards to be limited and possibly eliminated. Additionally, because
United States tax laws limit the time during which NOLs and the tax credit
carryforwards may be applied against future taxable income and tax liabilities,
we may not be able to take full advantage of our NOLs and tax credit
carryforwards for federal income tax purposes. The carryforwards will begin to
expire in 2001 if not otherwise used. Due to the possibility of not reaching a
level of profitability that will allow for the utilization of our deferred tax
assets, a valuation allowance has been established to offset these tax assets.
We have not made any federal income tax payments since inception.

4. SEVERANCE AGREEMENTS

In January 2001, we entered into severance agreements with all
employees who do not have employment contracts with us. Under such agreements,
all employees are entitled to at least three months severance if they are
terminated as a result of a reduction in staff, merger or acquisition or sale of
the Company, including the Merger with Antigenics. At March 31, 2001, there are
employment and severance agreements which could require severance payments of
$2.3 million relating to the salaries of current employees.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

OVERVIEW

We entered into an agreement and plan of merger dated as of April 23,
2001 (the "Merger") with Antigenics Inc. and its wholly owned merger subsidiary
pursuant to which we would become a wholly owned subsidiary of Antigenics in
exchange for shares of their common stock and contingent value rights to receive
additional shares of their common stock if ATRAGEN(R) for APL is approved by the
FDA by July 6, 2002 and we have not exceeded a certain amount in transaction
expenses. The Merger will be consummated if we receive approval by our
stockholders.

Since our inception in 1986, we have primarily devoted our resources to
fund research, drug discovery and development. We have been unprofitable to date
and expect to incur substantial operating losses for the next several years as
we expend our resources for product research and development, preclinical and
clinical testing and regulatory compliance. We have sustained losses of $122.5
million through March 31, 2001. Our research and development activities and
operations have been financed primarily through public and private offerings of
securities and, to a lesser extent, from revenues under research and development
grants and contracts. Our operating results have fluctuated significantly during
each quarter.

Three Month Periods Ended March 31, 2000 and 2001

In January 2001, we received a non-approval letter from the FDA for our
NDA amendment for ATRAGEN(R). Following this event, we reduced expenditures in
our development plans and activities. Additionally, we reduced the number of
full-time employees in January 2001 from 77 to 29. In January 2001, we recorded
severance of approximately $600,000 relating to the employees who were
terminated and substantially reduced our operating activities.

Revenues from research and development grants and contracts decreased
94% to $92,000 in 2001 from $1.5 million in 2000. This decrease was mainly due
to a decrease in 2001 of $1.1 million in revenue recognized relating to our
license agreement for Nyotran(R) with Abbott Laboratories ("Abbott").

Revenue Recognition

Interest income decreased 52% to $106,000 in 2001 from $221,000 in
2000. The decrease in interest income resulted from a decrease in the average
amount of funds available for investment during the first three months of 2001.

Research and development expenses decreased 64% to $2.1 million in 2001
from $5.8 million in 2000. In mid-January 2001, we substantially reduced the
number of employees in research and development. At the end of the first quarter
of 2001, there were 17 employees in research and development, compared to
approximately 63 at the end of the first quarter of 2000. Due to this reduction,
general expenses such as travel, postage and office supplies decreased in
addition to the following decreases:

o a decrease of $2.1 million in clinical trial costs relating
mainly to Nyotran(R) and ATRAGEN(R);

o a decrease of $210,000 in clinical and regulatory consultants
costs related to Nyotran(R) and ATRAGEN(R);

o a decrease of $404,000 in salary and payroll costs;

o a decrease of $554,000 in drug manufacturing and materials
costs relating mainly to ATRAGEN(R) and Annamycin; and

o a decrease of $154,000 in laboratory supplies, laboratory
equipment maintenance and outside laboratory testing.

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General and administrative expenses increased 44% to $1.0 million in
2001 from $699,000 in 2000. The increase in general and administrative expenses
resulted primarily from severance relating to the termination of the vice
president of business development and an increase in legal expenses as a result
of obtaining assistance relating to the FDA approval process for ATRAGEN(R).

Other income of $2,653,000 in the first quarter of 2000 represents a
gain on the sale of Targeted Genetics common stock, which had a carrying value
of zero.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, our primary source of cash has been from financing
activities, which have consisted primarily of sales of equity securities, and to
a lesser extent, from revenues under research and development agreements and
grants. We have raised an aggregate of approximately $98.8 million from the sale
of equity securities from inception through December 31, 2000. In July 1992, we
raised net proceeds of approximately $10.7 million in the initial public
offering of our common stock. In September 1993, we entered into a collaborative
agreement with Genzyme Corp. relating to the development and commercialization
of ATRAGEN(R), in which we received net proceeds of approximately $4.5 million
from the sale of common stock to Genzyme. In November 1993, we raised net
proceeds of approximately $11.5 million and in May 1996, we raised net proceeds
of approximately $32.1 million in public offerings of common stock. From October
1995 through December 31, 1998, we received aggregate net proceeds of
approximately $6.5 million from the exercise of certain warrants issued in our
1995 merger with API Acquisition Company, Inc. (formerly Oncologix, Inc.). In
November 1998, we entered into a license agreement with Abbott relating to
Nyotran(R), in which Abbott purchased 837,989 shares of common stock for $3.0
million. Through February 29, 2000 we received an additional $14.7 million in
up-front and milestone payments from Abbott, all of which are non-refundable. In
February 1999 and April 2000, we raised net proceeds of approximately $11.7
million and $7.3 million, respectively, in offerings of our common stock. In
November 2000, we entered into an agreement with Acqua Wellington North American
Equity Fund Ltd. for an equity financing agreement covering the sale of up to
$24 million of our common stock over a 28-month period ending in March 2003. We
have not raised any funds under this agreement and have no current intentions or
obligation to do so.

In December 2000, we entered into a license agreement with Sumitomo
Pharmaceuticals Co., Ltd. that gives us the exclusive right in the United States
to a particular class of DACH platinum compounds. Aroplatin(TM), one of our
products in clinical development, is a liposomal formulation of a novel platinum
compound from this class of drugs. Under this agreement, Sumitomo
Pharmaceuticals received a $500,000 up-front payment from us in 2001 (such
amount was expensed in the 2000 financial statements), and will receive
subsequent milestone payments based on regulatory filings, approval and sales of
Aroplatin(TM), and royalties on the sales of Aroplatin(TM) in the United States.
Except for the treatment of hepatoma, the license agreement gives us the
exclusive right to make, use, develop, import and sell Aroplatin(TM) in the
United States.

The majority of our development activities are committed on a
short-term, as-needed basis through contracts and purchase orders. These
arrangements can be changed based on our needs and development activities. We
have contracted with certain clinical research and other consulting
organizations to assist in conducting our clinical trials. The agreements
provide that we can terminate them at any time, should either our financial
situation, or the results of the studies, require it. Nonetheless, we intend to
continue to engage such services in the future.

Our primary use of cash to date has been in operating activities to
fund research and development, including preclinical studies and clinical trials
and general and administrative expenses. Cash of $8.8 million and $3.7 million
was used in operating activities during the first quarter of 2000 and 2001,
respectively. We had cash, cash-equivalents and long-term investments of $5.3
million as of March 31, 2001, consisting primarily of cash and money market
accounts, and United States government securities and investment grade
commercial paper.

We have experienced negative cash flows from operations since inception
and have funded our activities to date primarily from equity financings. We have
expended, and will continue to require, substantial funds to continue our

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development activities, including preclinical studies and clinical trials of our
products, and to commence sales and marketing efforts if FDA and other
regulatory approvals are obtained.

The majority of our clinical trials have reached the stage where we
have completed patient enrollment at their current phase. At the current time,
we are gathering clinical trial data for analysis. We anticipate reporting the
data at appropriate scientific meetings. Before we initiate any new clinical
trials, we will analyze each product's likelihood for approval, the cost of the
proposed clinical trial, cash available at such time and the inherent risk
profile. We anticipate these steps will assist us in maximizing shareholder
value.

We will continue to require substantial additional funds for our
operations. At March 31, 2001, we had $5.3 million in cash, cash equivalents and
investments. We believe that we can conserve our existing financial resources to
satisfy our capital and operating requirements until consummation of the Merger.
Our accountants have issued a qualified opinion on our consolidated financial
statements for the year ended December 31, 2000 indicating substantial doubt
about our ability to continue as a going concern. If the Merger with Antigenics
is not completed, we will have to pursue other sources of financing. Sources of
financing may not be available, or if available, will be dilutive or may have
adverse affect to the value of our shares. If we are not able to secure such
financing, we may have to close operations and/or seek legal protection from our
creditors.

We have experienced significant fluctuations in accounts payable and
accrued payroll, primarily as a result of our development activities. We
anticipate that the amounts expended for these items in the future will continue
to correspond with our development activities. We expect the volume of
development activities to decrease in 2001 and there will be a decrease in
outstanding payables and a decrease in our liquidity position.

We have typically obtained debt financing when necessary for equipment,
furniture and leasehold improvement requirements. In 1998, our capital
requirements increased with the move into new facilities. As a result, we
borrowed $1.4 million and $547,000 in 1998 and 1999, respectively, to finance
our requirements in this new facility. We expect that we will continue to incur
additional debt to meet our capital requirements from time to time in the
future, based on our financial resources and needs. We do not plan to make any
significant capital expenditures in 2001.

Our capital requirements will depend on many factors, including the
risk factors more completely described in our Form 10-K for the fiscal year
ended December 31, 2000. These factors include:

o ability to consummate the Merger;

o problems, delays, expenses and complications frequently
encountered by development stage companies;

o the progress of our research, development and clinical trial
programs;

o the extent and terms of any future collaborative research,
manufacturing, marketing or other funding arrangements;

o the costs and timing of seeking regulatory approvals of our
products;

o our ability to obtain regulatory approvals; o the success of
our sales and marketing programs;

o the costs of filing, prosecuting and defending and enforcing
any patent claims and other intellectual property rights; and

o changes in economic, regulatory or competitive conditions of
our planned business.

Estimates about the adequacy of funding for our activities are based on
certain assumptions, including the assumption that testing and regulatory
procedures relating to our products can be conducted at projected costs. There
can be no assurance that changes in our development plans, acquisitions, or
other events will not result in accelerated or unexpected expenditures.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Amended and Restated 1998 Stock Option Plan (Incorporated
by reference to Exhibit 99.1 to the April 10, 2001 Form
S-8)

10.2 Amended and Restated 1993 Non-Employee Director Stock
Option Plan, as amended (Incorporated by reference to
Exhibit 99.2 to the April 10, 2001 Form S-8)

10.3 First Amendment to Employment Agreement dated January 18,
2001 between Aronex Pharmaceuticals and Geoffrey F. Cox,
Ph.D. (Incorporated by reference to Exhibit 10.19 to Aronex
Pharmaceuticals' Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 (the "2000 Form 10-K")

10.4 First Amendment to Employment Agreement dated January 18,
2001 between Aronex Pharmaceuticals and Paul A. Cossum,
Ph.D. (Incorporated by reference to Exhibit 10.22 to the
2000 Form 10-K)

10.5 First Amendment to Employment Agreement dated January 18,
2001 between Aronex Pharmaceuticals and Terance A. Murnane
(Incorporated by reference to Exhibit 10.24 to the 2000
Form 10-K)

11.1 Statement regarding computation of per share earnings.

(b) Reports on Form 8-K

None

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SIGNATURES

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

ARONEX PHARMACEUTICALS, INC.

Dated: May 14, 2001 By: /s/ GEOFFREY F. COX
---------------------------------
Geoffrey F. Cox, Ph.D.
Chief Executive Officer and
Chairman of the Board

Dated: May 14, 2001 By: /s/ TERANCE A. MURNANE
---------------------------------
Terance A. Murnane
Controller
(Principal Financial and Accounting
Officer)

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INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

11.1 Statement regarding computation of per share earnings.